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ASSET PURCHASE AGREEMENT
by and among
SMARTALK TELESERVICES, INC.,
certain SUBSIDIARIES of SmarTalk TeleServices, Inc.
and
AT&T CORP.
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Dated as of
January 19, 1999
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TABLE OF CONTENTS
ARTICLE 1
Definitions
Page
Number
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Section 1.1 Specific Definitions .......................................... 2
Section 1.2 Other Terms ................................................... 16
Section 1.3 Knowledge Qualifiers .......................................... 16
ARTICLE 2
Sale of Assets; Closing
Section 2.1 Assets to Be Acquired ......................................... 16
Section 2.2 Excluded Assets ............................................... 18
Section 2.3 Assumption of Liabilities ..................................... 19
Section 2.4 No Other Liabilities Assumed .................................. 20
Section 2.5 Tax Treatment ................................................. 20
Section 2.6 Consideration ................................................. 21
Section 2.7 Time and Place of Closing ..................................... 21
Section 2.8 Designation of Affiliates by Buyer ............................ 21
ARTICLE 3
Representations and Warranties of Sellers
Section 3.1 Incorporation ................................................. 22
Section 3.2 Authorization ................................................. 22
Section 3.3 Financial Statements .......................................... 23
Section 3.4 Absence of Undisclosed Liabilities ............................ 24
Section 3.5 Assets ........................................................ 24
Section 3.6 Absence of Certain Changes .................................... 25
Section 3.7 Litigation; Orders ............................................ 28
Section 3.8 Intellectual Property ......................................... 28
Section 3.9 Licenses, Approvals, Other
Authorizations, Consents, Reports,
Etc ........................................................... 29
Section 3.10 Labor Matters ................................................ 30
Section 3.11 Compliance with Laws ......................................... 31
Section 3.12 Contracts .................................................... 31
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Page
Number
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Section 3.13 Real Property ................................................ 33
Section 3.14 Employee Benefit Plans and Related
Matters ...................................................... 34
Section 3.15 Customers .................................................... 35
Section 3.16 Product Warranties ........................................... 35
Section 3.17 Year 2000 Problems ........................................... 35
Section 3.18 Environmental and Safety Matters ............................. 36
Section 3.19 Fees and Expenses ............................................ 36
Section 3.20 Interested Party Transactions ................................ 37
Section 3.21 Fairness Opinion ............................................. 37
Section 3.22 Board Approval and Recommendation ............................ 37
Section 3.23 Applicability of State Takeover
Laws ......................................................... 37
Section 3.24 Disclosure ................................................... 37
ARTICLE 4
Representations and Warranties of Buyer
Section 4.1 Incorporation; Authorization; Etc ............................. 39
Section 4.2 Licenses, Approvals, Other
Authorizations, Consents, Reports,
Etc ........................................................... 39
Section 4.3 Brokers, Finders, Etc ......................................... 39
Section 4.4 Financing ..................................................... 39
ARTICLE 5
Covenants of Sellers and Buyer
Section 5.1 Conduct of Business ........................................... 40
Section 5.2 Access to Information ......................................... 43
Section 5.3 HSR Act Filings and Other ..................................... 45
Regulatory Approvals; Reasonable
Efforts; Notification; Consents ............................... 45
Section 5.4 Cure of Defaults .............................................. 48
Section 5.5 Bankruptcy Filings, Covenants and
Agreements .................................................... 48
Section 5.6 New Contracts ................................................. 49
Section 5.7 Sellers' Use of SmarTalk Name ................................. 49
Section 5.8 Public Announcements .......................................... 50
Section 5.9 Further Assurances ............................................ 50
Section 5.10 Company Board Determination .................................. 50
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Page
Number
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ARTICLE 6
Employers and Employee Benefits
Section 6.1 Employment of Sellers' Employees .............................. 50
Section 6.2 Employee Benefits Generally for
Transitioned Employees ........................................ 52
Section 6.3 Welfare and Fringe Benefit Plans .............................. 53
Section 6.4 Workers' Compensation ......................................... 53
Section 6.5 Employment Taxes .............................................. 54
Section 6.6 Stock Options and Stock Plans ................................. 54
ARTICLE 7
Tax Matters
Section 7.1 Tax Representations ........................................... 55
Section 7.2 Tax Matters ................................................... 55
ARTICLE 8
Conditions of Buyer's Obligation to Close
Section 8.1 Representations, Warranties and
Covenants of Sellers .......................................... 56
Section 8.2 Filings; Consents; Waiting Periods ............................ 56
Section 8.3 No Material Adverse Effect .................................... 57
Section 8.4 No Injunction ................................................. 57
Section 8.5 Legal Opinion ................................................. 57
Section 8.6 Bankruptcy Court Related Conditions ........................... 57
Section 8.7 Assumed Contracts ............................................. 58
Section 8.8 Minimum Purchase Price ........................................ 58
ARTICLE 9
Conditions of Sellers' Obligation to Close
Section 9.1 Representations, Warranties and
Covenants of Buyer ............................................ 59
Section 9.2 Filings; Consents; Waiting Periods ............................ 59
Section 9.3 No Injunction ................................................. 59
Section 9.4 Bankruptcy Court Approval ..................................... 59
Section 9.5 Minimum Purchase Price ........................................ 59
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Page
Number
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ARTICLE 10
Survival; Indemnification
Section 10.1 Indemnification by Sellers ................................... 60
Section 10.2 Indemnification by Buyer ..................................... 61
Section 10.3 Losses Net of Insurance, Etc ................................. 61
Section 10.4 Termination of Indemnification ............................... 61
Section 10.5 Indemnification Procedures ................................... 62
Section 10.6 Indemnity Payments ........................................... 64
ARTICLE 11
Deliveries at Closing
Section 11.1 Sellers' Deliveries at Closing ............................... 64
Section 11.2 Buyer's Deliveries at Closing ................................ 65
Section 11.3 Required Documents ........................................... 66
ARTICLE 12
Termination
Section 12.1 Termination .................................................. 66
Section 12.2 Procedure and Effect of Termination .......................... 68
ARTICLE 13
Purchase Price Adjustments
Section 13.1 Estimated Purchase Price Adjustment .......................... 68
Section 13.2 Post-Closing Purchase Price
Adjustment ................................................... 69
ARTICLE 14
Miscellaneous
Section 14.1 Survival of Representations and
Warranties, Etc .............................................. 71
Section 14.2 Survival of Covenants ........................................ 71
Section 14.3 Higher and Better Offers ..................................... 71
Section 14.4 Bankruptcy Court Approval .................................... 72
Section 14.5 Company as Agent and Representative .......................... 72
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Page
Number
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Section 14.6 Notices ..................................................... 72
Section 14.7 Amendments; No Waivers ...................................... 74
Section 14.8 Successors and Assigns ...................................... 74
Section 14.9 Entire Agreement; No Third Party
Beneficiaries ............................................... 74
Section 14.10 Counterparts ................................................ 74
Section 14.11 Interpretation; Absence of
Presumption ................................................. 75
Section 14.12 Severability ................................................ 75
Section 14.13 Remedies Cumulative ......................................... 75
Section 14.14 Specific Performance ........................................ 75
Section 14.15 Governing Law ............................................... 75
Section 14.16 Arbitration ................................................. 76
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EXHIBITS
Exhibit 1 Letter Agreement
Exhibit 2 DIP Credit Agreement
Exhibit 2.6 Form of Holdback Note
Exhibit 5.5(a) Forms of Bankruptcy Court Petitions and
Filings:
Interim Financing Order
Final Financing Order
Sale Procedures Order
Exhibit 8.6 Form of Bankruptcy Court Approval Order
Exhibit 12.1(i) Third Quarter Performance Baseline
Exhibit 13.1 Purchase Price Adjustment Computation
Procedures
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SCHEDULES
Schedule 1 Additional Signatories
Schedule 2 Pending Litigation
Schedule 2.1(n) Retained Guarantees, Warranties, Indemnities
Schedule 2.1(o) Retained Rights to Cause of Action, Lawsuits, Judgments,
Claims and Demands
Schedule 2.1(p) Insurance Policies
Schedule 2.2 Excluded Assets
Schedule 2.3(e) SSB Engagement Letter
Schedule 2.4 Certain Excluded Liabilities
Schedule 3.1(a) Deficiencies in Business Licenses, Qualifications and
Good Standing Certification
Schedule 3.1(b) Subsidiaries and Joint Ventures
Schedule 3.2 Consents
Schedule 3.3 Deviations from GAAP; Historically Reflected Assets and
Liabilities
Schedule 3.4 Undisclosed Liabilities
Schedule 3.5 Encumbrances on Assets
Schedule 3.6 Certain Changes
Schedule 3.7 Litigation
Schedule 3.8(a) Intellectual Property
Schedule 3.8(d) Due Registration of Intellectual Property
Schedule 3.9(a)(i) FCC Licenses
Schedule 3.9(a)(ii) Other Licenses
Schedule 3.9(b)(i) FCC Tariffs
Schedule 3.9(b)(ii) Other Tariffs
Schedule 3.9(b)(iii) Services Offered Without Tariffs
Schedule 3.9(d) Telecommunications Facilities
Schedule 3.10 Labor Disputes
Schedule 3.11 Compliance with Laws
Schedule 3.12 Contracts
Schedule 3.12(c) Notices, Defaults and Consents
Schedule 3.13(b)(i) Leased Real Estate
Schedule 3.13(b)(ii) Compliance with Real Estate Laws
Schedule 3.13(b)(iii) Encumbrances on Leased Real Estate
Schedule 3.15 Customers
Schedule 3.16 Product Warranties
Schedule 3.20 Interested Parties
Schedule 4.2 Governmental Filings and Consents by Buyer
Schedule 5.1 Conduct of Business
Schedule 6.1(b) Employees
Schedule 6.1(d) Severance Benefits for Transitioned Employees Who are
Regular Employees
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THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of
January 19, 1999, is by and among SmarTalk TeleServices, Inc., a California
corporation (the "Company"), the subsidiaries of the Company set forth on the
signature page hereto and in Schedule 1 (collectively, with the Company,
"Sellers"), and AT&T Corp., a New York corporation (together with any designated
affiliates, "Buyer").
WHEREAS, the Company, directly and through its subsidiaries,
is in the business of developing, manufacturing, distributing, servicing,
marketing, selling and providing prepaid telecommunications products and
services, including prepaid local and long-distance calling cards and prepaid
wireless telephones and services (the "Business");
WHEREAS, Sellers wish to sell to Buyer substantially all of
the assets, business and goodwill of the Business, and Buyer wishes to purchase
such assets, properties, business and goodwill and to assume those liabilities
relating to the Business as are specified herein, excluding all Excluded
Liabilities (as defined herein), all upon the terms and subject to the
conditions set forth herein;
WHEREAS, the senior management and the Board of Directors of
the Company have determined that, in light of the Company's deteriorating
financial and operating condition, it is necessary and urgent that the Company
and its subsidiaries file petitions for relief under the Bankruptcy Code (as
defined herein), and that an immediate sale of the Assets (as defined herein)
pursuant to Section 363 of the Bankruptcy Code is necessary and urgent in order
to preserve the value ultimately available to the creditors and shareholders of
the Company and its subsidiaries;
WHEREAS, concurrently herewith each Filing Seller (as defined
herein) is filing with the Bankruptcy Court a petition for relief under the
Section 301 of the Bankruptcy Code and a motion for authorization to sell the
Assets to Buyer pursuant to Section 363(b) of the Bankruptcy Code;
WHEREAS, Buyer and Sellers have entered into a letter
agreement dated as of the date hereof (the "Letter Agreement"), providing among
other things, for payments to Buyer in certain circumstances;
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, the parties agree
as follows:
ARTICLE 1
Definitions
Section 1.1. Specific Definitions. As used in this Agreement the following terms
shall have the following respective meanings:
"Accounting Firm" has the meaning set forth in 13.2(c).
"Action" means any action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority of any
nature, civil, criminal, regulatory or otherwise, in law or in equity.
"Adjustment Consent" has the meaning set forth in Exhibit
13.1.
"Affiliate" (and, with a correlative meaning, "affiliated")
means, with respect to any person, any direct or indirect subsidiary of such
person, and any other person that directly, or through one or more
intermediaries, controls or is controlled by or is under common control with
such first person, and, if such a person is an individual, any member of the
immediate family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more members
of such immediate family and any person who is controlled by any such member or
trust. As used in this definition, "control" (including, with correlative
meanings, "controlled by" and "under common control with") means possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
"Agreement" has the meaning set forth in the first paragraph
hereof.
"Allocation" has the meaning set forth in Section 2.5.
"Antitrust Laws" means and includes the ▇▇▇▇▇▇▇ Act, as
amended, the ▇▇▇▇▇▇▇ Act, as amended, the HSR Act, the Federal Trade Commission
Act, as amended, and all other federal, state, foreign and multinational
(including European Community) statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines, and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade.
"Applicable Law" means all applicable provisions of all (a)
constitutions, treaties, statutes, laws (including the common law), rules,
regulations, ordinances, codes or orders of any Governmental Authority, (b)
Governmental Approvals and (c) orders, decisions, writs, injunctions, judgments,
awards and decrees of or agreements with any Governmental Authority.
"Assets" has the meaning set forth in Section 2.1.
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"Asset Purchase" means the consummation of the transactions
described in Section 2.1.
"Assignment and Assumption Agreement" means a ▇▇▇▇ of Sale,
Assignment and Assumption Agreement in such form as may be agreed to by Buyer
and the Company.
"Associate" or "associate" has the meaning ascribed to it in
Rule 405 promulgated under the Securities Act.
"Assumed Contracts" means, except as otherwise indicated on
Schedule 2.2, every (1) Customer Agreement, (2) Contract that is of the type
referred to in clauses (ii), (iii), (iv), (vi), (ix) and (x) of Section 3.12(a)
and is set forth and indicated as such on Schedule 3.12(a), (3) Important New
Contract for which an Important New Contract Consent is received in accordance
with Section 5.6, and (4) executory agreement, contract, commitment and other
instrument and arrangement (whether written or oral) to which any Seller or any
Affiliate is a party or by which it is bound or affected in connection with or
Related to the Business that (x) is not an Important New Contract and (y) is not
required to be disclosed on Schedule 3.12 pursuant to clauses (ii), (iii), (iv)
and (vi) of Section 3.12(a) solely because of the minimum dollar values set
forth in such clauses, as applicable.
"Assumed Intellectual Property" means any Intellectual
Property, and shall include the name "SmarTalk," all names, marks, trade names,
trademarks, trade dress, and service marks, or rights to use such, incorporating
the name "SmarTalk," and any logos or representations based thereon, derived
therefrom or used in conjunction therewith.
"Assumed Leases" has the meaning set forth in Section 3.13(b).
"Assumed Liabilities" has the meaning set forth in Section
2.3.
"Audited 1998 Financial Statements" has the meaning set forth
in Section 5.11.
"Balance Sheet" means the balance sheet as at September 30,
1998 included in the Recent 10-Q.
"Balance Sheet Date" means September 30, 1998.
"Bankruptcy Cases" has the meaning set forth in Section
5.5(a).
"Bankruptcy Code" means Title 11 of the United States Code, as
amended.
"Bankruptcy Court" means the United States Bankruptcy Court
for the District of Delaware or any other court having jurisdiction over
Bankruptcy Cases from time to time.
"Bankruptcy Court Approval" has the meaning set forth in
Section 8.6(a).
"Bankruptcy Filings" has the meaning set forth in Section
5.5(a).
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"Bankruptcy Plan Confirmation Date" means the date that the
order of the Bankruptcy Court confirming a plan of reorganization for the
Sellers in accordance with Chapter 11 of the Bankruptcy Code becomes a Final
Order.
"Business" has the meaning set forth in the recitals hereto.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close. Any event the scheduled occurrence of which would fall on a day
that is not a Business Day shall be deferred until the next succeeding Business
Day.
"Buyer" has the meaning set forth in the first paragraph
hereof.
"Buyer Indemnitees" has the meaning set forth in Section 10.1.
"Buyer Minimum Amount" means the Purchase Price (prior to any
adjustment pursuant to Article 13) minus $70,000,000.
"Buyer's Welfare Plans" has the meaning set forth in Section
6.3(a).
"Cardinal/CTN Service" means the call processing service for
Sellers' Canadian traffic which accounted for approximately 13,662,300 of the
decremented minutes processed in the third fiscal quarter of 1998.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. ss. 9601 et seq.
"CGCL" has the meaning set forth in Section 3.23.
"Claims" has the meaning set forth in Section 2.2(d).
"Closing" has the meaning set forth in Section 2.7.
"Closing Balance Sheet" has the meaning set forth in Section
13.2(b).
"Closing Cash Flow Statement" has the meaning set forth in
Section 13.2(b).
"Closing Date" means the date on which the Closing occurs.
"Closing Minutes and Revenues Statement" has the meaning set
forth in Section 13.2(b).
"Closing Statements" has the meaning set forth in 13.2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
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"Communications Laws" means the Communications Act of 1934, as
amended, the Telecommunications act of 1996, as amended, and, in each case, the
rules, precedents and policies of the FCC promulgated thereunder.
"Company" has the meaning set forth in the first paragraph
hereof.
"Company Board Determination" has the meaning set forth in
Section 3.22.
"Company Option" means every option, warrant or similar right
to purchase Company Shares (or securities or debt instruments convertible into
Company Shares) issued or granted by the Company or any of its subsidiaries,
including, without limitation, Company Plan Options.
"Company Plan Options" has the meaning set forth in Section
6.6.
"Company Shares" means shares of common stock, without par
value, of the Company.
"Confidentiality Agreement" has the meaning set forth in
Section 14.9(a).
"Conquest Platform" means the call processing platform located
in Columbus, Ohio owned and operated by Sellers on which approximately
151,320,181 minutes were processed in the third fiscal quarter of 1998.
"Consent" means any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice to,
any person, including but not limited to any Governmental Authority.
"Consultant" means an individual or entity performing services
for any Seller or any of their Affiliates as a consultant or independent
contractor.
"Contracts" has the meaning set forth in Section 3.12(a).
"Current Assets" has the meaning set forth in Exhibit 13.1.
"Current Liabilities" has the meaning set forth in Exhibit
13.1.
"Customer Agreements" means any written or oral contract or
agreement pursuant to which any Seller provides or sells products or services of
the Business, other than, unless an Important New Contract Consent is received
with respect thereto, any such contract or agreement which would also be an
Important New Contract.
"Decremented Minutes" means the sum of (A) US Equivalent
Minutes for the Long Distance Segment from the GTI Platform, Conquest Platform,
West/Voice Choice and Cardinal/CTN Service and (B) Link/ODC Decremented Unit
Equivalents, but specifically excludes any amounts relating to the following
relationships or Customer Agreements: (i) New
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Media Pass-Through, oral agreement with West Teleservices described in Schedule
3.12 and the MCI Services Agreement; and (ii) any new Customer Agreements
entered into between the date hereof and Closing.
"DIP Credit Agreement" means the credit agreement and related
documentation set forth as Exhibit 2.
"Disclosure" has the meaning set forth in Section 3.24.
"Domestic Corporation" has the meaning set forth in Section
7.2(b).
"EBITDA" means earnings before interest and taxes plus
depreciation and amortization determined in accordance with GAAP consistently
applied, except that it shall exclude any accrual reversals and shall be net of
any marketing development fund, co-op fund or advertising or similar retailer
incentive capitalized for reporting purposes pursuant to GAAP consistently
applied (i.e., as if any such capitalized amounts had been fully expensed in the
relevant period).
"Effective Time of Employment" has the meaning set forth in
Section 6.1(b).
"Employee" means any person employed by Sellers, whether in a
full-time, part-time, or temporary capacity, in the operation of the Business
pursuant to any contract, agreement or other arrangement.
"Employee Benefit Plan" means any employee benefit plan,
program, policy, practices, or other arrangement providing benefits to any
current or former employee, officer or director of the Company or any of its
subsidiaries or any beneficiary or dependent thereof that is sponsored or
maintained by the Company or any of its subsidiaries or to which the Company or
any of its subsidiaries contributes or is obligated to contribute, whether or
not written, including without limitation any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA, any employee pension benefit plan
within the meaning of Section 3(2) of ERISA (whether or not such plan is subject
to ERISA) and any bonus, incentive, deferred compensation, vacation, stock
purchase, stock option, severance, employment, change of control or fringe
benefit plan, program or agreement.
"Encumbrances" means mortgages, liens, encumbrances,
restrictions upon voting or transfer, security interests, covenants, conditions,
restrictions, claims, charges, options, rights of first refusal, rights of use
or occupancy or other legal or equitable encumbrances and any other matters
affecting title (including, in the case of real property, rights-of-way,
easements and encroachments) or any other interest in property.
"Environmental Laws" means all Applicable Laws relating to the
protection of the environment, to human health and safety, or to any emission,
discharge, generation, processing, storage, holding, abatement, existence,
Release, threatened release or transportation of any Hazardous Substances,
including (a) CERCLA, the Resource Conservation and Recovery Act, and the
Occupational Safety and Health Act, (b) all other requirements pertaining to
reporting,
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licensing, permitting, investigation or remediation of emissions, discharges,
Releases or threatened Releases of Hazardous Substances into the air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, sale, treatment, receipt, storage, disposal, transport or
handling of Hazardous Substances, and (c) all other requirements pertaining to
the protection of the health and safety of employees or the public.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA that includes the first entity, trade or business, or that is a member
of the same "controlled group" as the first entity, trade or business pursuant
to Section 4001(a)(14) of ERISA.
"Estimated Adjustments" has the meaning set forth in Exhibit
13.1.
"Estimated Purchase Price Adjustment" has the meaning set
forth in Section 13.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section
2.4.
"Excluded Taxes" means (a) any Nonincome Taxes relating to the
Business, the Assets or the Assumed Liabilities for any Pre-Closing Tax Period
and (b) any Income Taxes of any of the Sellers or any of their respective
Affiliates for any period. For purposes of this Agreement, in the case of any
Straddle Period, (i) Property Taxes for the Pre-Closing Tax Period shall be
equal to the amount of such Property Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of days during
the Straddle Period that are in the Pre-Closing Tax Period and the denominator
of which is the number of days in the entire Straddle Period, and (ii) Taxes
(other than Property Taxes) for the Pre-Closing Tax Period shall be computed as
if such taxable period ended as of the close of business on the Closing Date.
"FCC" has the meaning set forth in Section 3.9(a).
"FCC Section 214 Authority" means the authorization granted by
the FCC authorizing the Company to resell international services.
"FICA" has the meaning set forth in Section 6.5(a).
"Filing Date" means January 19, 1999.
"Filing Sellers" means the Sellers other than, to the extent
it is impracticable or inadvisable to include such entities in the Bankruptcy
Cases, the Foreign Subs.
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"Foreign Subs" means Canada Telecom Network Inc., ConQuest
Operator Services (U.K.) Ltd., CTN Interactive, Inc., SmarTalk Canada Inc., and
SmarTalk TeleServices (U.K.) Ltd.
"Final Determination" means (a) in respect of U.S. Federal
income taxes, a "determination" as defined in Section 1313(a) of the Code or the
execution of an IRS Form 870-AD, and (b) in respect of Taxes other than U.S.
Federal income taxes, any final determination of liability in respect of a Tax
that, under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise (including the expiration of a
statute of limitations or a period for the filing of claims for refunds, amended
returns or appeals from adverse determinations).
"Final Financing Order" means a final financing order
substantially in the form set forth in Exhibit 5.5(a)
"Final Order" means an order or judgment of the Bankruptcy
Court (a) that is not the subject of a pending appeal, petition for certiorari,
or other proceedings for review, rehearing, or reargument, (b) that has not been
reversed, stayed, modified or amended, and (c) respecting which the time to
appeal, to petition for certiorari or to seek review, rehearing or reargument
shall have expired, as a result of which such order shall have become final in
accordance with Rule 8002 of the Federal Rules of Bankruptcy Procedure and other
Applicable Laws.
"FIRPTA Affidavit" has the meaning set forth in Section
7.2(b).
"FUTA" has the meaning set forth in Section 6.5(a).
"GAAP" has the meaning set forth in Section 3.3(b).
"Governmental Approval" means any Consent of, with or to any
Governmental Authority.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including any government authority, agency, department, board,
commission or instrumentality of the United States, any state of the United
States or any political subdivision thereof, and any tribunal or arbitrator(s)
of competent jurisdiction, and any self-regulatory organization, and shall
include, without limitation, the Bankruptcy Court.
"GTI Platform" means the call processing platform located in
Orlando, Florida owned and operated by Sellers on which approximately 29,617,737
decremented minutes were processed in the third fiscal quarter of 1998.
"Hazardous Substances" means any substance that: (a) is or
contains asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum or petroleum derived
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substances or wastes, radon gas or related materials; (b) requires
investigation, removal, containment or remediation under any Environmental Law,
or is defined, listed or identified as a "hazardous waste" or "hazardous
substance" (or any similar designation) thereunder; or (c) is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is regulated by any Governmental Authority or
Environmental Law.
"Holdback Amount" has the meaning set forth in Section 2.6(b).
"Holdback Note" has the meaning set forth in Section 2.6(b).
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Impaired Customer Adjustment" has the meaning set forth in
Exhibit 13.1.
"Important New Contract" has the meaning set forth in Section
5.6(b).
"Important New Contract Consent" has the meaning set forth in
Section 5.6(b).
"Inactive Employee" means an Employee who is not actively at
work due to approved leave of absence, short-term disability leave or military
leave.
"Income Tax" means any franchise Tax and any Tax based on or
measured by gross or net income or profits (including any and all fines,
penalties and additions attributable to or otherwise imposed on or with respect
to any such Tax).
"Intellectual Property" means such of the following as are
Related to the Business or otherwise necessary for the ordinary conduct of the
Business: all domestic and foreign patents, industrial designs, mask works,
copyrights, names, marks, trade names, trademarks, trade dress, service marks
(whether or not registered) and registrations, and applications for any of the
foregoing (together with the goodwill associated with such trade names,
trademarks and service marks), trade secrets, inventions and other proprietary
information and licenses from third persons granting the right to use any of the
foregoing.
"Interim Financing Order" means an interim financing order
substantially in the form set forth in Exhibit 5.5(a).
"Inventories" shall have the meaning set forth in Section
2.1(c).
"IRS" means the United States Internal Revenue Service.
"Joint Venture Documents" has the meaning set forth in Section
3.1(a).
"Joint Ventures" has the meaning set forth in Section 3.1(a).
"Leased Real Estate" has the meaning set forth in Section
3.13(b).
-9-
"Letter Agreement" has the meaning set forth in the recitals
hereto.
"Liabilities" means any and all debts, losses, liabilities,
claims (including claims as defined in the Bankruptcy Code), damages, fines,
costs, royalties, proceedings, deficiencies or obligations (including those
arising out of any Action, such as any settlement or compromise thereof or
judgment or award therein), of any nature, whether known or unknown, absolute,
accrued, contingent or otherwise and whether due or to become due, and whether
or not resulting from third-party claims, and any out-of-pocket costs and
expenses (including attorneys', accountants', or other fees and expenses
incurred in defending any Action or in investigating any of the same or in
asserting any rights hereunder).
"Licenses" has the meaning set forth in Section 3.9(a).
"Link/ODC Decremented Unit Equivalents" means Link/ODC Revenue
for the relevant period divided by 0.125.
"Link/ODC Revenue" means 63% of the Retail Decremented Dollars
(other than Retail Decremented Dollars relating to "Campaign 180", for which
25%, rather than 63%, shall apply).
"Link/ODC Service" means the call processing platform located
in Rochester, New York owned and operated by Sellers on which approximately
28,000,000 decremented minutes were processed in the third fiscal quarter of
1998.
"Long Distance Segment" means the portion of the Business and
revenues of the Business relating to or derived from pre-paid long distance
telecommunications services.
"Loss" has the meaning set forth in Section 10.3.
"Lost Customer Adjustment" has the meaning set forth in
Exhibit 13.1.
"Material Adverse Effect" means any effect, event, occurrence
or state of facts that, individually or aggregated with other effects, events,
occurrences or states of facts, (a) is materially adverse to or materially
impairs (i) the value, condition (financial or otherwise), prospects, business,
assets, Liabilities or results of operations of the Business taken as a whole or
(ii) the ability of any party hereto to perform its obligations under this
Agreement or (b) prevents or materially delays consummation of any of the
transactions contemplated by this Agreement. Without limiting the foregoing, any
effect, event or occurrence that, individually or aggregated with other effects,
events or occurrences, would reasonably be expected to (i) reduce quarterly
Service Revenues by more than $5,500,000, (ii) reduce quarterly Decremented
Minutes by more than 36,500,000 minutes, (iii) reduce net value of the assets to
be included in the Assets by more than $40,000,000, or (iv) otherwise have an
adverse impact on the Business of more than $40,000,000, shall be deemed to be a
Material Adverse Effect; provided that nothing in this sentence shall create any
implication that any effect, event or occurrence having and adverse effect of
less than $40,000,000 is or is not material.
-10-
"Maximum Estimated Adjustment" means $45,000,000.
"MCI Services Agreement" means that certain Services Agreement
between MCI Telecommunications Corporation and ConQuest Telecommunications
Services dated July 15, 1996 as amended by Amendment Number Two, dated September
1, 1997.
"Minimum Amount" means the Purchase Price (prior to any
adjustment pursuant to Article 13) minus $45,000,000.
"Multiemployer Plan" means any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a plan that has two or more
contributing sponsors at least two of whom are not under common control, within
the meaning of Section 4063 of ERISA.
"Net Trade Accounts Receivable" means Trade Accounts
Receivable minus the Trade Accounts Receivable Reserves.
"New Media Pass-Through" means the arrangement pursuant to the
Business serves as an intermediary for call traffic of New Media
Telecommuncations, Inc. and its Affiliates but for which traffic New Media is
directly responsible for the cost of the carrier service; provided, however,
that the term "New Media Pass-Through" shall not include sales to New Media
Telecommunications, Inc. and its Affiliates under any wholesale and prepaid
calling card sales agreements between New Media Telecommuncations, Inc. and/or
its Affiliates and the Company or its subsidiaries.
"New Media Shares" has the meaning set forth in Section
2.1(s).
"New Millennium Letter Agreement" means that certain letter
agreement, dated as of January 19, 1999, by and among New Millennium ConQuest
Service Corporation (for itself and its affiliates) and the Company providing
for use of and access to leased space for telecommunications facilities at the
▇▇▇▇▇▇ Building 180 East Broad Street, Columbus, Ohio.
"Non-Bankruptcy Asset" has the meaning set forth in Section
5.3(h).
"Nonincome Tax" means any Tax (other than an Income Tax),
including any and all fines, penalties and additions attributable to or
otherwise imposed on or with respect to any such Tax.
"Nonqualified Stock Option Plan" means the Company's 1996
Nonqualified Stock Option Plan, as filed as Exhibit 10.10 to the Company's
Registration Statement on Form S-1, registration number 333-10391, filed with
the SEC on September 26, 1996.
"Notice of Disagreement" has the meaning set forth in Section
13.2(b).
"OSHA" has the meaning set forth in Section 3.18.
-11-
"Pending Litigation" means the Actions set forth in Schedule
2.
"Person" or "person" means and includes natural persons,
corporations, limited partnerships, limited liability companies, general
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and all Governmental Authorities.
"Plan of Correction" has the meaning set forth in Section
3.17(a).
"Pre-Closing Tax Period" means any tax period (or portion
thereof) ending on or before the Closing Date.
"Prepaid Calling Cards" means all cards sold or distributed by
Sellers prior to the Closing Date entitling the holder of such card to make
local, long distance or international telephone calls having an aggregate
duration not in excess of a pre-existing amount of calling time (without further
payment), but excluding any such cards first activated (or last recharged in the
case of cards for which a recharge was purchased) earlier than two years prior
to the Closing Date.
"Prepaid Minutes Liability" has the meaning set forth in
Section 2.3(d).
"Prepaid Wireless Obligations" means obligations to provide
prepaid units of wireless calling time to any end-use customer in connection
with products, utilizing the Company's Debit Cellular Network switch-based
platform, sold or distributed by Sellers prior to the Closing Date, but
excluding any such obligations for prepaid cards or prepaid phones first
activated earlier than three months prior to the Closing Date.
"Prior Service" has the meaning set forth in Section 6.2(b).
"Projected Disclosure" has the meaning set forth in Section
3.24.
"Projections" has the meaning set forth in Section 3.3(d).
"Property Taxes" means real, personal and intangible ad
valorem property taxes.
"Purchase Price" means $195,000,000.00 minus the SSB Payment
Obligation, as adjusted pursuant to Article 13.
"Purchase Price Adjustment" has the meaning set forth in
Exhibit 13.1.
"Purchase Price Adjustment Statement" has the meaning set
forth in Section 13.2(a).
"Recent 10-Q" means the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998, as filed with the SEC on November
16, 1998.
-12-
"Related to the Business" means relating to, used in or held
for use in connection with or otherwise necessary to the Business as conducted
immediately prior to the date hereof.
"Remaining Estate" means an office suitable for two persons,
located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, or at any other
location in close proximity to the principal place of the Business, for use by
the Sellers' Representative from Closing until the Bankruptcy Plan Confirmation
Date. Additionally, the office shall include such office equipment, furniture,
computers and other incidental tangible personal property as Seller's
Representative shall reasonably require.
"Retail Decremented Dollars" means, for each Customer
Agreement, Decremented Minutes of Prepaid Calling Cards sold to the customer
under such Customer Agreement multiplied by the dollar face value (to the
consumer/end-user) per minute of long-distance calling time on all of such
Prepaid Calling Cards.
"Return" means any return, statement, report or form,
including in each case any amendments thereto, required to be filed with any
Taxing Authority by or with respect to Taxes of the Company.
"Sale Procedures Order" means an order seeking approval of a
sale under Section 363 of the Bankruptcy Code to occur not later than 30 days
from the Filing Date and establishing procedures for such sale, substantially in
the form set forth in Exhibit 5.5(a).
"SEC" means the United States Securities and Exchange
Commission.
"SEC Documents" has the meaning set forth in Section 3.3(a).
"Section 1060 Forms" has the meaning specified in Section 2.5.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Sellers" has the meaning set forth in the first paragraph
hereof.
"Seller Indemnitees" has the meaning set forth in Section
10.2.
"Sellers' Representative" means the Chief Executive Officer,
the Chief Financial Officer, the General Counsel and the Directors of the
Company or such person(s) charged by the Bankruptcy Court with administering
Sellers' estate from the Closing until such time as the Bankruptcy Cases are
closed.
"Service Revenue" or "Service Revenues" means Wholesale
Service Revenue for the Long Distance Segment from the GTI Platform, Conquest
Platform, West/Voice Choice, Cardinal/CTN Service and Link/ODC Service but
specifically excludes any amounts relating to the following relationships or
Customer Agreements: (i) New Media Pass-Through, oral agreement with West
Teleservices described in Schedule 3.12 and the MCI Services Agreement; and (ii)
any Important New Contracts entered into between the date hereof and Closing.
-13-
"SSB Payment Obligation" has the meaning set forth in Section
2.3(e).
"Stock Incentive Plan" means the Company's 1996 Stock
Incentive Plan, as filed as Exhibit 10.10 to the Company's Registration
Statement on Form S-1, registration number 333-10391, filed with the SEC on
September 26, 1996.
"Straddle Period" means any period beginning prior to and
ending after the Closing Date.
"Subsidiary" or "subsidiary" means, with respect to any
Person, any corporation, limited liability company, joint venture or partnership
of which such Person beneficially owns, either directly or through its
subsidiaries, (a) more than 30% of (i) the total combined voting power of all
classes of voting securities of such entity, (ii) the total combined equity
interests therein, or (iii) the capital or profit interests therein, in the case
of a partnership; or (b) otherwise has the power to vote or direct the voting of
sufficient securities to elect a majority of the board of directors or similar
governing body of such entity.
"Supply Agreements" means any written or oral contract or
agreement pursuant to which any Seller purchases or acquires products or
services used in the Business (other than office equipment, office supplies and
furniture), other than, unless an Important New Contract Consent is received
with respect thereto, any such agreement which would also be an Important New
Contract.
"Systems" means hardware, firmware or software systems
associated with information processing and delivery, billing, payables,
management and tracking, operations or services (e.g., security and alarms,
elevators, communications, and HVAC), including, without limitation, equipment
containing embedded microchips, operated by, provided to or otherwise reasonably
necessary to the business or operations of the Company and its subsidiaries.
"Tariffs" has the meaning set forth in Section 3.9(b).
"Tax" means all income, profits, franchise, gross receipts,
capital, net worth, sales, use, withholding, turnover, value added, ad valorem,
registration, general business, employment, social security, disability,
occupation, real property, personal property (tangible and intangible), stamp,
transfer, conveyance, severance, production, excise and other taxes,
withholdings, duties, levies, imposts and other similar charges and assessments
(including any and all fines, penalties and additions attributable to or
otherwise imposed on or with respect to any such taxes, charges, fees, levies or
other assessments, and interest thereon) imposed by or on behalf of any Taxing
Authority.
"Taxing Authority" means any governmental or regulatory
authority, body or instrumentality exercising any authority to impose, regulate
or administer the imposition of Taxes.
"Telecommunications Facilities" means telecommunications
equipment and facilities used in, in connection with or by the Business to
provide telecommunications service,
-14-
and includes software integral to such equipment and facilities (including
upgrades). For purposes of this definition, telecommunications,
telecommunications equipment, and telecommunications service have the meanings
given such terms in the Communications Laws.
"Third Party Claim" has the meaning set forth in Section 10.5.
"Three Month Measurement Period" has the meaning set forth in
Exhibit 13.1.
"Trade Accounts Receivable" means trade accounts receivable
determined in accordance with GAAP applied consistently with the balance sheet
included in the Recent 10-Q (except to the extent such balance sheet was not
prepared in accordance with GAAP, in which case GAAP shall control).
"Trade Accounts Receivable Reserves" has the meaning set forth
in Exhibit 13.1.
"Transfer Taxes" has the meaning set forth in Section 7.2(a).
"Transitioned Employees" has the meaning set forth in Section
6.1(b).
"US Equivalent Minutes" means the base measuring unit for
calculating by which a Prepaid Calling Card is decremented for usage on prepaid
long distance platforms and services of the Business. For example, one minute of
long distance service in the United States equals one US Equivalent Minute; one
minute of long distance service from the United States to India equals
approximately 5.7 U.S. Equivalent Minutes.
"USTs" has the meaning set forth in Section 3.18.
"Welfare Benefits" means any and all benefits under any
"employee welfare benefit plan" within the meaning of Section 3(1) of ERISA.
"West/Voice Choice" means the Voice Choice platform located in
San Francisco and the call processing services provided to Sellers by West
Teleservices which together accounted for approximately 20,599,430 of the
decremented minutes processed in the third fiscal quarter of 1998.
"Wholesale Service Revenue" means, for each Customer
Agreement, Decremented Minutes of Prepaid Calling Cards sold to the customer
under such Customer Agreement multiplied by Flag's applicable contracted
wholesale rate specific to the usage under such Customer Agreement.
"Wholesale Margin" means Retail Decremented Dollars for the
relevant period less Wholesale Service Revenue for the same period.
"Withdrawal Liability" means liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as those terms are defined in Part I of Subtitle E of Title IV of ERISA.
-15-
"Working Capital" has the meaning set forth on Exhibit 13.1.
"Working Capital Adjustment" has the meaning set forth in
Exhibit 13.1.
"Year 2000 Problems" means limitations in the capacity or
readiness to handle date information (including, without limitation,
calculations based on date information) for the year 1999 or years beginning
January 1, 2000 of any of the Systems.
-16-
Section 1.2. Other Terms. Other terms may be defined elsewhere in this Agreement
and, unless otherwise indicated, shall have such meaning throughout this
Agreement.
Section 1.3. Knowledge Qualifiers. References to "Sellers' knowledge" or "to the
knowledge of the Sellers" and similar terms shall refer to the actual knowledge
of (a) any officer of the Company or its subsidiaries, or (b) ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇.
ARTICLE 2
Sale of Assets; Closing
Section 2.1. Assets to Be Acquired. Subject to the satisfaction or waiver in
writing of the conditions set forth herein and to the other terms, conditions
and provisions hereof, at the Closing, Sellers shall sell, convey, assign,
transfer and deliver to Buyer or cause to be sold, conveyed, assigned,
transferred and delivered to Buyer, as the case may be, and Buyer shall
purchase, acquire, accept and pay for, all of the right, title and interest,
free and clear of all Encumbrances (other than Assumed Liabilities), of Sellers
in the following properties, assets and rights of every nature, tangible and
intangible (including goodwill), whether real, personal or mixed, wherever
located, whether now existing or hereafter acquired (excluding the Excluded
Assets) that are Related to the Business (collectively, the "Assets"):
(a) the Assumed Leases;
(b) all apparatus, computers and other electronic data processing equipment,
fixtures, machinery, equipment, furniture, office equipment, motor vehicles,
tools and other tangible personal property, other than those relating to the
Remaining Estate, which shall be assigned to and assumed by Buyer on the
Bankruptcy Plan Confirmation Date;
(c) all inventories of raw materials, work in process, finished products, goods,
spare parts, replacement and component parts, and office and other supplies
(collectively, the "Inventories"), including Inventories held at any location
controlled by any Seller or any Affiliate, Inventories previously purchased and
in transit to any Seller or any Affiliate, Inventories consigned to vendors,
resellers or customers, and Inventories in transit to such vendors, resellers or
customers;
(d) all rights in and to products of the Business sold or leased (including, but
not limited to, products hereafter returned or repossessed and unpaid rights of
rescission, replevin, reclamation and rights to stoppage in transit);
(e) the Assumed Contracts;
(f) all written technical information, data, specifications, research and
development information, engineering drawings and operating and maintenance
manuals;
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(g) the Assumed Intellectual Property and all rights thereunder or in respect
thereof, including, but not limited to, rights to ▇▇▇ and collect for and
remedies against past, present and future infringements thereof, and rights of
priority and protection of interests therein under the laws of any jurisdiction
worldwide and all tangible embodiments thereof; provided, however, that Sellers'
Representative may continue to use the SmarTalk name to the extent provided for
in Section 5.7;
(h) all computer applications, programs and other software, including systems
documentation and instructions;
(i) all accounting and other books and records, cost information, sales and
pricing data, customer lists, quality records and reports, and all other books,
records, studies, surveys, reports, plans and documents;
(j) other than as relate solely to Excluded Assets, all expenses and payments of
the Business prepaid or advanced for periods after the Closing Date;
(k) other than as set forth on Schedule 2.2, all accounts and notes receivable,
and all notes, bonds and other evidences of indebtedness of and rights to
receive payments from any person;
(l) all Telecommunications Facilities other than those used solely in connection
with assets set forth on Schedule 2.2;
(m) all cash and cash equivalents held by any Seller as of the Closing (other
than any cash delivered by Buyer in respect of the Purchase Price);
(n) except as set forth on Schedule 2.1(n), all guarantees, warranties,
indemnities and similar rights in favor of any Seller or any Affiliate with
respect to any Asset and all letters of credit and performance bonds issued
pursuant to which the Business is a beneficiary;
(o) except as set forth on Schedule 2.1(o), all rights to causes of action,
lawsuits, judgments, claims and demands of any nature available to or being
pursued by any Seller or any Affiliate with respect to the Business or the
ownership, use, function or value of any Asset, whether arising by way of
counterclaim or otherwise (except arising pursuant to the transactions
contemplated hereby);
(p) proceeds, reserves, benefits or claims related to any insurance coverage
arising out of the insurance policies set forth in Schedule 2.1(p) with respect
to Claims arising out of or in connection with the Assets or the Business after
the Closing Date or the Assumed Liabilities;
-18-
(q) all Licenses and Tariffs relating to the Business or any of the Assets,
other than the FCC Section 214 Authority;
(r) all stationery, purchase order and other forms, labels, shipping materials,
brochures, art work, photographs, advertising materials and any similar items
related to the Assets or the Business;
(s) all shares of stock in New Media Telecommunications, Inc. held by any Seller
(the "New Media Shares"); and
(t) all Current Assets as of the Closing Date.
Section 2.2. Excluded Assets. Anything to the contrary herein notwithstanding,
all Sellers' and their Affiliates' right, title and interest in all of the
following properties, assets and other rights (the "Excluded Assets") shall be
excluded from the Assets:
(a) the assets and contracts set forth on Schedule 2.2;
(b) shares of capital stock of any Seller or securities convertible into,
exchangeable or exercisable for shares of capital stock of any Seller;
(c) any assets of any Employee Benefit Plan and any rights under any Employee
Benefit Plan or any contract, agreement or arrangement between any Employee or
Consultant and the Company or any of its subsidiaries;
(d) all rights, demands, claims, Actions and causes of action (whether for
personal injuries or property, consequential or other damages of any kind)
(collectively, "Claims") that any Seller, any Affiliate, or the Business may
have, on or after the date hereof, against any Governmental Authority for refund
or credit of any type with respect to Sellers' Taxes for the Pre-Closing Tax
Period or Income Taxes of the Sellers for any period;
(e) all Claims that any Seller, any Affiliate, or the Business may have against
any person with respect to or that are exclusively related to any Excluded
Liabilities or Excluded Assets;
(f) proceeds, reserves, benefits or claims related to any insurance coverage
arising out of the insurance policies set forth in Schedule 2.1(p) with respect
to Claims arising out of or in connection with any Excluded Liabilities; and
(g) to the extent that a Working Capital Adjustment actually contributes to the
Estimated Purchase Price Adjustment, the lesser of (i) 50% of the proceeds of
all Trade Accounts Receivable as of the Closing Date that are collected and
received by Buyer after the Closing Date that (net of collection expenses or
discounts) in the aggregate are in
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excess of the Net Trade Accounts Receivable as of the Closing Date, or (ii) the
amount of the Working Capital Adjustment.
Section 2.3. Assumption of Liabilities. At the Closing, Buyer will assume only
the following obligations of Sellers (the "Assumed Liabilities"):
(a) all Liabilities and obligations of any Seller under the Assumed Contracts,
provided that Seller shall have satisfied (or, with respect to any Liability or
obligation that cannot be rendered non-contingent and liquidated prior to the
Closing Date, made effective provision reasonably satisfactory to Buyer and the
Bankruptcy Court for satisfaction from funds of Seller of) any Liability or
obligation thereunder arising from or relating to any Seller's operations or
conduct prior to the Closing Date (including, without limitation, liability or
obligation for breach, misfeasance or under any other theory relating to any
Seller's conduct, performance or non-performance);
(b) all other Liabilities and obligations of any Seller arising from the
operation or use of the Assets by Buyer from and after the Closing Date;
(c) the Current Liabilities as of the Closing Date (other than any Liability
related to curing breaches or defaults under the Assumed Contracts that are to
be paid by any Seller pursuant to Section 5.4 or the Assumption Order);
(d) the unused minutes on all Prepaid Calling Cards and for all Prepaid Wireless
Obligations of the Business (the "Prepaid Minutes Liability"); and
(e) the obligation to pay any fees that are or become payable to ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ Inc. pursuant to the engagement letter referred to in Schedule 2.3(e) as
a result of the consummation of the Asset Purchase (up to a maximum of
$2,500,000), as determined not less than two Business Days prior to the Closing
Date (the "SSB Payment Obligation"); provided, however, that all other
Liabilities or obligations of any Seller to ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney Inc. or any
other person pursuant to such engagement letter, including any obligations to
indemnify any person for any reason, shall not be part of the SSB Payment
Obligation and shall be Excluded Liabilities.
Section 2.4. No Other Liabilities Assumed. Anything to the contrary contained
herein notwithstanding, except as provided in Section 2.3, the parties hereto
agree that Buyer shall not and does not assume any other Liability or obligation
whatsoever (including without limitation, Liabilities and obligations relating
to the conduct of the Business or to the Assets (and use thereof) at any time on
or prior to the Closing Date), whether relating to or arising out of the
Business or Assets or otherwise, fixed or contingent, disclosed or undisclosed
(collectively, the "Excluded Liabilities"). Without limiting the foregoing, and
anything in Section 2.3 to the contrary notwithstanding, Buyer shall not and
does not assume any of the following (each of which shall be included within the
definition of "Excluded Liability"): (i) Excluded Taxes, (ii) litigation and
related claims and Liabilities, tax liabilities or any other
-20-
Claims (including the Pending Litigation) against any Seller of any kind or
nature whatsoever involving or relating to facts, events or circumstances
arising, relating to or occurring prior to the Closing, no matter when raised
(including, without limitation, Liability or obligation for breach, misfeasance
or under any other theory relating to Sellers' conduct, performance or
non-performance), (iii) Company Options, (iv) Liabilities specifically
identified as the responsibility of Sellers in Article 6, including any
Liabilities relating to any contract, agreement or arrangement between any
Employee or Consultant and the Company or any of its subsidiaries, (v) any
reserve for discontinued operations, (vi) any note, bond or other evidence of
indebtedness of any Seller, (vii) any Liabilities relating to or arising out of
any Excluded Assets, (viii) any Liability or obligation for fraud, breach,
misfeasance or under any other theory relating to any Seller's conduct,
performance or non-performance, and (ix) any Liabilities set forth on Schedule
2.4.
Section 2.5. Tax Treatment. Buyer and each Seller shall agree on an allocation
of the Purchase Price (the "Allocation"); provided, however, that (a) the
Allocation shall be reasonable, based on fair market values, consistent with the
Code and based on an initial proposal by Buyer, and (b) any dispute between
Buyer and the Sellers in determining such allocation shall be resolved by the
Accounting Firm. Except as otherwise required pursuant to a Final Determination,
Buyer and each Seller agree to act in accordance with the Allocation for all Tax
purposes, including for purposes of any Returns (such as IRS Form 8594 or any
other forms or reports required to be filed pursuant to Section 1060 of the Code
or any comparable provisions of local, state or foreign law ("Section 1060
Forms")), and to refrain from taking any position inconsistent with the
Allocation. Buyer and Sellers agree to cooperate in the preparation of any such
Section 1060 Forms and to timely file such Section 1060 Forms in the manner
required by applicable law. The parties agree to treat all payments made under
any indemnity provision contained in this Agreement as adjustments to the
Purchase Price for Tax purposes, unless otherwise required pursuant to a Final
Determination.
Section 2.6. Consideration. Subject to the terms and conditions hereof, at the
Closing, Buyer shall:
(a) pay to the Company, by wire transfer of same day funds to the account or
accounts specified in writing not less than three Business Days prior to the
Closing by the Sellers, an amount equal to the Purchase Price minus the Holdback
Amount minus the amount of the Estimated Purchase Price Adjustment;
(b) deliver, directly to the Company, a non-negotiable promissory note of Buyer,
substantially in the form attached hereto as Exhibit 2.6 (the "Holdback Note")
having an aggregate initial principal amount equal to $40,000,000.00 (the
"Holdback Amount"), subject to adjustment as provided for herein and therein;
and
(c) assume the Assumed Liabilities pursuant to the Assignment and Assumption
Agreement.
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Section 2.7. Time and Place of Closing. The closing of the Asset Purchase (the
"Closing") shall take place at the offices of Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇, ▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, at 10:00 A.M., New York City time, on the
11th Business Day after (a) the Bankruptcy Court Approval has been received and
(b) the conditions to Closing set forth in Articles 8 and 9 (other than those to
be satisfied at the Closing, which shall be satisfied or waived at the Closing,
and other than receipt of the Bankruptcy Court Approval) have been satisfied (or
waived by the party entitled to waive such condition), or such other place, date
and time as the parties may agree.
Section 2.8. Designation of Affiliates by Buyer. Prior to the Closing, upon at
least one day's written notice to Sellers, Buyer may designate one or more
Affiliates to acquire at the Closing all or part of the Assets, in which event
all references herein to "Buyer" shall be deemed to refer to such Affiliates, as
appropriate; provided, however, that no such designation shall in any event
limit or affect the obligations of Buyer under this Agreement to the extent not
performed by such Affiliates.
ARTICLE 3
Representations and Warranties of Sellers
Sellers, jointly and severally, hereby represent and warrant
to Buyer as follows:
Section 3.1. Incorporation. (a) Each of the Company and each of its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of the Company and, except as disclosed in Schedule 3.1(a), each of its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) could not reasonably be expected
to have a Material Adverse Effect. The Company has delivered or made available
to Buyer complete and correct copies of its articles of incorporation and
bylaws, the articles of incorporation and bylaws of its subsidiaries, and the
joint venture, partnership and other governing agreements and documents ("Joint
Venture Documents") of any such partnership, joint venture or similar business
or entity in which the Company, directly or indirectly, has any ownership
interests (the "Joint Ventures"), in each case as amended to the date of this
Agreement.
(b) Schedule 3.1(b) lists each subsidiary of the Company, its form of
organization, its respective jurisdiction of incorporation or formation, if
applicable, and the holders of the outstanding capital stock or other equity
interests of such subsidiaries. Schedule 3.1(b) also lists all Joint Venture
Documents to which the Company or any of its subsidiaries is a party or
otherwise governing any such subsidiary. All the outstanding shares of capital
stock or other ownership interests of each such subsidiary of the Company have
been validly issued and are fully paid and nonassessable, and all such shares or
ownership
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interests indicated as being owned by the Company or any of its subsidiaries are
owned by the Company, by another subsidiary of the Company or by the Company and
another such subsidiary, free and clear of all Encumbrances and free of any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or equity interests). Except as
set forth on Schedule 3.1(b), and except for the capital stock of its
subsidiaries, the Company does not own, directly or indirectly, and does not
have the right to acquire any capital stock or other ownership interest in any
person.
Section 3.2. Authorization. (a) Each Seller has the requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
each Seller and the consummation by each Seller of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate action on
the part of each Seller. This Agreement has been duly executed and delivered by
each Seller and, assuming due execution and delivery by the Buyer and receipt of
Bankruptcy Court Approval, constitutes a valid and binding obligation of each
Seller, enforceable against each Seller in accordance with its terms. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, after giving effect to the Assumption Order and the
Bankruptcy Court Approval, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation, modification or acceleration of any
obligation or to a loss of a benefit under, or result in the creation of any
Encumbrance upon any of the properties or assets of the Company or any of its
subsidiaries under, (i) the articles of incorporation or bylaws of the Company
or the comparable charter or organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lien, lease or any other contract, agreement, instrument, permit,
commitment, concession, franchise or license applicable to the Company or any of
its subsidiaries or their respective properties or assets or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets. No consent, approval, grant, concession,
agreement, franchise, order, license, permit, waiver or authorization of, or
registration, declaration or filing with or exemption, notice, application, or
certification by or to any Governmental Authority is required by or with respect
to the Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement by the Sellers or the consummation by the Sellers of
the transactions contemplated by this Agreement, except for (A) receipt of the
Bankruptcy Court Approval and the Assumption Order, (B) the required Consents
listed on Schedule 3.2, and (C) the filing of a premerger notification and
report form by the Company under the HSR Act. Assuming receipt of the Bankruptcy
Court Approval from the Bankruptcy Court, neither the entering into of this
Agreement nor the consummation of any of the transactions contemplated hereby or
performance of any obligations provided for herein requires the affirmative
vote, consent or approval of or by holders of any class or series of capital
stock
-23-
(or securities convertible into or exchangeable for capital stock) or voting
debt of the Company.
(b) Subject to receipt of Bankruptcy Court Approval, Sellers have all requisite
power to transfer to Buyer good and marketable title to the Assets free and
clear of all Encumbrances.
Section 3.3. Financial Statements. (a) As of the date hereof, the Company has
filed with the SEC and delivered to Buyer true and complete copies of, all
required reports, schedules, forms, statements, exhibits and other documents
filed with the SEC since January 1, 1996 (the "SEC Documents"). As of their
respective dates (except as amended in corrective filings filed prior to the
date of this Agreement, and, with respect to the Recent 10-Q, except as set
forth in the first and second sentence of the first paragraph of the Company's
Current Report on Form 8-K filed with the SEC on January 7, 1999), the SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) Except as amended in corrective filings filed prior to the date of this
Agreement (and, with respect to the Recent 10-Q, except as set forth in the
first and second sentence of the first paragraph of the Company's Current Report
on Form 8-K filed with the SEC on January 7, 1999), the financial statements of
the Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, only to normal year-end audit adjustments
which were not expected to be material in an amount or effect).
Section 3.4. Absence of Undisclosed Liabilities. Neither the Company nor any of
its subsidiaries has any Liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) arising out of the Business or
Assets or Related to the Business, except for (i) Liabilities that will be
Excluded Liabilities and will not be Assumed Liabilities as of the Closing, (ii)
Liabilities and obligations set forth in Schedule 3.4, (iii) Liabilities or
obligations reflected in, reserved against or otherwise disclosed in the Balance
Sheet, (iv) Current Liabilities arising after the Balance Sheet Date to the
extent such Current Liabilities actually contribute to a Working Capital
Adjustment, (v) Liabilities and obligations arising under or in connection with
the Assumed Contracts in accordance with the terms of such Assumed Contracts as
in effect on the date hereof; and (vi) Prepaid Minutes Liability the
-24-
actual cost of service to the owner of the Business of which does not exceed
$12,000,000 on the date hereof or $14,000,000 on the Closing Date.
(b) As of the Closing Date, the total Prepaid Minutes Liability shall not exceed
185,000,000 US Equivalent Minutes.
Section 3.5. Assets. Except for valid reclamation claims and as set forth on
Schedule 3.5, Sellers (i) have good and valid title to all the tangible personal
property material to the Business and reflected in the Balance Sheet as being
owned by the Company and its subsidiaries or acquired after the date thereof
(except Inventory sold, cash disposed of, accounts receivable collected, prepaid
expenses realized, contracts fully performed, properties or assets replaced by
equivalent or superior properties or assets (in each case, in the ordinary
course of business)), free and clear of all Encumbrances except for such
imperfections or irregularities of title or Encumbrances as do not affect the
use of the properties or assets subject thereto or affected thereby or otherwise
impair business operations at such properties, in either case, in such a manner
as to have a Material Adverse Effect, and (ii) are collectively the lessee of
all tangible personal property material to the Business and reflected as leased
in the Balance Sheet or leased after the date thereof (except for Assumed Leases
that have expired by their terms as a result of the passage of time and are in
possession of the properties purported to be leased thereunder, and each such
lease is valid and in full force and effect without default thereunder) by the
lessee or the lessor, other than defaults that would not have a Material Adverse
Effect. The Assets, taken as a whole, constitute all the properties, assets and
rights necessary for Buyer to conduct and operate the Business as conducted
currently or at any time within the past six months (except Inventory sold, cash
disposed of, accounts receivable collected, prepaid expenses realized, contracts
fully performed, properties or assets replaced by equivalent or superior
properties or assets (in each case, in the ordinary course of business)). To the
knowledge of the Sellers, there are no facts or conditions affecting them which
could, individually or in the aggregate, interfere in any material respect with
the use, occupancy or operation of the Assets, taken as a whole, as currently
used, occupied or operated, or their adequacy for such use.
Section 3.6. Absence of Certain Changes. Except as set forth in Schedule 3.6,
since the Balance Sheet Date, Sellers and their Affiliates have conducted the
Business only in the ordinary course consistent with prior practice and, without
limiting the foregoing, have not:
(a) suffered any Material Adverse Effect;
(b) mortgaged, pledged or subjected to Encumbrances, any property, business or
assets, tangible or intangible, held in connection with the Business, other than
any such mortgage, pledge or Encumbrance (i) in favor of Lender (as defined in
the DIP Credit Agreement) under the DIP Credit Agreement, or (ii) as would not
be an Assumed Liability as of or subsequent to the Closing Date;
-25-
(c) sold, transferred, leased to others or otherwise disposed of any of the
Assets, except for inventory sold in the ordinary course of business;
(d) canceled or compromised any debts or claims, or waived or released any
rights individually or in the aggregate having substantial value, other than (i)
as would not reduce the value of any Asset or result in any Liability that would
be or increase any Assumed Liability as of or subsequent to the Closing, or (ii)
as actually contributes to a Working Capital Adjustment;
(e) (i) as of the date of this Agreement (A) received any notice of termination
(written or, to the knowledge of Sellers or ▇▇▇▇▇▇ ▇▇▇▇▇▇, oral) of any Customer
Agreement, Supply Agreement, License, or other material contract, lease or other
agreement, or (B) received any notice of termination (written or, to the
knowledge of Sellers or ▇▇▇▇▇▇ ▇▇▇▇▇▇, oral) of any other contract, lease or
agreement the termination of which could reasonably be expected to have a
Material Adverse Effect; or (ii) subsequent to the date of this Agreement (A)
received any notice of termination (written or, to the knowledge of Sellers or
▇▇▇▇▇▇ ▇▇▇▇▇▇, oral) of any Customer Agreement, Supplier Agreement, License, or
other material contract, lease or other agreement, or (B) received any notice of
termination (written or, to the knowledge of Sellers or ▇▇▇▇▇▇ ▇▇▇▇▇▇, oral) of
any other contract lease or agreement the termination of which could reasonably
be expected to have a Material Adverse Effect, other than, in the case of this
clause (ii), (x) for which no termination has occurred as of the Closing and any
defaults under such contract, lease or agreement have been cured as of the
Closing, or (y) notices relating to terminations which actually contribute to a
Lost Customer Adjustment;
(f) transferred or granted any rights under, or entered into any settlement
regarding the breach or infringement of, any Assumed Intellectual Property, or
modified any existing rights with respect thereto;
(g) (i) declared, set aside or paid any dividends or other distributions,
directly or indirectly, in respect of its capital stock or partnership interests
(ii) repurchased, redeemed or otherwise acquired any outstanding shares of
capital stock or other securities of the Company or any of its subsidiaries,
(iii) adjusted, split, combined or reclassified any of its capital stock or (iv)
issued or authorized the issuance of any other securities in respect of, in lieu
of or in substitution for shares of capital stock of the Company or any of its
subsidiaries;
(h) (i) other than as required by Applicable Law or contracts entered into on or
before the date hereof, made any change in the rate of compensation, commission,
bonus or other direct or indirect remuneration payable, or paid or agreed or
orally promised to pay, conditionally or otherwise, any bonus, incentive,
retention or other compensation, retirement, welfare, fringe or severance
benefit or vacation pay, to or in respect of any shareholder, director, officer,
employee, distributor or sales representative of any Seller relating to the
Business or (ii) entered into any employment, deferred compensation,
-26-
severance or termination agreement or arrangement with or for the benefit of
such current or former director, officer or employee of the Company or any of
its subsidiaries;
(i) encountered any labor union organizing activity, had any actual or, to
Sellers' knowledge, threatened employee strikes, work stoppages, slowdowns or
lockouts, or had any material change in its relations with its employees,
agents, customers or suppliers;
(j) failed to replenish the Businesses' Inventories and supplies in a normal and
customary manner consistent with its prior practice, or made any purchase
commitment in excess of the normal, ordinary and usual requirements of its
business or, to the knowledge of the Sellers, at any price in excess of the then
current market price or upon terms and conditions more onerous than those usual
and customary in the industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with its prior practice;
(k) made, during the period from the Balance Sheet Date to the date of this
Agreement, any capital expenditures or capital additions or improvements in
excess of $300,000 in the aggregate or, after the date of this Agreement, made
any capital expenditures or capital additions that exceed $25,000 per calendar
month;
(l) (i) prior to the date of this Agreement incurred or capitalized any costs or
expenses related to marketing, advertising, co-op or similar funds in excess of
$350,000 in the aggregate; or (ii) subsequent to the date of this Agreement,
incurred or capitalized any costs or expenses related to marketing, advertising,
co-op or similar funds other than any such costs or expenses which actually
contribute to Impaired Customer Adjustment or for which an Adjustment Consent is
given;
(m) instituted, settled or agreed to settle any litigation, Action or proceeding
before any court or governmental body relating to the Business, the Assets,
other than in the ordinary course of business consistent with past practices but
not in any case involving amounts in excess of $50,000 or $200,000 in the
aggregate other than (i) as would not reduce the value of any Asset or result in
any Liability that would be or increase any Assumed Liability as of or
subsequent to the Closing, or (ii) as actually contributes to a Working Capital
Adjustment;
(n) entered into any transaction, contract or commitment other than in the
ordinary course of business or paid or agreed to pay any legal, accounting,
brokerage, finder's fee, Taxes or other expenses in connection with, or incurred
any severance pay obligations by reason of, this Agreement or the transactions
contemplated hereby other than (i) as would not reduce the value of any Asset or
result in any Liability that would be or increase any Assumed Liability as of or
subsequent to the Closing, or (ii) as actually contributes to a Working Capital
Adjustment;
-27-
(o) (i) prior to the date of this Agreement, entered into any transaction or
made any commitment, or entered into any contract or agreement Related to the
Business of more than $50,000 for any transaction or $200,000 for any series of
transactions; or (ii) on or after the date of this Agreement, entered into any
transaction or made any commitment, or entered into any contract or agreement
Related to the Business of more than $50,000 for any transaction or $200,000 for
any series of transactions other than, in the case of this clause (ii) Important
New Contracts with respect to which Sellers have complied with Section 5.6 of
this Agreement in all respects;
(p) taken any action or omitted to take any action that would result in the
occurrence of any of the foregoing; or
(q) entered into any agreement to do any of the foregoing.
Section 3.7. Litigation; Orders. Except for Pending Litigation or as disclosed
in Schedule 3.7, there are no Actions, pending or, to Sellers' knowledge,
threatened against Seller or any of its Affiliates in connection with the Assets
or the Business or which could give rise to or increase an Assumed Liability, or
against or relating to the transactions contemplated by this Agreement, and,
with respect to Actions in connection with or affecting the Assets or Assumed
Liabilities, no Seller knows of any basis for the same. Except as disclosed in
Schedule 3.7, there are no judgments or outstanding orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency, or by arbitration) against any Seller or any of its Affiliates or any of
their respective properties or businesses that would reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect or that could
prohibit or make unlawful the Asset Purchase.
Section 3.8. Intellectual Property. (a) Assumed Intellectual Property. Schedule
3.8(a) lists the Intellectual Property of Sellers. Except as disclosed in
Schedule 3.8(a), no notices have been given nor claims have been asserted by any
person (i) to the effect that the manufacture, use or sale of any product,
invention, design, machine, process, technology, know-how, information,
literature, copyright table work, name, trade name, trademark, service ▇▇▇▇ or
trade dress as now manufactured, sold or used by any Seller or any Affiliate in
connection with the Business infringes on any patents, intellectual property or
other right or (ii) challenging the ownership, validity, transferability or
effectiveness of any of the Assumed Intellectual Property. Except as set forth
on Schedule 3.8(a), Sellers own or have the exclusive right to use pursuant to
license, sublicense, agreement or permission all Assumed Intellectual Property,
free from any Encumbrances and free from any requirement of any past, present or
future royalty payments, license fees, charges or other payments, or conditions
or restrictions whatsoever. The Assumed Intellectual Property comprises all of
the intellectual property necessary for Buyer to conduct and operate the
Business as now being conducted.
(b) Transfer. Subject to Bankruptcy Court Approval, Sellers have all requisite
power to transfer ownership of or rights to use (as the case may be) the Assumed
Intellectual
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Property to Buyer, free from any Encumbrances and on terms and conditions no
less favorable than as in effect as of the date hereof.
(c) No Infringement. Except as disclosed in Schedule 3.8(a), the conduct of the
Business does not infringe or otherwise conflict with any rights of any person
in respect of any patents, trademarks, service marks, trade names, copyrights or
other Intellectual Property. To the knowledge of Sellers, none of the Assumed
Intellectual Property is being infringed or, to the knowledge of Sellers (except
as to intellectual property licensed by any of the Sellers), otherwise used or
available for use, by any other person.
(d) Due Registration, Etc. Except as set forth on Schedule 3.8(d), the Assumed
Intellectual Property has been duly registered with, filed in or issued by, as
the case may be, the United States Patent and Trademark Office, United States
Copyright Office or such other filing offices, domestic or foreign. Each Seller
and its Affiliates have taken such other actions, and to the knowledge of
Sellers, no other actions will be required to be taken within the 180-day period
commencing the date hereof, to ensure full protection under any Applicable Laws
or regulations, and such registrations, filings, issuances and other actions
remain in full force and effect, in each case, to the extent Related to the
Business.
Section 3.9. Licenses, Approvals, Other Authorizations, Consents, Reports, Etc.
(a) Except as otherwise indicated in the relevant Schedule hereto: the Company
is the holder of the Licenses issued by the Federal Communications Commission
(the "FCC") listed on Schedule 3.9(a)(i), and of the other Licenses issued by
any Governmental Authority listed on Schedule 3.9(a)(ii) (collectively,
"Licenses"). The Licenses so listed constitute all of the Licenses by any
Governmental Authority that are required for and/or used in and are material to
the operation of the Business as currently conducted. Each of the Licenses so
listed is in full force and effect and the Company is in compliance in all
material respects with the terms and requirements thereof and all the
Communications Laws and other rules and regulations pertaining thereto. There is
not pending or, to the knowledge of Sellers, threatened, any Action,
investigation, complaint or other proceeding by the FCC or any other
Governmental Authority to revoke, cancel, suspend, modify in any material
respect or refuse to renew any of the Licenses so listed. There is not issued,
pending, or, to the knowledge of Sellers, threatened, any notice of violation or
complaint by the FCC or any other Governmental Authority against the Company
with respect to the Business or the transactions contemplated hereby, except for
violations or complaints that could not reasonably be expected to have a
Material Adverse Effect.
(b) Except as otherwise indicated in the relevant Schedule hereto: the Company
has filed the tariffs, price lists, or other regulatory filings submitted by the
Company to the FCC, or any state, local and/or other relevant government
agencies (including pending submissions for any of the foregoing), for the
construction and operation of the Business, including all renewals and
extensions thereof, listed in Schedule 3.9(b)(i) with the FCC, and the other
tariffs listed on Schedule 3.9(b)(ii) with state, local and/or other relevant
-29-
government agencies (collectively, the "Tariffs"). The Tariffs so listed
constitute all of such tariffs, price lists or other such regulatory filings
necessary or required by the FCC and any other governmental agency of the United
States Government or of any state or local government for and/or used in and are
material to the provision by Company of telecommunications service to its
customers as currently provisioned. Each of the Tariffs so listed is in full
force and effect and the Company is in compliance in all material respects with
the terms and requirements thereof and all the Communications Laws and other
governmental regulations pertaining thereto. There is not pending or, to
knowledge of Sellers, threatened, any action, investigation, complaint or other
proceeding by the FCC or any other Governmental Authority to revoke, cancel,
suspend, modify in any material respect or refuse to renew any of the Tariffs so
listed. To the extent certain telecommunications services are offered by the
Business to its customers without a Tariff, such services are listed and
described in Schedule 3.9(b)(iii).
(c) Accurate and complete copies of all of the Licenses and Tariffs have been
delivered or made available to Buyer. All of the Licenses and Tariffs previously
delivered or made available to Buyer contain no defect which could reasonably be
expected to cause a Material Adverse Effect. No present or former officer,
manager, member or employee of Company or any of their affiliates, or any other
Person, owns material interest in any of the Licenses or Tariffs so listed.
(d) All Telecommunications Facilities that the Company owns, leases, or
otherwise has rights to use or access are listed in Schedule 3.9(d). The
Business is in compliance in all material respects with the terms and
requirements of the FCC and any other Governmental Authority with respect to its
ownership, lease, or other rights in and to such Telecommunications Facilities.
None of the Telecommunications Facilities set forth in Schedule 3.9(d) contain
any defect that could reasonably be expected to cause a Material Adverse Effect.
No present or former officer, manager, member or employee of Company or any
Affiliate thereof, or any other Person, owns material interest in any of the
Telecommunications Facilities so listed.
(e) To the knowledge of Sellers and of outside legal counsel to the Company,
other than as set forth in clauses (i), (ii) and (iii) of the last sentence of
Section 3.2(a), the transactions contemplated by this Agreement, including the
transfer of any Licenses, Tariffs, or Telecommunications Facilities described
above, are not subject to the prior approval of the FCC or any other
Governmental Authority.
Section 3.10. Labor Matters. There are no collective bargaining agreements or
similar agreements or arrangements with labor unions or associations
representing Employees of the Business and no such agreements are being
negotiated. No work stoppage against the Business is pending or, to the Sellers'
knowledge, threatened. Except as set forth in Schedule 3.10, the Business is not
a party to or, to the knowledge of the Sellers, threatened with any labor
dispute, arbitration, lawsuit or administrative proceeding relating to labor
matters (excluding routine workers' compensation claims) involving the Employees
of the
-30-
Business. No labor organization or group of employees of the Company or any of
its subsidiaries has made a pending demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened to be brought or
filed, with the National Labor Relations Board or any other labor relations
tribunal or authority.
Section 3.11. Compliance with Laws. Except as disclosed in Schedule 3.11, the
Assets and conduct by the Company and its subsidiaries of the Business are and,
to the knowledge of Sellers, have been in compliance with all statutes, laws
(including Communications Laws), regulations, ordinances, rules, judgments,
orders or decrees, applicable thereto, except for violations or failures so to
comply, if any, that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect or give rise to material fines or
other material civil penalties or any criminal liabilities. Except as set forth
on Schedule 3.11, neither the Company nor any subsidiary has received any notice
or other communications relating to any alleged violation of any statute, law,
regulation, ordinance, rule, judgment, order or decree from any Governmental
Authority, or of any investigation with respect thereto, applicable to the
Business or any Asset which has not been satisfactorily addressed except for
violations, if any, that, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect and could not reasonably be
expected to give rise to material fines or other material civil penalties or any
criminal liabilities. The transactions contemplated by this Agreement will not
result in a material default under, or a material breach or material violation
of, or materially adversely affect the rights and benefits afforded to or by the
Company or any of its subsidiaries under the Licenses and Tariffs.
Section 3.12. Contracts. (a) Schedule 3.12 contains a complete and correct list
of all agreements, contracts, commitments and other instruments and arrangements
(whether written or oral) of the types described below (1) by which, after
giving effect to the transactions contemplated by this Agreement, any of the
Assets are bound or affected or (2) to which any Seller or any Affiliate is a
party or by which it is bound or affected in connection with the Business or the
Assets, other than any which relate solely to Excluded Liabilities or Employee
Benefit Plans (collectively, "Contracts"):
(i) any employment, consulting, severance, termination, or indemnification
agreement, contract or arrangement, written or oral, with any current or former
officer, consultant, director or employee;
(ii) any joint venture contract or arrangement or any other agreement that has
involved or is expected to involve a sharing of revenues of $100,000 per annum
or more with other persons;
(iii) any lease for personal property in which the amount of payments that the
Company is required to make, or is expected to receive, on an annual basis
exceeds $50,000;
-31-
(iv) any contract or agreement for the purchase by Sellers of products or
services that either (A) has a term of one year or longer or (B) is reasonably
expected to result in purchases or sales in excess of $100,000 over the term of
such contract or agreement (assuming all renewals and extensions are taken), any
Customer Agreement and any Supply Agreement;
(v) any agreement, contract, policy, license, document, instrument, arrangement
or commitment that materially limits the freedom of the Company or any of its
subsidiaries or any of its employees to compete in any line of business or with
any person or in any geographic area or that would so materially limit the
freedom of the Business or Buyer or any of its subsidiaries after the Closing
Date;
(vi) any agreement or contract relating to any outstanding commitment for
capital expenditures in excess of $50,000 individually or $200,000 in the
aggregate, or any partially or fully executory agreement or contract relating to
the acquisition or disposition of rights or assets having a value of in excess
of $50,000 individually or $200,000 in the aggregate;
(vii) any agreement or contract pursuant to which any Seller incurs or
capitalizes any costs or expenses related to marketing funds, co-op funds or
similar retailer incentives in excess of $25,000;
(viii) any sale-leaseback, conditional sale, exclusive dealing, brokerage,
finder's fee or take-or-pay contract or agreement;
(ix) any agreement, contract, policy, license, document, instrument, arrangement
or commitment pursuant to which any Seller owns or has the right to use any
Intellectual Property; or
(x) any other agreement, contract, policy, license, document, instrument,
arrangement or commitment (A) having a term of one year or longer, (B) providing
for aggregate payments by or to the Company and/or its subsidiaries (singly or
together with other related agreements) of $150,000 or more, or (C) that is
material to the Business.
(a) Sellers have delivered to Buyer true, complete and correct copies of all
written Contracts (and accurate and complete written descriptions of all oral
Contracts) that are of the type referred to in clauses (ii), (iii), (iv), (vi),
(ix) and (x) of Section 3.12(a), and have delivered or made available to Buyer
true, complete and correct copies of all written Contracts (and accurate and
complete written descriptions of all other oral Contracts) that are set forth or
required to be set forth in Schedule 3.12, in every case together with all
amendments thereto.
(b) Except as set forth in Schedule 3.12(c), (i) all Contracts are in full force
and effect and enforceable against each Seller and (ii) to the knowledge of
Sellers, all Contracts are (as of the date hereof) and, assuming the Assumption
Order is entered, shall be (as of the
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Closing) in full force and effect and enforceable against each other party
thereto. There does not exist under any Contract any event of default or event
or condition that, after notice or lapse of time or both, would constitute a
violation, breach or event of default thereunder on the part of any Seller or
any of its Affiliates or, to the knowledge of Sellers, any other party thereto
except as set forth in Schedule 3.12(c) and except for such events or conditions
that, individually and in the aggregate, (1) have not had or resulted in, and
could not reasonably be expected to have or result in, a Material Adverse Effect
and (2) have not and could not reasonably be expected to impair the ability of
any Seller to perform its obligations under this Agreement. Except as set forth
in Schedule 3.12(c), neither the Company nor any subsidiary has received any
oral or written notice of a material default (which has not been cured), offset
or counterclaim under any Contract, or any other communication calling upon it
to comply with any provision of any Contract or asserting noncompliance
therewith or asserting the Company or any subsidiary has waived or altered its
rights thereunder. Except as set forth in Schedule 3.12, if the Assumption Order
is entered, no Consent of any third party is required under any Contract as a
result of or in connection with, and the enforceability of each Contract will
not be affected in any manner by, the execution, delivery and performance of
this Agreement or the consummation of the transactions contemplated hereby.
Section 3.13. Real Property. (a) Neither the Company nor any of its subsidiaries
owns any real property.
(b) Schedule 3.13(b)(i) lists all real property (including all land and
buildings) which is leased by the Company or any of its subsidiaries as lessee
or sublessee (the "Leased Real Estate"). The Company has delivered or caused to
be delivered to Buyer complete and accurate copies of the written leases and
sub-leases thereto, including all amendments and modifications pursuant to which
the Company or its subsidiaries lease the Leased Real Estate, all of which
leases and subleases and amendments and modifications thereto are described in
Schedule 3.13(b)(i) (the "Assumed Leases"). Except as disclosed in Schedule
3.13(b)(ii), neither the Company nor any of its subsidiaries has received notice
of, or has knowledge of, condemnation or eminent domain proceedings pending or
threatened against any Leased Real Estate. Except as disclosed in Schedule
3.13(b)(ii), neither the Company nor any of its subsidiaries has received any
notice from any city, village or other Governmental Authority of, or otherwise
has any knowledge of, any zoning, ordinance, building, fire or health code or
other legal violation in respect of any Leased Real Estate, other than
violations which have been corrected or which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. Other than
for exceptions to the following which are set forth in Schedule 3.13(b)(iii):
(i) the Company or its subsidiaries has good, marketable and insurable title to
the Leased Real Estate pursuant to the Assumed Leases, and the Assumed Leases
are in full force and effect and are valid, binding and enforceable in
accordance with their respective terms;
(ii) no amount payable under any Assumed Lease is past due;
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(iii) the Company or the relevant subsidiary is in compliance in all material
respects with all commitments and obligations on its part to be performed or
observed under such Assumed Lease and is not aware of the failure by any other
party to such Assumed Leases to comply in all material respects with all of its
commitments and obligations;
(iv) neither the Company nor any subsidiary has received any written notice (A)
of a material default (which has not been cured), offset or counterclaim under
any Assumed Lease, or any other communication calling upon it to comply with any
provision of any Assumed Lease or asserting noncompliance therewith or asserting
that the Company or any subsidiary has waived or altered its rights thereunder,
and no event or condition has happened or presently exists which constitutes a
default or, after notice or lapse of time or both, would constitute a default
under any Assumed Lease on the part of the Company, its subsidiaries or on the
part of any other party, or (B) of any Action against any party under any
Assumed Lease which if adversely determined would result in such Assumed Lease
being terminated or cut off; and
(v) neither the Company nor any subsidiary has assigned, mortgaged, pledged or
otherwise encumbered its interest under any Assumed Lease or entered into any
sublease with respect to any Leased Real Estate, nor has any such party entered
into any agreement or commitment to take any such action.
(c) The Leased Real Estate constitutes, in the aggregate, all of the real
property used to conduct the Business in the manner conducted subsequent to
September 30, 1998. Each Leased Real Estate (i) is in good operating condition
and repair and is structurally sound, with no material alterations or repairs
being required thereto under applicable law or insurance company requirements;
(ii) consists of sufficient land, parking areas, driveways and other
improvements and lawful means of access and utility service to permit the use
thereof in the manner and for the material purposes to which it is presently
devoted; and (iii) is otherwise suitable and adequate in all material respects
for its current use, operation and occupancy. Except as set forth in Schedule
3.13(c), the Company and its subsidiaries are in exclusive possession of the
Leased Real Estate and no Leased Real Estate is subject to any third party
rights or encumbrances other than the rights of the lessors under the Assumed
Leases. There are no pending or, to the Company's knowledge, threatened
proceedings regarding the amount of the Taxes on, or the assessed valuation of,
the Leased Real Estate, or relating to condemnation of any portion thereof or
impact fees, special assessments or similar matters with respect thereto. No
work is required to be performed on any Leased Real Estate in order to bring
such property into compliance with any Assumed Lease, law or insurance company
requirement.
Section 3.14. Employee Benefit Plans and Related Matters. No Employee Benefit
Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of
the Code. None of the Sellers, the Company and its subsidiaries, nor any of
their respective ERISA Affiliates has, at any time during the last six years,
contributed to or been obligated to contribute to any Multiemployer Plan or
Multiple Employer Plan, and none of the Sellers, the Company and
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its subsidiaries nor any of their respective ERISA Affiliates has incurred any
Withdrawal Liability that has not been satisfied in full.
Section 3.15. Customers. Schedule 3.15 sets forth (a) the names of the 20
largest customers of the Business during the six-month period ended December 31,
1998 and (b) the amount for which each such customer was invoiced during such
period. To Sellers' knowledge, except as set forth in Schedule 3.15, neither
Seller nor any of its Affiliates has received any notice (written or oral) that
any such customer of the Business (i) has ceased, or will cease, to purchase the
products, goods or services of the Business, (ii) has reduced or will reduce the
purchase of products, goods or services of the Business or (iii) has sought, or
is seeking, in writing to reduce the price it will pay for products, goods or
services of the Business, including, in each case, after the consummation of the
transactions contemplated hereby.
Section 3.16. Product Warranties. Except as set forth in Schedule 3.16 and for
warranties under Applicable Law, (a) there are no warranties express or implied,
written or oral, with respect to the products of the Business and (b) there are
no pending or threatened claims with respect to any such warranty, and no Seller
has any liability with respect to any such warranty, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become due.
Section 3.17. Year 2000 Problems. Sellers have (a) engaged in a process of
assessment of the existence of the Year 2000 Problems reasonably appropriate to
the scope and complexity of their respective Systems; and (b) adopted and are
successfully implementing a plan of correction ("Plan of Correction") which, the
Sellers reasonably believe will result in a substantial elimination of Year 2000
Problems (and, in any event, all Year 2000 Problems which could reasonably be
expected to have a Material Adverse Effect) and, in the case of all Systems
critical to the business or operations of the Company and its subsidiaries,
elimination in all material respects of Year 2000 Problems prior to any
processing failure of a System or Systems due to Year 2000 Problems which might
have a Material Adverse Effect. The Sellers reasonably believe that, as relating
to the Business, individually and taken as a whole, (i) the assessment and
correction of Year 2000 Problems, including, without limitation, the Plan of
Correction, and the testing of all Systems and the correction of Year 2000
Problems, in each case, which, individually or in the aggregate, if not
corrected could reasonably be expected to have a Material Adverse Effect, will
be completed on or prior to June 30, 1999, (ii) a Material Adverse Effect will
not occur as a result of any Year 2000 Problem, and (iii) the aggregate costs
and expenses incurred and reasonably expected to be incurred in connection with
the assessment and correction of Year 2000 Problems, including, without
limitation, the Plan of Correction, and the testing and monitoring of all
Systems and the correction of Year 2000 Problems, could not reasonably be
expected to materially exceed the amounts estimated in the Plan of Correction.
Section 3.18. Environmental and Safety Matters. The Business of the Sellers has
been operated, and the Assets and the property subject to the Assumed Leases
are, in compliance in all material respects with all applicable Environmental
Laws (which compliance includes,
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but is not limited to, the possession by the Sellers of all permits and other
Governmental Authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof), except where failure to be in
compliance would not have a Material Adverse Effect. To Sellers' knowledge,
Sellers are not liable for any costs, obligations, penalties, fines, or
forfeitures for failure to comply with any Environmental Laws, or with respect
to any environmental conditions or any release or presence of any Hazardous
Substances, nor are they required to remedy or remove any existing condition or
substance from any real property rented or used by them relating to any Assets
or the Business. Sellers have not received any notice or warning from any
Government Authority with respect to any failure or alleged failure by Sellers
to comply with any Environmental Laws or from any third party with respect to
any claims based on environmental conditions or the release or presence of any
Hazardous Substances on any property subject to the Assumed Leases, or related
to any Assets or the Business. To Seller's knowledge, there are no underground
storage tanks ("USTs"), active or abandoned, including petroleum storage tanks,
on or under any of the Leased Real Estate. Sellers are in compliance in all
material respects with the requirements of the Occupational Safety and Health
Act and the regulations promulgated thereunder and any similar laws or
regulations of any state or local jurisdiction ("OSHA"), except for any
non-compliance which would not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect. No Seller has received any material
citation from the Occupational Safety and Health Administration or any
comparable Government Authority or any Government Authority inspector setting
forth any respect in which the facilities or operations of such Seller relating
to the Assets or the Business are not in compliance with OSHA in any material
respect, or the regulations under such act, which non-compliance has not been
corrected or remedied to the satisfaction of such Government Authority or
inspector. Each Seller has heretofore provided Buyer with copies of all material
citations heretofore issued to such Seller under OSHA and copies of all material
correspondence from and to the Occupational Safety and Health Administration,
any comparable Government Authority and any inspectors therefrom during the past
three (3) years relating to the Assets or the Business.
Section 3.19. Fees and Expenses. Other than the SSB Payment Obligation and other
than as is payable by the Company and not by Buyer and is not and will not
result in any or increase any Assumed Liability, no broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any of its subsidiaries. No such engagement letters
obligate the Business or the owner of the Assets to continue to use the services
of any broker, investment banker, financial advisor or other person or pay fees
or expenses in connection with any future transaction.
Section 3.20. Interested Party Transactions. Except as disclosed in Schedule
3.20, no officer or director of the Company or any Affiliate or associate of any
such person has, either directly or indirectly, any interest in any contract,
arrangement or property (real or personal, tangible or intangible) used in or
pertaining to the Assets or Assumed Liabilities,
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or in any supplier, distributor or customer of the Business, except for the
normal rights of a shareholder and rights under the Employee Benefit Plans, the
Stock Incentive Plan and the Nonqualified Stock Option Plan.
Section 3.21. Fairness Opinion. The Board of Directors of the Company has
received an opinion as of the date hereof from ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Inc. and
Credit Suisse First Boston to the effect that, as of the date hereof, the
Purchase Price is fair to the Sellers from a financial point of view.
Section 3.22. Board Approval and Recommendation. The Board of Directors of the
Company unanimously has (i) determined that this Agreement and the transactions
contemplated hereby, including the Asset Purchase, are advisable, fair to and in
the best interests of those persons to whom the directors owe fiduciary duties
under applicable law, (ii) determined that, in light of the Company's
deteriorating financial and operating condition, it is necessary and urgent that
the Company and its subsidiaries file petitions for relief under the Bankruptcy
Code, (iii) determined that an immediate sale of the Assets pursuant to Section
363 of the Bankruptcy Code is necessary and urgent as the value of the Assets,
and, therefore, the value ultimately available to the creditors and stockholders
of the Company and its subsidiaries, is rapidly deteriorating, and (iv) approved
this Agreement and the transactions contemplated hereby (the "Company Board
Determination").
Section 3.23. Applicability of State Takeover Laws. The Company and its Board of
Directors have taken all such action as may be necessary to ensure that any
otherwise applicable provisions of Chapters 10 and 12 of the California General
Corporation Law (the "CGCL") that would have the effect of prohibiting or
preventing the Asset Purchase or any of the transactions contemplated by this
Agreement shall be inapplicable to the Asset Purchase, this Agreement, or any of
the transactions contemplated hereby.
Section 3.24. Disclosure. No Disclosure contains, after giving effect to any
updated or corrective disclosure made in writing prior to the date of this
Agreement, any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished. Each
Projected Disclosure, when made, represented the good faith belief of the person
making such Projected Disclosure, and the person making such Projected
Disclosure had a reasonable basis therefor. For purposes of this Section 3.24,
the term "Disclosure" means (i) any representation or warranty made by any
Seller in this Agreement and (ii) any document, written information, statement,
financial statement, certificate or exhibit prepared and furnished or to be
prepared and furnished by the Company or their respective representatives
pursuant hereto or in connection with the transactions contemplated hereby, when
taken together, other than, in the case of clause (ii) of this definition, to
the extent any such document, statement or information relates to projections as
to future performance or future events ("Projected Disclosure").
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ARTICLE 4
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Sellers as follows:
Section 4.1. Incorporation; Authorization; Etc. Buyer is duly incorporated,
validly existing and in good standing under the laws of New York. Buyer has full
corporate power to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and the
performance of Buyer's obligations hereunder have been duly and validly
authorized by all necessary corporate proceedings on the part of Buyer and no
other corporate or stockholder proceedings or actions on the part of Buyer or
its Affiliates, or any of their partners, boards of directors or stockholders,
as the case may be, are necessary therefor. The execution, delivery and
performance of this Agreement will not (a) violate any provision of the charter
or bylaws or similar organizational instrument of Buyer or any of its
Affiliates, or (b) violate or conflict with any statute, rule or regulation
applicable to Buyer, any of its Affiliates or any of their properties or assets
or any other material restriction of any kind or character to which Buyer or any
of its Affiliates is subject that would prohibit or make unlawful the Asset
Purchase. This Agreement has been duly executed and delivered by Buyer, and,
assuming the due execution hereof by Sellers, this Agreement constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.
Section 4.2. Licenses, Approvals, Other Authorizations, Consents, Reports, Etc.
Schedule 4.2 contains a list of all registrations, filings, applications,
Consents or qualifications required to be made, filed, given or obtained by
Buyer or any of its Affiliates with, to or from any person in connection with
the consummation of the Asset Purchase except for (a) the filing of a premerger
notification and report form by Buyer under the HSR Act, (b) those that become
applicable solely as a result of the specific regulatory status of any Seller or
any of its Affiliates, or (c) where the failure to make, file, give or obtain
any of them would not prohibit or make unlawful the consummation of the Asset
Purchase.
Section 4.3. Brokers, Finders, Etc. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission from the Company in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Buyer.
Section 4.4. Financing. Buyer has available sufficient financing to consummate
the Asset Purchase in accordance with its terms and the terms of this Agreement.
ARTICLE 5
Covenants of Sellers and Buyer
Section 5.1. Conduct of Business. During the period from the date of this
Agreement to and through the Closing, the Company shall, and shall cause its
subsidiaries to, carry on the
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Business in the ordinary course of business in conformity with all Applicable
Laws and, to the extent consistent therewith, use all reasonable efforts to
preserve the Business intact, keep available the services of their current
officers and employees, and preserve the good will of and relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with the Business. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to and through the
Closing, except as disclosed on Schedule 5.1, the Company shall not, and shall
not permit any of its subsidiaries to, without the prior written approval of
Buyer:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
capital stock, other than dividends and distributions by any direct or indirect
wholly-owned subsidiary of the Company to its parent, (ii) adjust, split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its subsidiaries or any
other securities thereof or any rights, warrants or options to acquire any such
shares or other securities (other than in connection with the exercise of
Company Options in accordance with the terms thereof as in effect on the date
hereof, as contemplated by Section 6.6);
(b) except with respect to the securities of the Company, issue, deliver, sell,
dispose, pledge or encumber, or authorize or propose the issuance, delivery,
sale, disposition, pledge or encumbrance of, any shares of its capital stock of
any class or other securities or any securities convertible into or exercisable
or exchangeable for, or any rights, warrants, calls, commitments or options to
acquire, any such shares or securities, or enter into any agreement with respect
to any of the foregoing and shall not amend any equity-related awards issued
pursuant to any Employee Benefit Plan, other than the issuance of Company Shares
upon the exercise of Company Options;
(c) amend its articles of incorporation, bylaws or other comparable charter or
organizational documents in any manner that is inconsistent with prompt
consummation of the transactions contemplated hereby in accordance with the
terms hereof or that could otherwise reasonably be expected to have a Material
Adverse Effect;
(d) amend, modify or waive any provision of any of the Joint Venture Documents
or make any material change to the operations or financial arrangements relating
to any of the Joint Ventures;
(e) amend, modify or waive any provision of the Customer Agreements or Supply
Agreements or make any material change to the operations, services, or policies
relating to customers or suppliers, other than as would be fully reflected in an
Estimated Purchase Price Adjustment;
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(f) other than as would not reduce the value of any Asset or result in any
Liability that would be or increase any Assumed Liability, mortgage or otherwise
encumber or subject to any Encumbrance or, except in the ordinary course of
business consistent with past practice and pursuant to existing contracts or
commitments, sell, lease, license, transfer or otherwise dispose of any material
properties or assets;
(g) (i) incur, assume, guarantee or become obligated with respect to any
indebtedness other than (A) borrowings under the DIP Credit Agreement and (B)
ordinary course payables incurred in the ordinary course of business; (ii)
incur, assume, guarantee or become obligated with respect to any other material
obligations other than in the ordinary course of business and consistent with
past practice; (iii) make any loans, advances or capital contributions to, or
investments in, any other Person, other than by the Company or any of its
subsidiaries to or in the Company or any of its wholly-owned subsidiaries; or
(iv) pay, discharge or satisfy any claims, Liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than in the
case of this clause (iv), (A) in the ordinary course of business consistent with
past practice, and (B) as does not, and, in the reasonable judgment of Buyer,
could not be expected to, impair the value of any Asset (including, without
limitation, any Assumed Contract) or result in or increase any Assumed
Liability;
(h) make or agree to make any capital expenditures or capital additions that
exceed $25,000 per calendar month;
(i) incur or capitalize any cost or expense related to marketing funds, co-op
funds or similar retailer other than any such costs or expenses which actually
contribute to an Impaired Customer Adjustment or for which an Adjustment Consent
is given;
(j) permit its inventory of Prepaid Calling Cards at any time to fall below an
amount adequate to supply reasonably anticipated demand for the Prepaid Calling
Cards for the 30 day period beginning at such time (assuming the Company were
continuing its operations and no Closing would occur during any such 30-day
period);
(k) fail to comply in any material respect with the DIP Credit Agreement;
(l) make or rescind any material tax election or take any material tax position
(unless required by law) or file any Return or change its fiscal year or
financial or tax accounting methods, policies or practices (except as required
by changes in GAAP) or settle or compromise any material income tax liability,
except, in the case of any such tax election, tax position, Return, tax
accounting method, tax accounting policy or tax accounting practice or tax
liability, as would not reasonably be expected to affect the Buyer;
(m) make any loan, advance or capital contributions to or investment in any
person other than in any subsidiary;
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(n) (i) other than (A) as would not reduce the value of any Asset or result in
any Liability that would be or increase any Assumed Liability as of or
subsequent to the Closing, or (B) as actually contributes to a Purchase Price
Adjustment, modify, amend or terminate any material contract or agreement to
which it is a party (including any lease), or (ii) release or waive any material
rights or claims, or, subject to the fiduciary duties of the Board of Directors
of the Company under the CGCL as determined by the Board of Directors in
accordance with the advice of outside counsel to the Company, and upon prior
written notice to Buyer, waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party;
(o) (i) grant any increases in the compensation of any of its directors,
officers or employees, except increases in the ordinary course of business
consistent with past practice that are not material, (ii) pay or award or agree
to pay or award any pension, retirement allowance, or other nonequity incentive
awards, or other employee benefit, not required by any outstanding employee
benefit plans or arrangements to any current or former director, officer or
employees, whether past or present, or to any other Person, except for payments
or awards that are in the ordinary course of business, consistent with past
practice, and that are not material, (iii) enter into any new or amend any
existing employment agreement with any director, officer or employee, except for
employment agreements with new employees entered into in the ordinary course of
business consistent with past practice and, with respect to employees who are
not officers, executives or directors of the Company or its subsidiaries, except
for amendments in the ordinary course of business, consistent with past
practice, that do not materially increase benefits or payments, (iv) enter into
any new or amend any existing severance agreement with any current or former
director, officer or employee, except, with respect to employees who are not
officers, executives or directors of the Company or its subsidiaries, for
agreements or amendments in the ordinary course of business, consistent with
past practice, that do not provide for materially increased benefits, (v) other
than the acceleration of outstanding Company Options pursuant to Section 6.6 and
other than as could not be expected to impair the value of any Asset or result
in any Liability that would be or increase any Assumed Liability, enter into any
agreement or exercise any discretion providing for acceleration of payment or
performance as a result of a change of control of the Company or its
subsidiaries or (vi) become obligated under any new employee benefit plan or
arrangement, which was not in existence on the date hereof or amend or exercise
discretion pursuant to any such employee benefit plan or arrangement in
existence on the date hereof, except for any such amendment applicable only to
employees who are not officers, executives or directors of the Company or its
subsidiaries or exercise of discretion in the ordinary course of business,
consistent with past practice (that does not disproportionately effect officers,
executives or directors as opposed to other employees);
(p) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its subsidiaries that is inconsistent with prompt consummation
of the transactions
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contemplated hereby in accordance with the terms hereof or could otherwise
reasonably be expected to have a Material Adverse Effect;
(q) make any acquisition, by means of merger, consolidation or otherwise, of (i)
any direct or indirect ownership interest in or assets comprising any business
enterprise or operation or (ii) except in the ordinary course and consistent
with past practice, any other assets;
(r) enter into any agreement containing any provision or covenant limiting the
ability of the Company or any of its subsidiaries to (i) sell any products or
services of or to any other person, (ii) engage in any line of business or (iii)
compete with or to obtain products or services from any person or limiting the
ability of any person to provide products or services to the Company or any of
its subsidiaries;
(s) (i) take or agree or commit to take any action that would make any
representation or warranty of the Company hereunder inaccurate in any material
respect at, or as of any time prior to, Closing or (ii) omit or agree or commit
to omit to take any action necessary to prevent any such representation or
warranty from being inaccurate in any material respect at any such time;
(t) fail to pay any premiums when due with respect to any of the insurance
policies set forth in Schedule 2.1(p);
(u) fail to maintain any Leased Real Estate in its current condition, ordinary
wear and tear excepted; or
(v) authorize any of, or commit or agree to take any of, the foregoing actions.
Section 5.2. Access to Information. (a) From the date hereof to and through the
Closing, Sellers shall give Buyer, its counsel, financial advisors, auditors and
other authorized representatives full access (during normal business hours and
upon reasonable notice) to the offices, properties, officers, employees,
accountants, auditors, counsel and other representatives, books and records of
the Company and its subsidiaries, will furnish to Buyer, its counsel, financial
advisors, auditors and other authorized representatives such financial,
operating and property related data and other information as such persons may
request, and will instruct the Company's and its subsidiaries' employees,
counsel and financial advisors to cooperate with Buyer in its investigation of
the business of the Company and the subsidiaries including, without limitation,
in connection with Buyer's obtaining title reports, surveys, environmental
reports and similar reports or studies with respect to the Leased Real Estate,
and will exercise all reasonable efforts to obtain from landlords such estoppel
certificates as Buyer may request; provided that no investigation pursuant to
this Section 5.2 shall affect any representation or warranty given by the
Company hereunder. Without limiting the foregoing, the access and information to
be afforded to Buyer pursuant to the immediately preceding sentence shall
include all such access and information as may
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be necessary or desirable from time to time to enable Buyer (i) to determine
promptly whether the termination rights referred to in Section 12.1(i) will be
or are available to Buyer and (ii) to review and consider the Estimated
Adjustments and the bases therefor. Information obtained in accordance with this
paragraph (a) shall be held in confidence in accordance with the Confidentiality
Agreement.
(b) From the Closing Date through the date the Bankruptcy Cases are closed,
Buyer shall give to the Seller's Representative, its counsel, financial
advisors, auditors and other authorized representatives full access (during
normal business hours and upon reasonable notice) to the books and records of
the Business to the extent such books and records relate to pre-Closing periods,
and will furnish to Seller's Representative, its counsel, financial advisors,
auditors and other authorized representatives such financial, operating and
property-related data and other information relating to the Business, and
relating solely to pre-Closing periods, as may be necessary for administration
of the Bankruptcy Cases. Information obtained in accordance with this paragraph
(b) shall be held in confidence in accordance with the Confidentiality
Agreement.
(c) From the date hereof to the Closing Date, the Company shall deliver to
Buyer:
(i) Regulatory Notices: promptly upon receipt, notification of any non-renewal,
cancellation, termination, revocation, suspension, impairment or material
modification of, or of any hearing, proceeding or investigation regarding, any
License held by the Company or any of its subsidiaries which is reasonably
likely to have a Material Adverse Effect;
(ii) Material Contracts: promptly after (A) any Contract is terminated or
expires or is renewed or is, amended or otherwise modified in any material
manner, (B) any new contract that would have been a Contract had it been entered
into as of the date hereof is entered into, or (C) any material notice or other
communication is delivered by any party to any Contract pursuant thereto or in
respect thereof, notice and a copy thereof and, in the case of any such renewal,
amendment, other modification or new Contract, a description in reasonable
detail of the material terms thereof; and
(iii) Other Information: with reasonable promptness, such other information and
data with respect to the Company or any of its subsidiaries as from time to time
may be reasonably requested by Buyer.
(d) From the period from the date hereof until the Closing Date, in the event
that the DIP Credit Agreement is terminated or the Lender thereunder is
otherwise not entitled to receive the information and reports referred to in
Section 5.1 of the DIP Credit Agreement and/or entitled to the inspection and
meeting rights referred to in Section 5.5 of the DIP Credit Agreement, then
Buyer shall be entitled to, and the Company shall be obligated to provide, all
of the rights of Lender referred to in Sections 5.1 and 5.5 of the DIP Credit
Agreement as if such sections were fully set forth in this Agreement, with all
references therein to "Lender" being deemed to be references to "Buyer".
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Section 5.3. HSR Act Filings and Other Regulatory Approvals; Reasonable Efforts;
Notification; Consents. (a) Each of Buyer and the Company shall (i) promptly
make or cause to be made the filings required of such party or any of its
subsidiaries under the HSR Act with respect to the transactions contemplated by
this Agreement, (ii) comply at the earliest practicable date with any request
under the HSR Act for additional information, documents, or other material
received by such party or any of its subsidiaries from the United States Federal
Trade Commission or the United States Department of Justice or any other
Governmental Authority in respect of such filings or such transactions, and
(iii) cooperate with the other party in connection with any such filing, and in
connection with resolving any investigation or other inquiry of any such agency
or other Governmental Authority under the Antitrust Laws. Each party shall
promptly inform the other party of any communication with, and any proposed
understanding, undertaking, or agreement with any Governmental Authority
regarding any such filings or any such transaction. Neither party shall
participate in any meeting with any Governmental Authority in respect of any
such filings, investigation or other inquiry without giving the other party
notice of the meeting and, to the extent permitted by such Governmental
Authority, the opportunity to attend and participate.
(b) Each of Buyer and the Company shall use all reasonable efforts to take such
action as may be required to cause the expiration of the notice periods under
the HSR Act or any state statutes, rules, regulations, orders or decrees that
are designed to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade with respect to the transactions
contemplated hereby as promptly as possible after the execution of this
Agreement.
(c) Each of the parties agrees to use all reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Asset Purchase and the other transactions contemplated by this
Agreement, including (i) the obtaining of all other necessary actions or
nonactions, waivers, Consents and approvals from Governmental Authorities and
the making of all other necessary registrations and filings (including other
filings with Governmental Authorities, if any), (ii) the obtaining of all
necessary Consents, approvals or waivers from third parties (including, without
limitation, delivery of a notice of assignment of the AudioFAX patent license to
AudioFAX IP LLC within 10 days of the date of this Agreement and including
seeking Consents required for the transfer of Non-Bankruptcy Assets), (iii) the
preparation of the Bankruptcy Filings, any and all petitions, filings, notices,
motions, certificates as may be necessary or desirable in connection with the
Bankruptcy Cases, and (iv) the execution and delivery of any additional
certificates, agreements, instruments, reports, schedules, statements, consents,
documents and information necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, this Agreement. Without limiting the
foregoing, the Board of Directors of the Company unanimously agrees, if called
upon to do so for any reason during the period from the date hereof to the
earlier of (x) the date this Agreement is
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terminated in accordance with its terms and (y) the date a Successful Bidder (as
defined in the Sale Procedures Order) is selected, to recommend that
shareholders, or, if appropriate, other stakeholders, of the Company vote in
favor of approval and adoption of this Agreement and the transactions
contemplated hereby. If such recommendation is made at any time, such
recommendation shall be deemed to be included in and to form a part of the
Company Board Determination.
(d) Notwithstanding anything to the contrary in Section 5.2(a), (b) or (c), (i)
neither Buyer nor any of its subsidiaries shall be required to (A) divest, or
cause or permit the Company or its subsidiaries or Affiliates to divest, any of
their respective businesses, product lines or assets, or (B) to take or agree to
take any other action or agree to any limitation that could reasonably be
expected to have a Material Adverse Effect or an adverse effect on the value,
condition (financial or otherwise), prospects, business or results of operations
or prospects of Buyer or its pre-Closing subsidiaries that would be material to
an entity having assets, liabilities, revenues and earnings similar in amount to
those of the Company, and (ii) Buyer shall not be required to waive any of the
conditions to this Agreement set forth in Article 8.
(e) The Company shall give prompt notice to Buyer of (i) any representation or
warranty made by any of the Sellers contained in this Agreement becoming untrue
or inaccurate in any respect or (ii) the failure by any of the Sellers to comply
with or satisfy in any respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. Buyer shall give prompt notice to the Company of (A) any
representation or warranty made by Buyer contained in this Agreement becoming
untrue or inaccurate in any respect or (B) the failure by it to comply with or
satisfy in any respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(f) The Company shall give prompt notice to Buyer, and Buyer shall give prompt
notice to the Company, of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this Agreement;
and
(iii) any Actions, suits, claims, investigations or
proceedings commenced or, to the best of its knowledge threatened against,
relating to or involving or otherwise affecting
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it or any of its subsidiaries which, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to any provision of
Article 3 or which relate to the consummation of the transactions contemplated
by this Agreement.
(g) At any time prior to the second Business Day prior to the Closing Date,
Buyer may cause any contract referred to in part (b) of Schedule 2.2 to be
removed from such schedule of Excluded Assets and to cause such contract to
thereafter be deemed to be an Assumed Contract.
(h) Anything to the contrary in this Agreement notwithstanding, this Agreement
shall not constitute an agreement to assign or transfer any contract, lease,
permit or other agreement or arrangement or any claim, right or benefit arising
thereunder or resulting therefrom of a Foreign Sub that is not a party to the
Bankruptcy Cases that would otherwise be an Asset ("Non-Bankruptcy Asset") if an
assignment or transfer or an attempt to make such an assignment or transfer
without the Consent of a third party would constitute a breach or violation
thereof or affect materially and adversely the rights of Buyer thereunder; and
any transfer or assignment to Buyer by any Seller of any interest under any
Non-Bankruptcy Asset that requires the Consent of a third party shall be made
subject to such Consent being obtained. In the event any such Consent is not
obtained on or prior to the Closing Date, the relevant Seller shall, at its own
expense, use its reasonable best efforts to obtain any such Consent after the
Closing Date until such time as such Consent has been obtained, and, if such
Consent has not been obtained prior to the Closing Date, such Seller shall
cooperate with Buyer in any lawful arrangement to provide that Buyer shall
receive the interest of such Seller or the relevant Affiliate, as the case may
be, in the benefits under any such Non-Bankruptcy Asset, including performance
by such Seller or the relevant Affiliate, as the case may be, as agent, provided
that Buyer shall undertake to pay or satisfy the corresponding liabilities for
the enjoyment of such benefit only to the extent Buyer would have been
responsible therefor hereunder if such Consent had been obtained. Nothing in
this Section 5.3(h) shall be deemed a waiver by Buyer of its right to have
received on or before the Closing an effective assignment of all of the Assets,
nor shall this paragraph be deemed to constitute an agreement to exclude from
the Assets any properties, assets or rights described under Section 2.1.
Section 5.4. Cure of Defaults. Subject to Bankruptcy Court Approval, the Sellers
shall, on or prior to the Closing, cure any and all defaults and breaches under
and satisfy (or, with respect to any Liability or obligation that cannot be
rendered non-contingent and liquidated prior to the Closing Date, made effective
provision reasonably satisfactory to Buyer and the Bankruptcy Court for
satisfaction from funds of Seller of) any Liability or obligation arising from
or relating to pre-Closing periods under the Assumed Contracts so that such
Assumed Contracts may be assumed by the Filing Sellers and assigned to the Buyer
in accordance with the provisions of Section 365 of the Bankruptcy Code and this
Agreement (including, without limitation, Section 2.3(a) hereof). Each Filing
Seller agrees that it will promptly take such actions as are reasonably
necessary or desirable to obtain a Final Order of the Bankruptcy
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Court assuming and assigning to Buyer the contracts to be assigned to Buyer
pursuant hereto.
Section 5.5. Bankruptcy Filings, Covenants and Agreements. (a) Not later than
the close of business on the day following the date hereof, each of the Filing
Sellers shall file with the Bankruptcy Court (i) a petition for relief under
Section 301 of the Bankruptcy Code, (ii) applications or motions seeking
approval of the Sale Procedures Order, the Interim Financing Order, the Final
Financing Order and an assumption order and seeking hearings on the Final
Financing Order, the assumption order and the Sale Procedures Order not later
than the date 25 days after the Filing Date, each such application or motion to
be reasonably satisfactory in form and substance to Buyer. The petitions,
motions and filings referred to in this Section 5.5(a), the "Bankruptcy
Filings," and the proceedings initiated by the filing of the Bankruptcy Filings,
together with all related proceedings, the "Bankruptcy Cases."
(b) Buyer agrees that it will promptly take such actions as are reasonably
requested by Filing Sellers, on behalf of the Filing Sellers, to assist in
obtaining Bankruptcy Court Approval, including without limitation, furnishing
affidavits or other documents or information for filing with the Bankruptcy
Court for purposes, among others, of providing necessary assurances of
performance by Buyer under the Agreements and demonstrating that Buyer is a
"good faith" purchaser under section 363(m) of the Bankruptcy Code. In the event
the order granting Bankruptcy Court Approval shall be appealed, Filing Sellers
shall use all reasonable efforts to defend such appeal.
(c) Other than in connection with the solicitation of, and discussions with,
bidders, and the acknowledgment of bids in the Auction (in accordance with the
terms governing such Auction set forth in the Sale Procedures Order (including
Paragraphs 5-12 thereof)), Sellers agree that prior to the earlier of the
Closing or the termination of this Agreement in accordance with its terms, none
of them or any of their officers, directors, employees, attorneys, investment
bankers, accountants or other agents or representatives shall solicit any
inquiries, proposals, offers or bids from any person or entity other than Buyer
relating to the Assets, the Business or the capital stock of any Seller or
otherwise take any affirmative action (including, without limitation, entering
into any agreement or letter-of-intent with respect thereto or recommending any
such transaction to the Company's shareholders or other stakeholders) to cause,
promote or assist the purchase of the Assets, Business or such capital stock by
a third party or the recapitalization or restructuring of the Company or the
Business as an alternative to the Auction.
(d) Sellers agree that until termination of this Agreement in accordance with
its terms, Sellers will not negotiate or enter into any agreement for the sale
of all or any portion of the Assets, Business or capital stock of any Seller.
(e) Sellers agree to take all such actions and to make all such filings and
petitions as may be necessary to ensure that no plan of reorganization for the
Sellers in accordance with Chapter 11 of the Bankruptcy Code is confirmed as of
a date prior to the date that
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the Purchase Price Adjustment Statement becomes final and binding upon the
parties hereto in accordance with Section 13.2 hereof.
Section 5.6. New Contracts. From the date of this Agreement through the date
Bankruptcy Court Approval is received, no Seller shall enter into any Important
New Contract unless such Important New Contract would not be, give rise to or
increase an Asset or Assumed Liability as of or subsequent to the Closing
without the express written Consent of Buyer in accordance with the provisions
of this Section 5.6. In the event any Seller shall enter into any Important New
Contract, such Seller shall deliver a copy of such Important New Contract to
Buyer not later than the second Business Day following the date such Important
New Contract is entered into. Any such Important New Contract shall be an
Excluded Asset (and any Liability or obligations arising thereunder shall be
Excluded Liabilities), unless prior to the Closing Buyer shall have delivered
written notice to the Company (each, an "Important New Contract Consent")
stating that such Important New Contract shall be an Assumed Contract (assuming
Sellers have complied with Section 5.4 with respect thereto as of the Closing).
From the date Bankruptcy Court Approval is received through the Closing Date,
without the prior written Consent of Buyer, no Seller shall enter into any
Important New Contract. The term "Important New Contract" means any Customer
Agreement or Supply Agreement entered after the date of this Agreement, or any
other agreement entered after the date of this Agreement that is material to the
Business or the entering into of which, or the loss of which after its
execution, could reasonably be expected to have a Material Adverse Effect.
Section 5.7. Sellers' Use of SmarTalk Name. Each Seller covenants that at the
Closing, or as soon thereafter as is practicable (but in no event later than the
tenth day after the Closing Date), it will not use any name, ▇▇▇▇, logo, trade
name or trademark incorporating "SmarTalk TeleServices, Inc." or "SmarTalk" in
any business activity except as is necessary or convenient for the
administration of the Bankruptcy Cases.
Section 5.8. Public Announcements. Buyer and the Company will consult with each
other before issuing, and provide each other the opportunity to review and
comment upon, any press release, court filing or pleading or other public
statements with respect to the transactions contemplated by this Agreement,
including the Asset Purchase and the Bankruptcy Cases, and shall not issue any
such press release or make any such public statement prior to such consultation
and, in the case of statements by the Company, without the prior approval of
Buyer, in each case except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national securities
exchange or with The Nasdaq Stock Market. The parties agree that the initial
press release to be issued with respect to the transactions contemplated by this
Agreement will be in the form previously agreed to by the parties. The Buyer and
each Seller shall cause its employees, officers and directors to comply with
this Section 5.8.
Section 5.9. Further Assurances. Sellers and Buyer agree that, from time to
time, whether before, at or after the Closing Date, each of them will, and will
cause their respective
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Affiliates to, execute and deliver such further instruments of conveyance and
transfer and take such other action as may be necessary to carry out the
purposes and intents hereof.
Section 5.10. Company Board Determination. From the date hereof to the earlier
of (x) the date this Agreement is terminated in accordance with its terms and
(y) the date a Successful Bidder (as defined in the Sale Procedures Order) is
selected, the Board of Directors of the Company shall not (i) withdraw or
modify, or disclosed its intention to withdraw or modify, in a manner adverse to
Buyer, the Company Board Determination, or (ii) approve or recommend, or propose
publicly to approve or recommend, any transaction with any other party pursuant
to which it is proposed that any such other party or parties shall acquire any
substantial portion of the Assets, whether directly or indirectly, or shall
acquire 20% or more (by voting power or economic interest) of the outstanding
capital stock of any Seller.
ARTICLE 6
Employers and Employee Benefits
Section 6.1. Employment of Sellers' Employees. (a) Each Seller shall use its
best efforts, and shall cause its Affiliates to use their best efforts, to
retain all Employees, and to maintain in good standing through the Closing all
relationships and agreements with Consultants, in each case from the date hereof
through the Closing Date and to assist Buyer in hiring the Employees offered
employment pursuant to Section 6.1(b); provided, that the foregoing shall not
require that the Seller or any of its Affiliates offer any compensation or other
incentives in addition to the compensation and benefits being provided or
required to be provided as of the date of this Agreement.
(b) Buyer shall offer, or shall cause one of its Affiliates to offer, employment
to each Employee listed on Schedule 6.1(b) at a base salary not less than the
base salary such Employee was receiving from the Seller as of the date of such
offer of employment, and on such other terms and conditions as Buyer shall
determine (subject to the provisions of this Article 6). The time at which the
employment by the Buyer or one of its Affiliates of each such Employee who is
not an Inactive Employee as of the Closing and who accepts such offer of
employment shall become effective (the "Effective Time of Employment") shall be
the Closing. The Effective Time of Employment or of any such Employee who is an
Inactive Employee as of the Closing shall such time (if any) within one hundred
eighty (180) days following the Closing Date when such Inactive Employee returns
to active status and reports to work with Buyer or its Affiliate, as applicable,
and Buyer and its Affiliates shall have no obligation to employ any such
Inactive Employee who fails to return to active status or to report to work with
Buyer or its Affiliate, as applicable, within such one hundred eighty (180) day
period. Each Employee who becomes employed by Buyer or one of its Affiliates
pursuant to one of the two preceding sentences shall be considered a
"Transitioned Employee" from and after his or her Effective Time of Employment.
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(c) From the date hereof through the Closing, Sellers shall permit Buyer to
communicate with the Employees and Consultants, at reasonable times and upon
reasonable notice, concerning Buyer's plans, operations, business, customer
relations and general personnel matters and to interview the Employees and
Consultants and review the personnel records and such other information
concerning the Employees and Consultants as Buyer may reasonably request
(subject to obtaining any legally required written permission of any affected
Employee or Consultant and to other applicable law), provided that such contacts
shall be conducted in a manner that is reasonably acceptable to Sellers.
(d) In the event the employment with the Buyer and its Affiliates of any
Transitioned Employee is involuntarily terminated (other than for cause) prior
to the first anniversary of the Closing, such Transitioned Employee shall
receive a severance benefit equal to a number of weeks' base pay calculated in
accordance with the schedule of benefits set forth in Schedule 6.1(d), taking
into account such Transitioned Employee's Prior Service and service with Buyer
and its Affiliates from and after the Closing. Thereafter, each Transitioned
Employee who remains employed by the Buyer or any of its Affiliates shall be
eligible to participate in the applicable severance pay plan of Buyer and its
Affiliates, and benefits payable under the terms of such plan shall be based on
such Transitioned Employee's actual service with the Buyer from and after the
Closing. Except as specifically provided above in this Section 6.1(d), Sellers
shall be solely responsible for any and all Liabilities relating to or arising
in connection with any actual, constructive or deemed termination of employment
(including without limitation severance or separation pay or benefits or other
similar compensation or benefits under any applicable law, regulation or
Employee Benefit Plan) (i) to or with respect to any Employee other than a
Transitioned Employee, whether as a result of the consummation of the
transactions contemplated hereby or otherwise, and whether before, on or after
the Closing Date, or (ii) to any Transitioned Employee as a result of (A) the
consummation of the transaction contemplated hereby, (B) any event occurring
before the Closing or (C) any action or failure to act of Sellers. Except as
provided in this Section 6.1(d) and Section 6.2(c), Buyer shall be solely
responsible for any and all Liabilities relating to or arising in connection
with any actual, constructive or deemed termination of employment of any
Transitioned Employee with Buyer and its Affiliates after such Transitioned
Employee's Effective Time of Employment.
Section 6.2. Employee Benefits Generally for Transitioned Employees. (a) Except
as specifically provided in Section 6.1(d), for a period of not less than one
year following the Closing, Buyer shall provide, and shall cause its Affiliates
to provide, employee benefit plans and arrangements to Transitioned Employees
that are substantially comparable in the aggregate to the benefits provided to
similarly situated employees of Buyer and its Affiliates.
(b) As soon as practicable after the date of this Agreement, but in any event
before the Closing, Sellers shall prepare, subject to Buyer's approval (which
shall not be unreasonably withheld), a schedule setting forth, for each Employee
listed on Schedule 6.1(b), such Employee's length of service with Sellers and
their Affiliates before the
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Closing ("Prior Service"). Following the Closing, except as specifically
provided in the next sentence, Buyer shall recognize, and shall cause its
Affiliates to recognize, each Transitioned Employee's Prior Service, solely for
purposes of determining eligibility to participate in, but not for purposes of
the schedule of benefits or benefit accrual, under any employee benefit plan
sponsored by Buyer or any of its Affiliates in which such Transitioned Employee
participates after the Closing Date. Notwithstanding the foregoing: (i) Buyer
and its Affiliates shall recognize Prior Service of each Transitioned Employee
for purposes of determining the amount of such Transitioned Employee's vacation
and such Transitioned Employee's vesting in defined contribution plan benefits;
and (ii) Buyer and its Affiliates shall not be obligated as a result of this
Agreement to recognize any Prior Service for purposes of eligibility for or
vesting in retiree welfare or defined benefit pension plan benefits (including
without limitation any early retirement subsidies or programs).
(c) Without limiting the generality of any other provision of this Article 6,
Sellers shall remain solely responsible for any and all Liabilities relating to
or arising in connection with the Employee Benefit Plans, whether arising
before, on or after the Closing Date.
Section 6.3. Welfare and Fringe Benefit Plans. (a) Buyer shall provide, or cause
its Affiliates to provide, the Transitioned Employees, during their employment
by Buyer or its Affiliates, and their eligible dependents and beneficiaries,
Welfare Benefits under any plans, programs, policies or arrangements established
or maintained by Buyer for such persons ("Buyer's Welfare Plans") for claims
incurred after the Closing Date, subject to the terms of Buyer's Welfare Plans
maintained in accordance with Section 6.2(a).
(b) From and after the Closing Date, Sellers shall remain solely responsible for
any and all Liabilities relating to or arising in connection with (i) the
requirements of Section 4980B of the Code to provide continuation of health care
coverage under any Plan in respect of (A) Employees who are not Transitioned
Employees, and their beneficiaries and dependents, and (B) Transitioned
Employees and their beneficiaries and dependents arising as a result of
qualifying events that occur on or before the Transitioned Employee's Effective
Time of Employment, and (ii) claims for Welfare Benefits incurred by
Transitioned Employees and their beneficiaries and dependents before the
Transitioned Employee's Effective Time of Employment. The foregoing
notwithstanding, Buyer shall be responsible for any and all Liabilities relating
to or arising in connection with (i) the requirements of Section 4980B of the
Code to provide continuation of health care coverage in respect of Transitioned
Employees and their beneficiaries and dependents arising as a result of
qualifying events after the Employee's Effective Time of Employment, and (ii)
claims for Welfare Benefits incurred by Transitioned Employees and their
beneficiaries and dependents after the Transitioned Employee's Effective Time of
Employment.
(c) For purposes of this Agreement, the following claims and Liabilities shall
be deemed to be incurred as follows: (i) life, accidental death and
dismemberment and business travel accident insurance benefits, upon the death,
disability or accident giving
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rise to such benefits; (ii) salary continuation or other short-term disability
benefits, or long-term disability, upon the event or commencement of the
condition resulting in the disability giving rise to such benefit; (iii)
hospital-provided health, dental, prescription drug or other benefits, which
become payable with respect to any hospital confinement, upon commencement of
such confinement; and (iv) health, dental and/or prescription drug benefits,
upon provision of such services, materials or supplies.
Section 6.4. Workers' Compensation. (a) From and after the Closing Date: (i)
Sellers shall remain solely responsible for any and all Liabilities relating to
or arising in connection with any and all claims for workers' compensation
benefits (A) incurred by or in respect of any Employee who is not a Transitioned
Employee on, prior to or after the Closing Date, and (B) incurred by or in
respect of Transitioned Employees on or before the Closing Date and (ii) Buyer
shall be solely responsible for any and all Liabilities to or in respect of any
Transitioned Employee relating to or arising in connection with any and all
claims for workers' compensation benefits incurred after the Closing Date.
(b) For purposes of this Section 6.4, a claim for workers' compensation benefits
shall be deemed to be incurred when the first event giving rise to the claim
occurs.
Section 6.5. Employment Taxes. (a) Sellers and Buyer shall (i) treat Buyer and
its Affiliates as a "successor employer" and each Seller as a "predecessor,"
within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, with
respect to Transitioned Employees who are employed by Buyer and its Affiliates
for purposes of Taxes imposed under the United States Federal Unemployment Tax
Act ("FUTA") or the United States Federal Insurance Contributions Act ("FICA"),
and (ii) cooperate with each other to avoid, to the extent possible, the filing
of more than one IRS Form W-2 with respect to each such Transitioned Employee
for the calendar year within which the Closing Date occurs.
(b) At the request of Buyer with respect to any particular applicable Tax Law
relating to employment, unemployment insurance, social security, disability,
workers' compensation, payroll, health care or other similar Tax other than
Taxes imposed under FICA and FUTA, Sellers shall and Buyer shall (i) treat Buyer
and its Affiliates as a successor employer and each Seller as a predecessor
employer, within the meaning of the relevant provisions of such Tax Law, with
respect to Transitioned Employees who are employed by Buyer and its Affiliates,
and (ii) cooperate with each other to avoid, to the extent possible, the filing
of more than one individual information reporting form pursuant to each such Tax
Law with respect to each such Transitioned Employee for the calendar year within
which the Closing Date occurs.
Section 6.6. Stock Options and Stock Plans. Pursuant to Section 6.3 of the Stock
Incentive Plan and Section 6.4 of the Nonqualified Stock Option Plan, Sellers
and Buyer agree that neither Buyer nor any of its Affiliates shall assume the
options to purchase Company Shares issued or granted pursuant to either the
Stock Incentive Plan or the Nonqualified Stock Option Plan (the
"Company Plan Options").
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ARTICLE 7
Tax Matters
Section 7.1. Tax Representations. None of the Assets is "tax exempt use
property" within the meaning of Section 168(h) of the Code. None of the Assets
is a lease made pursuant to Section 168(f)(8) of the Internal Revenue Code of
1954. No liens for Taxes (except liens for Taxes not yet due) have been filed
and no claims for Taxes have been asserted in writing with respect to the
Assets, the Assumed Liabilities or the Business. Each Seller has paid all Taxes
required to be paid by them with respect to the Business, the Assets or the
Assumed Liabilities.
Section 7.2. Tax Matters. (a) All real and personal property transfer,
documentary, sales, use, registration, value-added and other similar Taxes
(including interest, penalties and additions to Tax) incurred in connection with
the transactions contemplated by this Agreement ("Transfer Taxes") shall be
borne by Sellers, and Sellers, jointly and severally, shall indemnify Buyer for
any such Taxes incurred by Buyer as a result of Seller's failure to timely pay
such Taxes.
(b) Each Seller that is a "domestic corporation" within the meaning of Sections
7701(a)(3) and (4) of the Code and Section 1.897-1(j) of the applicable Treasury
regulations (a "Domestic Corporation") shall deliver to Buyer at Closing an
affidavit (a "FIRPTA Affidavit"), in form and substance reasonably satisfactory
to Buyer, duly executed and acknowledged, certifying that such Seller is a
Domestic Corporation. Sellers shall deliver to Buyer at Closing an affidavit, in
form and substance reasonably satisfactory to Buyer, duly executed and
acknowledged, certifying, for purposes of Section 897 of the Code, that each
Asset that is a United States real property interest within the meaning of
Section 897(c) of the Code is and has been held by, and will be transferred to
the Buyer by, a Domestic Corporation.
(c) Buyer and Sellers shall, and shall cause their respective Affiliates to,
cooperate with respect to Tax matters.
(d) In the case of any Return with respect to a Straddle Period required to be
filed by Buyer after the Closing Date, Sellers shall pay Buyer the amount of any
Excluded Tax that is or would be payable with respect to such Return at least
five Business Days prior to the earlier of the date such Return is required to
be filed or payment is due.
ARTICLE 8
Conditions of Buyer's Obligation to Close
Buyer's obligation to consummate the Asset Purchase shall be
subject to the satisfaction on or prior to the Closing Date of all of the
following conditions (each of which may
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be waived, in whole or in part, by Buyer, in its sole discretion, to the extent
permitted by Applicable Law):
Section 8.1. Representations, Warranties and Covenants of Sellers. Each Seller
shall have performed in all material respects its covenants and agreements under
this Agreement, and the representations and warranties of such Seller set forth
in this Agreement that are qualified as to "materiality," "Material Adverse
Effect" or similar term shall be true and correct when made and at and as of the
Closing as if made at and as of such time (except for representations and
warranties that are expressly made as of a specific time, which shall be true
and correct only as of such time), and the representations and warranties set
forth in this Agreement that are not so qualified shall be true and correct in
all material respects when made and at and as of the Closing as if made at and
as of such time (except for representations and warranties that are expressly
made as of a specific time, which shall be true and correct in all material
respects only as of such time); and Buyer shall have received a certificate of
the Chief Executive Officer or a Vice President of each such Seller to that
effect.
Section 8.2. Filings; Consents; Waiting Periods. (a) Any waiting period
applicable to the Asset Purchase under the HSR Act shall have expired or early
termination thereof shall have been granted without limitation, restriction or
condition that has or would have a Material Adverse Effect (or an effect on
Buyer and its subsidiaries that, were such effect applied to the Company and its
subsidiaries, would constitute a Material Adverse Effect).
(b) Sellers shall have obtained and shall have delivered to Buyer copies of (i)
all Governmental Approvals required to be obtained by Sellers in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and (ii) all Consents as are necessary in
order to consummate the Asset Purchase, including all those as may be material
and necessary in order to obtain the benefit of the Assumed Contracts, the
Assumed Intellectual Property, the Licenses and the Assumed Leases.
(c) All Governmental Approvals required for Buyer to consummate the transactions
contemplated hereby shall have been made or granted without limitation,
restriction or condition, except where the failure to have obtained such
Governmental Approval, or where any limitation, restriction or condition
thereon, would not have a Material Adverse Effect (or an effect on Buyer and its
subsidiaries that, were such effect applied to the Company and its subsidiaries,
would constitute a Material Adverse Effect).
Section 8.3. No Material Adverse Effect. No event, occurrence, fact, condition,
change, development or effect shall have occurred, exist or come to exist since
the date hereof that, individually or in the aggregate, has constituted or
resulted in, or would reasonably be expected to constitute or result in, a
Material Adverse Effect; provided, however, that neither the initiation of the
Bankruptcy Cases nor the fact that any Seller is involved in proceedings
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under the Bankruptcy Code shall, in and of itself, be deemed to be a Material
Adverse Effect.
Section 8.4. No Injunction. There shall not (a) be in effect any injunction,
order or decree, restraining, enjoining or otherwise preventing consummation of
the transactions contemplated by this Agreement, or permitting such consummation
only subject to any condition or restriction unacceptable to Buyer, in its
reasonable judgment, or (b) be any Actions pending, or to the knowledge of
Sellers, threatened, which could reasonably be expected to have any of the
effects set forth in clause (a).
Section 8.5. Legal Opinion. Buyer shall have received the legal opinion of,
outside counsel to the Company, dated the Closing Date, addressed to Buyer, in
substance and form reasonably acceptable to Buyer, and covering such matters as
shall be customary in the circumstances..
Section 8.6. Bankruptcy Court Related Conditions. (a) The Bankruptcy Court shall
have entered an order or orders (the "Bankruptcy Court Approval") substantially
in the form set forth in Exhibit 8.6 hereto which, among other things, (i)
approves, pursuant to Section 363(b) of the Bankruptcy Code, (A) the execution,
delivery and performance by Sellers of this Agreement, including each and every
term and condition hereof, and the other instruments and agreements contemplated
hereby, (B) the sale of the Assets to Buyer on the terms set forth herein and
(C) the performance by Sellers of their respective obligations under this
Agreement; (ii) authorizes and directs the Sellers to assume and assign to Buyer
the Assumed Contracts to be assigned to Buyer pursuant hereto, and (iii) finds
that Buyer is a "good faith" purchaser within the meaning of Section 363(m) of
the Bankruptcy Code. The Bankruptcy Court Approval shall have become a Final
Order.
(b) Sellers shall have delivered to Buyer (i) a certified copy of the order
providing for Bankruptcy Court Approval, and (ii) copies of all affidavits of
service of Sellers' motion seeking Bankruptcy Court Approval or notice of such
motion filed by or on behalf of Sellers in the Bankruptcy Cases.
(c) The Maturity Date (as defined in the DIP Credit Agreement) shall not have
occurred and there shall have occurred no Default or Event of Default (as such
terms are defined in the DIP Credit Agreement) under the DIP Credit Agreement.
(d) The Interim Financing Order, the Final Financing Order, the Sales Procedures
Order and the Assumption Order shall each be entered by the Bankruptcy Court and
shall have become Final Orders.
Section 8.7. Assumed Contracts. (a) All of the Assumed Contracts shall (i) be in
full force and effect, (ii) be assignable to and assumable to Buyer without
Consent of any other party thereto, or consent to assignment to and assumption
by Buyer shall have been obtained with respect thereto, and (iii) have had
breaches and defaults thereunder cured, if necessary, in
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accordance with Section 5.4 hereof, other than, in the cases of clauses (i),
(ii) and (iii) of this paragraph, (1) with respect to Customer Agreements, for
failures with respect to agreements representing in the aggregate not more than
7% of the number of Decremented Minutes for the third fiscal quarter of 1998 as
set forth in Exhibit 12.1(i) or 7% of the Service Revenues for the third fiscal
quarter of 1998 as set forth in Exhibit 12.1(i), and (2) with respect to Assumed
Contracts other than Customer Agreements, for such failures as would not have,
individually or in the aggregate, a Material Adverse Effect.
(b) The New Millennium Letter Agreement shall be in full force and effect, shall
be assignable to and assumable by Buyer as of the Closing, and shall be
sufficient to ensure Buyer the right, for a period ending not prior to December
31, 1999, to unfettered access and use of the equipment related to the Business
(and the leased space in which such equipment is located) located at the ▇▇▇▇▇▇
Building, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇.
Section 8.8. Minimum Purchase Price. The Purchase Price minus the Estimated
Purchase Price Adjustment (calculated without giving effect to clause (1) of
part A.1.(b) of Exhibit 13.1) shall not be less than the Buyer Minimum Amount.
ARTICLE 9
Conditions of Sellers' Obligation to Close
The obligation of the Sellers to consummate the Asset Purchase
shall be subject to the satisfaction on or prior to the Closing Date, of all of
the following conditions (each of which may be waived, in whole or in part,
solely by the Company, in its sole discretion, to the extent permitted by
Applicable Law):
Section 9.1. Representations, Warranties and Covenants of Buyer. Buyer shall
have performed in all material respects its covenants and agreements under this
Agreement, and the representations and warranties of Buyer set forth in this
Agreement that are qualified as to "materiality", "Material Adverse Effect" or
similar term shall be true and correct when made at and as of the Closing as if
made as at and as of such time, and the representations and warranties set forth
in this Agreement that are not so qualified shall be true and correct in all
material respects when made as at and as of the closing as if made at and as of
such time; and the Company shall have received certificates of a Vice President
of Buyer to that effect.
Section 9.2. Filings; Consents; Waiting Periods. (a) Any waiting period
applicable to the Asset Purchase under the HSR Act shall have expired or early
termination thereof shall have been granted.
(b) Buyer shall have obtained and shall have delivered to Sellers copies of all
Governmental Approvals required to be obtained by Buyer in connection with the
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execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
Section 9.3. No Injunction. There shall not be in effect any injunction, order
or decree, restraining, enjoining or otherwise preventing consummation of the
transactions contemplated by this Agreement.
Section 9.4. Bankruptcy Court Approval. The Bankruptcy Court shall have entered
the Bankruptcy Court Approval.
Section 9.5. Minimum Purchase Price. If (i) the Purchase Price minus the
Estimated Purchase Price Adjustment would otherwise be less than the Minimum
Amount, (ii) after the date Bankruptcy Court Approval is received, no Seller has
voluntarily taken any action (including by incurring additional Current
Liabilities or allowing the compromise or reduction of Current Assets) that has
caused the Estimated Purchase Price Adjustment to be equal to or greater than
the Maximum Estimated Adjustment, (iii) the Board of Directors of the Company
(or any trustee appointed by the Bankruptcy Court to manage the affairs of the
Company in lieu of the Board of Directors) shall have resolved, on or after the
date the Estimated Purchase Price Adjustment is delivered pursuant to Section
13.1, that it would not be advisable and in the best interests of the Company to
consummate the Asset Purchase at a purchase price equal to the Purchase Price
minus the Estimated Purchase Price Adjustment, and (iv) Buyer, upon two Business
Days' notice of such action by the Board of Directors of the Company, shall have
failed to agree to a final and binding Purchase Price equal to the Minimum
Amount, then Sellers shall not be obligated to consummate the Asset Purchase.
ARTICLE 10
Survival; Indemnification
Section 10.1. Indemnification by Sellers. Sellers, jointly and severally,
covenant and agree to indemnify and hold harmless Buyer, its officers,
directors, employees, agents, advisers, representatives and Affiliates
(collectively, the "Buyer Indemnitees") from and against, and pay or reimburse
the Buyer Indemnitees for, any and all Losses, (a) as provided for in Section
7.2 and (b) resulting from or arising out of:
(i) except to the extent actually reflected in the Purchase Price Adjustment,
any inaccuracy of any representation or warranty made by any Seller herein or
any certificate delivered pursuant to this Agreement and which survive the
Closing;
(ii) except to the extent actually reflected in the Purchase Price Adjustment,
any failure of any Seller to perform any covenant or agreement hereunder or
fulfill any other obligation in respect hereof, including the obligations set
forth in Sections 13.1 and 13.2;
(iii) any Excluded Liabilities or Excluded Assets;
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(iv) any failure of any Seller to comply with any applicable bulk sales laws in
connection with the transfer of Assets of Foreign Subs (unless any Losses
thereunder arise as a result of Buyer's failure to satisfy the Assumed
Liabilities); and
(v) any Excluded Taxes.
As to indemnification for inaccuracies in the representations
and warranties contained in this Agreement (other than those in Sections 3.1 and
3.2, as to which the following limitations shall not apply), Sellers shall not
be required to indemnify the Buyer Indemnitees with respect to any unrelated
claims which individually do not exceed $50,000, and in any event shall not be
required to indemnify the Buyer Indemnitees unless and until the aggregate
amount of all claims against the Sellers with respect thereto exceeds $500,000
in the aggregate; provided, however, that, if such aggregate amount of such
claims exceeds $500,000, Sellers shall be obligated to pay the entire amount
thereof.
Section 10.2. Indemnification by Buyer. Buyer covenants and agrees to indemnify
and hold harmless each Seller, its officers, directors, employees, agents,
advisers, representatives and Affiliates (collectively, the "Seller
Indemnitees") from and against, and pay or reimburse the Seller Indemnitees for,
any and all Losses resulting from or arising out of:
(i) any inaccuracy in any representation or warranty by Buyer made or contained
in this Agreement;
(ii) any failure of Buyer to perform any covenant or agreement made or contained
in this Agreement or fulfill any other obligation in respect thereof;
(iii) the Assumed Liabilities;
(iv) the operation of the Business by Buyer or Buyer's ownership, operation or
use of the Assets on or after the Closing Date; except, in the case of clauses
(iii) and (iv), to the extent such Losses result from or arise out of the
Excluded Liabilities or constitute Losses for which Sellers are required to
indemnify the Buyer Indemnitees under Section 10.1.
As to indemnification for inaccuracies in the representations
and warranties contained in this Agreement Buyer shall not be required to
indemnify the Seller Indemnitees with respect to any unrelated claims which
individually do not exceed $50,000, and in any event shall not be required to
indemnify the Seller Indemnitees unless and until the aggregate amount of all
claims against Buyer with respect thereto exceeds $500,000 in the aggregate;
provided, however, that, if such aggregate amount of such claims exceeds
$500,000, Buyer shall be obligated to pay the entire amount thereof.
Section 10.3. Losses Net of Insurance, Etc. The amount of any loss, Liability,
cost or expense ("Loss") for which indemnification is provided under this
Article 10 shall be net of
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any amounts actually recovered or recoverable by the indemnified party under
insurance policies with respect to such Loss, but shall not be net of any tax
benefit or cost with respect thereto.
Section 10.4. Termination of Indemnification. The obligations to indemnify and
hold harmless any party (a) pursuant to clause (i) of each of Sections 10.1 and
10.2, shall terminate when the applicable representation or warranty terminates
pursuant to Section 14.1 and (b) pursuant to the other clauses of Section 10.1
and 10.2 shall terminate at the expiration of the applicable statute of
limitations; provided that the foregoing notwithstanding, all indemnification
obligations pursuant to this Article 10 shall terminate on the Bankruptcy Plan
Confirmation Date; provided, however, that no termination pursuant to this
sentence, nor any termination of any survival period set forth in Section 14.1,
shall affect, bar or limit any claim asserted prior to such termination, and any
plan of reorganization for the Sellers in accordance with Chapter 11 of the
Bankruptcy Code shall provide for the satisfaction of any such claim asserted
prior to such termination that is ultimately determined to be a Loss that is
indemnifiable by any Seller to any Buyer Indemnitee. Buyer agrees not to oppose
the confirmation of any Chapter 11 plan of reorganization on the basis that such
plan does not provide for payment of claims of Buyer for indemnification
pursuant to Section 10.1 which have not been asserted prior to the Bankruptcy
Plan Confirmation Date.
Section 10.5. Indemnification Procedures. (a) Any Buyer Indemnitee or Seller
Indemnitee entitled to indemnification under this Agreement shall notify
promptly the indemnifying party in writing of the commencement of any action or
proceeding by any third party (a "Third Party Claim") with respect to which a
claim for indemnification may be made pursuant to this Article 10, but the
failure of any indemnified party to provide such notice shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of this
Article 10, except to the extent the indemnifying party is actually materially
prejudiced thereby, and shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under this
Article 10. In case any Third Party Claim is brought against an indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, unless in
the reasonable opinion of outside counsel to the indemnified party a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, to assume the defense thereof jointly with any other indemnifying
party similarly notified, to the extent that it chooses, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party that it so chooses, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
(i) if the indemnifying party fails to take reasonable steps necessary to defend
diligently the action or proceeding within twenty (20) days after receiving
notice from such indemnified party that the indemnified party believes it has
failed to do so; or (ii) if such indemnified party who is a defendant in any
Third Party Claim which is also brought against the
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indemnifying party reasonably shall have concluded that there may be one or more
legal defenses available to such indemnified party which are not available to
the indemnifying party; or (iii) if representation of both parties by the same
counsel is otherwise inappropriate under applicable standards of professional
conduct, then, in any such case, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except, in the
case of Buyer Indemnitees only, to the extent any such indemnified party or
parties reasonably shall have concluded that there may be legal defenses
available to such party or parties which are not available to the other
indemnified parties or to the extent representation of all indemnified parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct) and the indemnifying party shall be liable for any
expenses therefor. No indemnifying party shall, without the written consent of
the indemnified party, which consent shall not be unreasonably withheld, effect
the settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim, (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party and
(iii) does not include any injunctive or other non-monetary relief. Anything in
the foregoing to the contrary notwithstanding, (1) notice given by Buyer to the
Company shall constitute valid notice to all Seller Indemnitees, and (2) with
respect to any Third Party Claim with respect to which more than one Seller
Indemnitee is an indemnified party or potential indemnified party, all such
Seller Indemnitees shall select a single Seller Indemnitee to act as
representative for all such Seller Indemnitees with respect to such Third Party
Claim, and (x) such representative shall be authorized to make authorizations
and consents on behalf of each such Seller Indemnitee, and (y) Buyer shall, with
respect to all matters relating to such Third Party Claim, be entitled to rely
on the statements, authorizations and consents of such representative as being
the statement, authorization or consent of each such Seller Indemnitee.
(b) Anything to the contrary in this Section 10.5 notwithstanding: (i) Buyer
shall be entitled to assume and control the defense in all respects, including
with respect to settlement, with counsel selected by Buyer of any Third Party
Claim for Taxes, which Third Party Claim for Taxes includes or could reasonably
be expected to include a claim for both Excluded Taxes and Taxes that are
Assumed Liabilities, (ii) Sellers shall facilitate such assumption and control
by Buyer, which facilitation shall include the prompt delivery, and in any event
the delivery within five Business Days after receipt by any Seller or Affiliate
thereof of a request therefor, copies of all notices and documents (including
court papers) received by any Seller or Affiliate thereof to the extent relating
to the Third Party Claim and any power of attorney reasonably requested by Buyer
Indemnitee with respect to such Third Party Claim, (iii) Sellers shall reimburse
Buyer Indemnitee for any fees and expenses attributable to the defense of such
Third Party
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Claim to the extent such fees and expenses are attributable to the portion of
such claim for which Sellers are required to indemnify Buyer and its Affiliates
hereunder.
(c) In the event any indemnified party should have an indemnification claim
against any indemnifying party under the Agreement that does not involve a Third
Party Claim being asserted against or sought to be collected from such
indemnified party, the indemnified party shall deliver notice of such claim with
reasonable promptness to the indemnifying party. The failure by any indemnified
party so to notify the indemnifying party shall not relieve the indemnifying
party from any liability that it may have to such indemnified party, except to
the extent that the indemnifying party has been actually prejudiced by such
failure. If the indemnifying party disputes its liability with respect to such
claim, the indemnifying party and the indemnified party shall proceed in good
faith to negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by litigation in the Bankruptcy
Court or, if the Bankruptcy Court declines to resolve or take jurisdiction over
such dispute in an appropriate court of competent jurisdiction.
Section 10.6. Indemnity Payments. In the event Buyer agrees to or is determined
to have any obligation to indemnify any Seller Indemnitee pursuant to this
Article 10, the principal amount of the Holdback Note shall automatically be
increased by the amount of the Loss relating to such obligation, and as a result
of such increase, Buyer shall be deemed to have satisfied such obligation in
full and shall have no further Liability with respect thereto. In the event
Sellers, or any of them, agree to or are determined to have any obligation to
indemnify any Buyer Indemnitee pursuant to this Article 10, the outstanding
principal balance of the Holdback Note shall automatically be decreased by the
amount of the Loss relating to such obligation, and as a result of such
decrease, Sellers, or any such Seller, as the case may be, shall be deemed to
have satisfied such obligation in full and shall have no further Liability with
respect thereto, provided that if as a result of such decrease the outstanding
principal balance of the Holdback Note would otherwise be zero or less than
zero, then (i) the outstanding principal balance of the Holdback Note shall be
reduced to zero and (ii) the Seller or Sellers having such obligation shall
immediately pay to the Buyer Indemnitee an amount in cash equal to the
difference between (x) the amount of the Loss related to such obligation and (y)
the outstanding principal balance of the Holdback Note immediately prior to such
decrease, and only upon such payment shall such Seller or Sellers, as the case
may be, be deemed to have satisfied such obligation in full.
ARTICLE 11
Deliveries at Closing
Section 11.1. Sellers' Deliveries at Closing. In addition to the other things
required to be done hereby, at the Closing, Sellers shall deliver, or cause to
be delivered, to Buyer the following:
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(a) a certificate dated the Closing Date and validly executed on behalf of each
Seller to the effect that the conditions set forth in Sections 8.1 and 8.2(b)
have been satisfied;
(b) a copy of the resolutions of the Board of Directors of each Seller, or
similar enabling document, authorizing the execution, delivery and performance
hereof by each Seller, and adopting the Company Board Determination and a
certificate of its secretary, dated as of the Closing Date, that such
resolutions were duly adopted and are in full force and effect;
(c) evidence or copies of any Consents required pursuant to Section 8.2;
(d) an opinion, addressed to the Buyer and dated the Closing Date, from outside
counsel to Sellers, in substance and form reasonably satisfactory to Buyer;
(e) all documents, certificates and agreements necessary to transfer to Buyer
good and marketable title to the Assets, free and clear of any and all
Encumbrances thereon, including:
(i) a duly executed Assignment and Assumption Agreement;
(ii) assignments of all Assumed Contracts, Assumed Intellectual Property and any
other agreements and instruments constituting Assets, dated the Closing Date,
assigning to Buyer all of Sellers' right, title and interest therein and
thereto, with any required Consent endorsed thereon;
(iii) an assignment of lease, dated as of the Closing Date, with respect to each
Assumed Lease, in form reasonably acceptable to Buyer, together with any
necessary transfer declarations or other filings (and in recordable form if
required by Buyer); and
(iv) certificates of title to all motor vehicles included in the Assets to be
transferred to Buyer hereunder, duly endorsed for transfer to Buyer as of the
Closing Date;
(f) all documents necessary to transfer to Buyer the Assumed Intellectual
Property;
(g) certified copies of all orders of the Bankruptcy Court; and
(h) the FIRPTA Affidavits described in Section 7.2(b).
Section 11.2. Buyer's Deliveries at Closing. In addition to the other things
required to be done hereby, at the Closing, Buyer shall deliver, or cause to be
delivered, to Sellers the following:
(a) a certificate dated the Closing Date and validly executed on behalf of Buyer
to the effect that the conditions set forth in Sections 9.1 and 9.2(b) have been
satisfied;
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(b) a copy of the resolutions of the Board of Directors of Buyer, or similar
enabling document, authorizing the execution, delivery and performance hereof by
Buyer, and a certificate of its secretary or assistant secretary, dated as of
the Closing Date, that such resolutions were duly adopted and are in full force
and effect;
(c) evidence or copies of any Consents required pursuant to Section 9.2;
(d) a duly executed Holdback Note; and
(e) a duly executed Assignment and Assumption Agreement.
Section 11.3. Required Documents. All documents to be delivered by Sellers or to
be entered into by Sellers and Buyer necessary to carry out the transactions
contemplated by this Agreement or contemplated by the terms of this Agreement
shall be satisfactory in form and substance to Buyer and counsel to Buyer and
all documents to be delivered by Buyer necessary to carry out the transactions
contemplated by this Agreement or to be entered into by Sellers and Buyer
necessary to carry out the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Sellers and counsel to Sellers.
ARTICLE 12
Termination
Section 12.1. Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing by:
(a) written agreement of the Company and Buyer;
(b) by Buyer or the Company if the Closing has not occurred by the
seventy-second calendar day after the date of this Agreement, provided that the
terminating party is not in material breach of any of its representations and
warranties contained in this Agreement and has not failed in any material
respect to perform any of its obligations hereunder;
(c) by either the Company or Buyer, if there shall be any law or regulation that
makes consummation of the Asset Purchase illegal or otherwise prohibited or if
any judgment, injunction, order or decree permanently restraining, prohibiting
or enjoining Buyer or the Company from consummating the Asset Purchase is
entered and such judgment, injunction, order or decree shall become final and
applicable;
(d) the Company, if there shall have been a breach by Buyer of any of its
representations, warranties, covenants or agreements contained in this
Agreement, which breach would result in the failure to satisfy one or more of
the conditions set forth in Article 9 and such breach shall be incapable of
being cured or, if capable of being cured,
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shall not have been cured within 15 days after written notice thereof shall have
been received by Buyer, or Buyer shall be in material breach of any of its
material obligations under the DIP Credit Agreement which breach is incapable of
being cured or, if capable of being cured, shall not have been cured within 15
days after written notice thereof shall have been received by the Buyer;
(e) by Buyer, if there shall have been a breach by any Seller of any of its
representations, warranties, covenants or agreements contained in this
Agreement, which breach would result in the failure to satisfy one or more of
the conditions set forth in Article 8, and such breach shall be incapable of
being cured or, if capable of being cured, shall not have been cured within 15
days after written notice thereof shall have been received by the Company;
(f) by Buyer, if the Board of Directors of the Company shall have taken any
action in violation or breach of Section 5.10;
(g) by Buyer, if (i) within three days of the Filing Date the Bankruptcy Court
does not (A) enter the Interim Financing Order and (B) schedule a hearing to
occur not later than the date 25 days after the Filing Date on motions or
applications submitted by the Sellers on the Filing Date as part of the
Bankruptcy Filings seeking approval of the Final Financing Order, the Sale
Procedures Order and the Assumption Order, or (ii) the Bankruptcy Court has not
approved the Final Financing Order, the Sale Procedures Order and the Assumption
Order on or before the date that is 30 days after the Filing Date, or (iii) the
Maturity Date (as defined in the Credit Agreement) shall have occurred, or (iv)
any of the Interim Financing Order, the Final Financing Order, the Sales
Procedures Order or the Assumption Order shall fail to be in full force and
effect or shall have been stayed, reversed, modified or amended in any respect
without the prior written consent of Buyer;
(h) by Buyer, if Default or Event of Default (as such terms are defined in the
DIP Credit Agreement) has occurred under the DIP Credit Agreement; or
(i) by Buyer, if:
(i) Decremented Minutes for any single calendar month during the Three Month
Measurement Period are less than 85% of the monthly average for the third fiscal
quarter of 1998 as set forth in Exhibit 12.1(i) hereto;
(ii) Decremented Minutes for the Three Month Measurement Period are less than
90% of those reported for the third fiscal quarter of 1998 as set forth in
Exhibit 12.1(i) hereto;
(iii) Service Revenues for any single calendar month during the Three Month
Measurement Period are less than 85% of the monthly average for the third fiscal
quarter of 1998 as set forth in Exhibit 12.1(i) hereto.
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(iv) Service Revenues for the Three Month Measurement Period are less than 90%
of Service Revenues for the third fiscal quarter of 1998 as set forth in
Exhibit 12.1(i) hereto;
(v) total EBITDA for the Business for the Three Month Measurement Period is a
loss of $8,500,000 or more;
(vi) at any time there are one or more Lost Customer Agreements and/or Adjusted
Contracts and the aggregate Lost Customer Adjustments and Impaired Customer
Adjustments associated with such contracts would exceed the Maximum Estimated
Adjustment if such adjustments were taken on any such date; or
(vii) as of the last day of any calendar month occurring prior to the Closing
the sum of Working Capital as of such date and cash and cash equivalents on hand
of all of the Sellers is less than negative $16,000,000.
Section 12.2. Procedure and Effect of Termination. In the event of termination
of this Agreement by either or both of the Sellers and Buyer pursuant to Section
12.1, written notice thereof shall forthwith be given by the terminating party
to the other party hereto, and this Agreement shall thereupon terminate and
become void and have no effect, and the transactions contemplated hereby shall
be abandoned without further action by the parties hereto; provided, however,
that such termination shall not relieve any party hereto of any liability for
any breach of this Agreement; and provided, further, that in connection with any
such termination each party shall be and shall remain liable for any payments
owed or that become owed pursuant to, or that arise as a result of any such
termination pursuant to, the Sale Procedures Order or the Letter Agreement.
ARTICLE 13
Purchase Price Adjustments
Section 13.1. Estimated Purchase Price Adjustment. Not later than the second
Business Day prior to the Closing Date, the Company shall deliver to Buyer a
statement certified by an officer of the Company setting forth (i) the Estimated
Adjustments (as defined on Exhibit 13.1), each as computed as indicated on
Exhibit 13.1 based on the good faith estimates of the chief executive officer
and chief financial officer of the Company and (ii) the estimated Purchase Price
Adjustment computed as indicated on Exhibit 13.1 based on the Estimated
Adjustments (the "Estimated Purchase Price Adjustment").
Section 13.2. Post-Closing Purchase Price Adjustment. (a) Not later than the
fifteenth day following the end of the Two Month Measurement Period (as defined
in Exhibit 13.1), Buyer shall prepare and deliver to the Company (i) a statement
of assets and liabilities of the Business as of the close of business on the day
prior to the Closing Date (the "Closing Balance Sheet"), (ii) a statement of
Decremented Minutes and Service Revenues for the six-month period ending at the
conclusion of the Two Month Measurement Period (the "Closing
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Minutes and Revenues Statement"), (iii) a statement of cash flows for the
six-month period ending on the day prior to the Closing Date (the "Closing Cash
Flow Statement", and, together with the Closing Balance Sheet and the Closing
Minutes and Revenues Statement, the "Closing Statements") and (iv) a statement
(the "Purchase Price Adjustment Statement") setting forth the Purchase Price
Adjustment computed as indicated on Exhibit 13.1 based on the Actual Adjustments
(as defined in Exhibit 13.1), in each case determined pursuant to the results
indicated on the Closing Statements. The Closing Statements and the Purchase
Price Adjustment Statement shall be prepared from the books and records of the
Company and its subsidiaries and shall be prepared in accordance with GAAP
applied on a basis consistent with the preparation of the financial statements
included in the Recent 10-Q; provided, however, GAAP shall control the
preparation of the Closing Statements and the Purchase Price Adjustment
Statement (x) to the extent the preparation of the financial statements included
in the Recent 10-Q were not in accordance with GAAP in any respect, and (y) in
any event, with respect to the matters referred to in the Company's Current
Report on Form 8-K filed with the SEC on January 7, 1999. In addition, the
Purchase Price Adjustment Statement shall be accompanied by a certificate of
Buyer's independent auditor confirming the amounts and adjustments indicated
therein. Each Seller shall provide reasonable cooperation, including reasonable
access to books, records, employees and former employees, in connection with the
preparation of the Closing Statements and the Purchase Price Adjustment
Statement.
(b) During the 30-day period following the Company's receipt of the Closing
Statements and the Purchase Price Adjustment Statement, the Company and its
independent auditors shall be permitted to review the relevant books and records
of the Company and its subsidiaries as well as the working papers of Buyer's
independent auditors relating to the Closing Statements and the Purchase Price
Adjustment Statement. The Closing Statements and the Purchase Price Adjustment
Statement shall become final and binding upon the all of the parties hereto on
the 30th day following the Company's receipt thereof unless the Company gives
written notice of its disagreement with the Purchase Price Adjustment Statement
(a "Notice of Disagreement") to Buyer prior to such date. Any Notice of
Disagreement shall specify in reasonable detail the nature of any disagreement
so asserted. If a Notice of Disagreement is received by Buyer in a timely
manner, then the Closing Statements and the Purchase Price Adjustment Statement
(as revised in accordance with clauses (A) or (B) below) shall become final and
binding on the earlier of (A) the date Buyer and the Company resolve in writing
any differences they have with respect to the matters specified in the Notice of
Disagreement or (B) the date any disputed matters are finally resolved in
writing by the Accounting Firm.
(c) During the 30-day period following delivery of a Notice of Disagreement
Buyer and the Company shall seek in good faith to resolve in writing any
differences which they may have with respect to the matters specified in the
Notice of Disagreement. At the end of such 30-day period (or such longer period
as the parties may agree), Buyer and the Company shall select a mutually
acceptable public accounting firm with nationally recognized auditing experience
(the "Accounting Firm") or if they are unable to agree on
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an Accounting Firm, either may petition the Bankruptcy Court to select such
Accounting Firm. No firm shall be selected to act as the Accounting Firm unless
it has available to serve as the lead arbitrator at least three partners, each
of whom has (i) at least 15 years of public accounting experience, (ii)
substantial experience as an arbitrator (or similar role) in connection with
disagreements over purchase price adjustments arising out of purchase/sale
transactions, and (iii) substantial expertise or experience in the
telecommunications industry. Any and all matters which remain in dispute and
which were included in the Notice of Disagreement shall be resolved by the
Accounting Firm. Buyer and the Company shall jointly use all reasonable efforts
to cause the Accounting Firm to render a decision within 30 days following
submission. Buyer and the Company agree that judgment may be entered upon the
determination of the Accounting Firm in any court having jurisdiction over the
party against which such determination is to be enforced. Each of the parties
shall bear their own costs of dispute resolution hereunder, and costs, fees and
expenses of the Accounting Firm pursuant to this Section 13.2 shall be borne by
equally by Buyer and the Company.
(d) If the Purchase Price Adjustment shown on the final Purchase Price
Adjustment Statement is greater than the Estimated Purchase Price Adjustment,
then the outstanding principal balance of the Holdback Note shall immediately
and automatically be reduced by the amount of such difference; provided, that if
as a result of such reduction the outstanding principal balance of the Holdback
Note would otherwise be zero or less than zero, then (i) the outstanding
principal balance shall be reduced to zero and (ii) the Sellers shall
immediately pay to Buyer an amount in cash equal to the difference between (x)
the amount of the difference between the Purchase Price Adjustment shown on the
final Purchase Price Adjustment Statement and the Estimated Purchase Price
Adjustment and (y) the outstanding principal balance of the Holdback Note
immediately prior to such reduction, and only upon such payment shall Sellers be
deemed to have satisfied their obligations pursuant to this Article 13. If the
Estimated Purchase Price Adjustment is greater than the Purchase Price
Adjustment shown on the final Purchase Price Adjustment Statement, then the
outstanding principal balance of the Holdback Note shall immediately and
automatically be increased by the amount of the difference between Estimated
Purchase Price Adjustment and the Purchase Price Adjustment shown on the final
Purchase Price Adjustment Statement.
ARTICLE 14
Miscellaneous
Section 14.1. Survival of Representations and Warranties, Etc. The
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby, any examination by or on behalf of the parties hereto, and
the completion of the transactions contemplated herein, until the earlier of (a)
the Bankruptcy Plan Confirmation Date and (b) the applicable date set forth in
the following clauses:
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(i) except as set forth in clause (ii) and (iii) below, until the third
anniversary of the Closing Date;
(ii) with respect to the representations and warranties contained in Sections
3.1, 3.2, and 4.1, survive without limitation;
(iii) with respect to the representations and warranties contained in Section
7.1, survive as to any Tax covered by such representations and warranties for so
long as the applicable statute of limitations for such Tax remains open, in
whole or in part, including by reason of waiver of such statute of limitations.
Section 14.2. Survival of Covenants. The covenants and agreements of the parties
contained in this Agreement shall survive the Closing in accordance with the
terms hereof. Any and all covenants relating to Taxes shall survive so long as
the applicable statute of limitations remains open, in whole or in part,
including by reason of waiver of such statute of limitations.
Section 14.3. Higher and Better Offers. Notwithstanding anything herein to the
contrary, this Agreement and the rights and obligations of the parties hereunder
are subject to offers from third parties for the purchase of all or
substantially all of the Assets that are received, accepted and approved as
higher and better offers by the Bankruptcy Court or pursuant to procedures
established by the Bankruptcy Court. In the event that, at any time prior to
Bankruptcy Court Approval, any such offer or offers from third parties are so
approved by the Bankruptcy Court, this Agreement shall terminate with the effect
set forth in Section 12.2.
Section 14.4. Bankruptcy Court Approval. Sellers' obligations under this
Agreement are subject to Bankruptcy Court Approval to the extent (and only to
the extent) required by law.
Section 14.5. Company as Agent and Representative. Any obligation by Buyer to
make payment or deliveries to all or any Sellers shall be satisfied by payment
or delivery, as the case may be, to the Company. The Company is authorized by
this Agreement, as a specific term of the Asset Purchase provided for herein, to
act on behalf of and as representative of the Sellers and their successors under
this Agreement.
Section 14.6. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given, if to Buyer, to:
AT&T Corp.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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with a copy to:
Wachtell, Lipton, ▇▇▇▇▇ &
▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇
if to the Company
or to any Seller, to:
SmarTalk TeleServices,
Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: General Counsel
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
and
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective when delivered at the address specified
in this Section.
Section 14.7. Amendments; No Waivers. (a) Any provision of this Agreement may be
amended or waived prior to the Effective Time if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by the Company and
Buyer, or, in the case of a waiver, by the party against whom the waiver is to
be effective.
(b) No failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or
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privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
Section 14.8. Successors and Assigns. The provisions of this Agreement shall be
binding, upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Buyer may transfer
or assign, in whole or from time to time in part, to one or more of Buyer's
wholly-owned subsidiaries, any or all of its rights or obligations, but any such
transfer or assignment will not relieve Buyer of its obligations under this
Agreement.
Section 14.9. Entire Agreement; No Third Party Beneficiaries. (a) This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, other than that certain Confidentiality Agreement, dated
September 24, 1998, between Buyer and the Company (the "Confidentiality
Agreement"), by Buyer and the Company in connection with the transactions
contemplated hereby, which shall survive the execution and delivery of this
Agreement.
(b) This Agreement shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended to
or shall confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
Section 14.10. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
Section 14.11. Interpretation; Absence of Presumption. (a) For the purposes
hereof, (i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other genders as the
context requires, (ii) the terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph, Exhibit and Schedule references are to the Articles, Sections,
paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified,
(iii) the word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified, (iv) the word "or" shall not
be exclusive, and (v) provisions shall apply, when appropriate, to successive
events and transactions.
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(b) This Agreement shall be construed without regard to any presumption or rule
requiring construction or interpretation against the party drafting or causing
any instrument to be drafted.
Section 14.12. Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
Section 14.13. Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise or beginning of
the exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
Section 14.14. Specific Performance. The parties hereto each acknowledge that,
in view of the uniqueness of the subject matter hereof, each of the parties
would not have an adequate remedy at law for money damages in the event that
this Agreement were not performed in accordance with its terms, and therefore
agree that each party shall be entitled to specific enforcement of the terms
hereof in addition to any other remedy to which the parties hereto may be
entitled at law or in equity.
Section 14.15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflicts of law principles thereof which would require the application of the
laws of another state.
Section 14.16. Arbitration. (a) Dispute Resolution. Except as otherwise provided
in Section 13.2, all controversies, disputes or claims arising among the parties
in connection with, or with respect to, any provision of this Agreement which
has not been resolved within twenty (20) days after either Buyer, on the one
hand, or Sellers, on the other hand, have notified the other in writing of such
controversy, dispute or claim, shall be submitted for arbitration in accordance
with the rules of the American Arbitration Association or any successor thereof.
Arbitration shall take place at an appointed time and place in New York, New
York.
(b) Selection of Arbitrators. Buyer, on the one hand, and Sellers, on the other
hand each shall select one arbitrator (who shall not be counsel for such party),
and the two so designated shall select a third arbitrator. If either party shall
fail to designate an arbitrator within seven calendar days after arbitration is
requested, or if the two arbitrators shall fail to select a third arbitrator
within 14 calendar days after arbitration is requested, then such arbitrator
shall be selected by the American Arbitration Association or any successor
thereto upon application of either party. Judgment upon any award of the
majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. Subject to the provisions of this Agreement, the award
of the arbitrators may grant any relief that a court of general jurisdiction has
authority to grant,
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including, without limitation, an award of damages and/or injunctive relief, and
shall assess, in addition, the cost of the arbitration, including the reasonable
fees of the arbitrator, reasonable attorneys' fees and costs of all prevailing
parties, against all non-prevailing parties.
(c) Temporary Injunctive Relief. Nothing herein contained shall bar the right of
any of the parties to seek and obtain temporary injunctive relief from a court
of competent jurisdiction in accordance with applicable law against threatened
conduct that will cause loss or damage, pending completion of the arbitration,
and the prevailing party therein shall be entitled to an award of its reasonable
attorneys' fees and costs.
(d) Arbitration Rules. All disputes and claims shall be determined by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules") in effect on the date hereof, except that
such Rules shall be modified by this Agreement.
(e) Arbitration Proceedings. All arbitral proceedings arising under, or in
connection with, this Agreement shall be governed by the Federal Rules of Civil
Procedure. Notwithstanding the previous sentence, the arbitrators' award shall
be made no later than ninety (90) days after their appointment. Subject to the
parties' right to be treated fairly, the arbitrators may shorten the periods of
time otherwise applicable to the arbitral proceedings under the Rules or the
Federal Rules of Civil Procedure to permit the award to be made within the time
limitation set forth in the previous sentence.
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IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties as of the day first above written.
BUYER: AT&T CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
SELLERS: SMARTALK TELESERVICES, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
CANADA TELECOM NETWORK INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
CONQUEST COMMUNICATIONS CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
CONQUEST LONG DISTANCE CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
[Signature Page to Asset Purchase Agreement]
CONQUEST OPERATOR SERVICES, CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
CQ OPERATOR SERVICES, L.P.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
CONQUEST OPERATOR SERVICES (U.K.)
LTD.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
CONQUEST TELECOMMUNICATION
SERVICES CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
CREATIVE NETWORK MARKETING, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
CTN INTERACTIVE, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
GTI TELECOM, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
[Signature Page to Asset Purchase Agreement]
SMARTALK (DELAWARE) CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTALK ACQUISITION CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTALK CANADA INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTALK HOLDINGS CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTALK INVESTMENT CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTALK TELESERVICES (U.K.) LTD.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTALK USPS SALES CO.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
[Signature Page to Asset Purchase Agreement]
SMARTEL COMMUNICATIONS INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTEL COMMUNICATIONS OF
VIRGINIA, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTEL INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMARTEL, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMTK ACQUISITION CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMTK ACQUISITION CORP. III
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SMTK NY-1 CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
[Signature Page to Asset Purchase Agreement]
USA TELECOMMUNICATIONS SERVICES,
INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
WORLDWIDE DIRECT, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President and Chief
Executive Officer
[Signature Page to Asset Purchase Agreement]
Exhibit 1
Letter Agreement
Exhibit 2
DIP Credit Agreement
Exhibit 2.6
[FORM OF FACE OF NON-NEGOTIABLE FIXED RATE NOTE]
Promissory Note
Dated: __________, 1999
Principal Amount: Denominated Below
Interest Rate: _____ %
This Note is a duly authorized, non-negotiable Note of
__________, a ___________ corporation (the "Company"), issued pursuant to and
subject to the provisions of an Asset Purchase Agreement dated as of _______
___, 1999 (the "Asset Purchase Agreement"), between the Company, SmarTalk
Teleservices, Inc., a California corporation ("SmarTalk"), and certain
subsidiaries of SmarTalk. Capitalized terms used herein and not otherwise
defined shall have the meanings specified in the Asset Purchase Agreement.
Subject to the provisions hereof and as set forth in the Asset
Purchase Agreement, the Company for value received, hereby promises to pay to
the order of SmarTalk at such account as it shall designate, the Principal
Amount, described in the following section, on the Payment Date, as defined
below, or, if such day is not a Business Day, as defined below, on the next
succeeding Business Day, and to pay simple interest at the three month LIBOR
rate as of the last fixing on or prior to the Closing Date (the "Interest Rate")
on the Principal Amount outstanding at the Payment Date. "Business Day" means
any day other than a Saturday, Sunday or other day that is neither a legal
holiday nor a day on which banking institutions in the City of New York are
authorized or required by law, regulation or executive order to be closed.
Principal. The principal amount of this Note shall initially be Forty Million
Dollars and No Cents ($40,000,000.00) but shall automatically be decreased or
increased, as the case may be, from time to time pursuant to and as provided for
in Sections 10.6 and 13.2(d) of the Asset Purchase Agreement (such amount, as so
increased or decreased, when finally determined pursuant to and in accordance
with said Sections 10.6 and 13.2(d), the "Principal Amount"); provided, however,
that in no event shall the Principal Amount be increased above $80,000,000.00.
If the Principal Amount shall be equal to zero, this Note shall immediately be
deemed void, canceled and satisfied, and Company shall not be required for any
reason to make any further payments thereon except with respect to any accrued
interest that remains outstanding. Any principal, interest or other obligation
outstanding under a credit facility, if any, extended by the Company to SmarTalk
while SmarTalk was a debtor in possession under Section 1101 of Title 11 of the
United States Code, as amended, may be applied as a set off to reduce the
Principal Amount at the Company's election.
Interest. Simple interest shall accrue on this Note from the date hereof through
the Payment Date at the Interest Rate. The amount of interest due on this Note
shall be based on the Principal
Amount as of the Payment Date and based on the number of days elapsed from the
Closing Date through the Payment Date.
Payment Date. The Principal Amount together with any accrued interest thereon
shall become immediately due and payable upon the tenth Business Day following
the later of (a) the date on which the Company shall have received written
notice from SmarTalk that the Bankruptcy Plan Confirmation Date shall have
occurred and (b) the date upon which all claims, disputes or disagreements
outstanding under Sections 10.6 and 13.2 of the Asset Purchase Agreement as of
the Bankruptcy Plan Confirmation Date have been finally determined and resolved
in accordance with the Asset Purchase Agreement (such tenth Business Day, the
"Payment Date").
Prepayment. The undersigned may prepay all but not less than all of the
Principal Amount of this Note at any time and from time to time without premium
or penalty.
Default. If any amount owing under this Note is not paid when due, the
outstanding principal balance of this Note together with accrued interest
thereon shall, on demand by SmarTalk, be due and payable. The outstanding
balance of any amount owing under this Note which is not paid when due shall
bear interest at the rate of 12% per annum. Notwithstanding the foregoing, if
for any reason the effective interest payable hereunder should exceed the
maximum lawful interest, the effective interest shall be deemed reduced to, and
shall be, such maximum lawful interest; and if any amount is paid under this
Note as interest in excess of such maximum rate, then the amount so paid will
not constitute interest but will constitute a prepayment of the outstanding
Principal Amount of this Note.
Offset Rights. Any other provision contained herein or in the Asset Purchase
Agreement notwithstanding, the Company's obligations hereunder are subject to,
and the Company shall have the benefit of, all defenses, counterclaims, rights
of offset or recoupment or other claims and rights (collectively, "Offsets") the
Company may have at any time against SmarTalk or any transferee or assignee of
the Company's obligations or any part thereof or interest therein, whether the
claim or the Company relied upon for such purpose is matured or unmatured, this
and no transfer or assignment of this Note or other obligation of the Company,
or of any rights in respect thereof, pursuant to any plan of reorganization or
liquidation or otherwise shall affect or impair the availability to the Company
of the Offsets.
Governing Law. This Note shall be governed by, and construed in accordance
with, the laws of the State of New York.
[Signature Page to Asset Purchase Agreement]
IN WITNESS WHEREOF, __________, has caused this Note to be duly executed under
its corporate seal.
Dated: __________________, 19__ [COMPANY]
[SEAL]
Attest
---------------------------- By:----------------------------
[Signature Page to Asset Purchase Agreement]
Exhibit 5.5(a)
Forms of Bankruptcy Court Petitions and Filings:
Interim Financing Order
Final Financing Order
Sale Procedures Order
Exhibit 8.6
Form of Bankruptcy Court Approval Order
Exhibit 12.1(i)
Schedule A - Q3 1998 Decremented Minutes
GTI 29,617,737
CQ 151,320,181
Cardinal/CTN 13,662,300
Voice Choice/West 20,599,430
Link/ODC (see calculation below) 27,979,216
-----------------
Total 243,178,864
Link/ODC Decremented Units
Link ODC Service Revenue 3,497,402
Wholesale Rate per Link/ODC Decremented Minute 0.125
-----------------
Link ODC Decremented Minutes 27,979,216
Exhibit 12.1(i) (continued)
Schedule B - Q3 1998 Wholesale Decremented Revenue
GTI 4,704,885
CQ 22,297,418
Cardinal/CTN 2,732,460
Voice Choice/West 3,758,147
Link/ODC 3,497,402
-------------
Total 36,990,312
-2-
Exhibit 12.1(i) (continued)
Schedule C - Q3 1998 Non-Recurring Expenses
Moving Expenses 637,000
Salaries and Benefit Cut 1,100,000
Relocation Bonuses 100,000
Rent Termination 101,000
CO-OP Staples and Bergen Brunswick 1,091,000
Tax Fees Related to Reorganization 100,000
Eckerd MDF 1,000,000
Consulting Bills 1,300,000
Travel 300,000
Excess Delivery Expenses 500,000
Supplies 100,000
Telephone Expenses 200,000
-----------------------------
6,529,000
EBITDA (10,609,405)
EBITDA Adjustments 6,529,000
Link ODC Adjustment (3,600,000)
-----------------------------
Adjusted EBITDA (7,680,405)
Cushion (800,000)
-----------------------------
EBITDA Covenant (8,480,405)
-3-
Exhibit 13.1
A. COMPONENTS OF PURCHASE PRICE ADJUSTMENT
1. The "Purchase Price Adjustment" shall be the lesser of (x)
$70,000,001 and (y) the sum of the following components (after
giving effect to any Duplication Adjustment):
a) the Working Capital Adjustment;
b) the lesser of (1) $45,000,001 and (2) the sum of
the following components:
(i) the Lost Customer Adjustment;
(ii) the Impaired Customer Adjustment;
(iii) whichever is greater of:
(A) the First Decremented Minutes
Adjustment; or
(B the First Revenue Adjustment; and
(iv) whichever is greater of:
(A) the Second Decremented Minutes
Adjustment; or
(B) the Second Revenue Adjustment.
2. The First Decremented Minutes Adjustment shall be, as follows:
If the total number of Decremented Minutes for the Three
Month Measurement Period is less than 243,000,000, then:
(a) 243,000,000 minus the total number of Decremented
Minutes for the Three Month Measurement Period, multiplied
by (b) 2.5, multiplied by (c) 4 (in order to annualize),
multiplied by (d) $0.18 (the blended wholesale rate).
3. The First Revenue Adjustment shall be as follows:
If the total Service Revenues for the Three Month
Measurement Period is less than $36,900,000 then:
(a) $36,900,000 minus total Service Revenues for the Three
Month Measurement Period, multiplied by (b) 2.5,
multiplied by (c) 4 (in order to annualize).
4. The Second Decremented Minutes Adjustment shall be, as
follows:
-4-
If the total number of Decremented Minutes for the Two
Month Measurement Period is less than 2/3 of the total
number of Decremented Minutes for the Three Month
Measurement Period, then:
(a) 2/3 of the total number of Decremented Minutes for the
Three Month Measurement Period minus the total number of
Decremented Minutes for the Two Month Measurement Period,
multiplied by (b) 2.5, multiplied by (c) 6 (in order to
annualize), multiplied by (d) $0.18 (the blended wholesale
rate);
provided, however, that if the weekly rate of accumulation
of Decremented Minutes relating to any Customer Agreement
during the period from the Closing Date to the end of the
Two Month Measurement Period is less than the weekly rate
for the period from the beginning of the Two Month
Measurement Period to the Closing Date, and the primary
cause of such decrease is an action taken by Buyer after
the Closing Date with respect to the customer under such
Customer Agreement, then for purposes of the Second
Decremented Minutes Adjustment, Decremented Minutes for
the Two Month Measurement Period for each such contract
shall be the number of Decremented Minutes arising under
such Customer Agreement from the beginning of the Two
Month Measurement Period to the Closing Date multiplied by
a fraction, the numerator of which shall be the number of
days in the Two Month Measurement Period and the
denominator of which shall be the number of days in the
Two Month Measurement Period that occur prior to the
Closing Date.
5. The Second Revenue Adjustment shall be as follows:
If total Service Revenues for the Two Month Measurement
Period is less than 2/3 of total Service Revenues for the
Three Month Measurement Period, then:
(a) 2/3 of total Service Revenues for the Three Month
Measurement Period minus total Service Revenues for the
Two Month Measurement Period, multiplied by (b) 2.5,
multiplied by (c) 6 (in order to annualize).
provided, however, that if the weekly rate of accumulation
of Service Revenues relating to any Customer Agreement
during the period from the Closing Date to the end of the
Two Month Measurement Period is less than the weekly rate
for the period from the beginning of the Two Month
Measurement Period to the Closing Date, and the primary
cause of such decrease is an action taken by Buyer after
the Closing Date with respect to the customer under such
Customer Agreement, then for purposes of the Second
Revenue Adjustment, Service Revenues for the Two Month
Measurement Period for each such contract shall be the
amount of Service Revenue arising under such Customer
Agreement from the beginning of the Two Month
-5-
Measurement Period to the Closing Date multiplied by a
fraction, the numerator of which shall be the number of
days in the Two Month Measurement Period and the
denominator of which shall be the number of days in the
Two Month Measurement Period that occur prior to the
Closing Date.
6. The Lost Customer Adjustment shall be as follows:
With respect to each Customer Agreement in effect on the
date of this Agreement, in the event that as of the
Closing such Customer Agreement has expired or been
terminated, or assumption thereof by the relevant Sellers
and assignment thereof to Buyer has not been approved by
the Assumption Order, or the Assumption Order has been
entered with respect such Customer Agreement but has not
become a Final Order with respect to such Customer
Agreement as of the Closing Date (each, a "Lost Customer
Agreement"), then:
(a) 2.5, multiplied by (b) 12, multiplied by (c) the
average monthly Decremented Minutes under such Customer
Agreement for the third fiscal quarter of 1998, multiplied
by (d) the average contractual wholesale rate under such
Customer Agreement for the third fiscal quarter of 1998.
7. The Impaired Customer Adjustment shall be as follows:
With respect to each Customer Agreement in effect on the
date of this Agreement, in the event that as of the
Closing such Customer Agreement is not a Lost Customer
Agreement but (i) is the subject of any breach, violation,
default, non-compliance or nonperformance by any party
thereto, or (ii) is the subject of any change, amendment,
modification or adjustment (whether written or oral) that,
in either case, has the effect of (A) creating any
Incremental Marketing Costs (as defined below), (B)
changing the effective wholesale rate under such Customer
Agreement at any time at or after the Closing, or (C)
giving rise to any Reduced Minutes (as defined below)
(each such agreement, an "Adjusted Contract", and the
customer associated with such Adjusted Contract, an
"Impaired Customer"), then the Purchase Price will be
reduced by an amount equal to the sum of (1), (2) and (3),
where (1), (2) and (3) are as follows:
(1) the Adjusted Rate multiplied by 4, multiplied by 2.5,
multiplied by 3.1075, multiplied by the actual
Decremented Minutes for such Customer during the
third fiscal quarter of 1998, where "Adjusted Rate"
means (A) the average contractual wholesale rate
under such Customer Agreement for the third fiscal
quarter of 1998 minus (B) the revised contractual
wholesale rate under such Customer Agreement for
post-Closing periods (the "New Rate").
(2) the New Rate multiplied by 2.5 multiplied by 4
multiplied by the Reduced Minutes, where "Reduced
Minutes" means actual Decremented Minutes under the
applicable contract for the third fiscal quarter of
1998 minus the
-6-
Expected Minutes for such contract, and "Expected
Minutes" means (i) if the relevant adjustment reduces
the number of retail outlets at which the Company's
Prepaid Calling Cards are offered for sale ("Adjusted
Stores"), then (x) the ratio of Adjusted Stores to
originally contracted stores multiplied by (y) actual
Decremented Minutes under such contract for the third
fiscal quarter of 1998; plus, (ii) if the relevant
adjustment reduces the required minimum purchase
commitment under such Adjusted Contract, then (x) the
ratio of the new required minimum purchase commitment
for the remaining life of the contract to the
pre-adjustment minimum purchase commitment for the
remaining life of the contract, multiplied by (y)
actual Decremented Minutes under such contract for
the third fiscal quarter of 1998.
(3) Annualized Incremental Marketing Costs multiplied by
2.5 multiplied by 3.1075, where "Annualized
Incremental Marketing Costs" means the amount of any
Incremental Marketing Costs multiplied by 365 and
divided by the number of days remaining in the life
of the relevant Adjusted Contract, and where
"Incremental Marketing Costs" means any MDF, Co-op,
Advertising or similar costs or expenses to be
incurred in connection with the relevant Adjusted
Contract over the remaining life of such contract
that (i) is additional to any such amounts that would
otherwise have been incurred had such Adjusted
Contract not been changed, adjusted or amended and
(ii) is not expended prior to the Closing Date;
provided, however, that if the Adjusted Contract relates
to a Customer Agreement in effect on the date of this
Agreement with any of the customers referred to in clause
(i) of the definition of "Service Revenues" set forth in
Article I of the Agreement, then the adjustment referred
to in (1) above shall not be included in the calculation
of any Impaired Customer Adjustment with respect to such
Adjusted Contract.
If (i) Sellers have a reasonable, good faith belief that
such Adjusted Contract is or will be more beneficial on
the whole to the Business on an ongoing basis after the
Closing than the Customer Agreement which it replaces,
(ii) based on such belief Sellers shall have requested in
writing that Buyer consent to such Adjusted Contract
without any Impaired Customer Adjustment, and (iii) Buyer,
in its sole discretion, consents (an "Adjustment Consent")
to the existence of such Adjusted Contract without any
Impaired Customer Adjustment being taken with respect
thereto, then no Impaired Customer Adjustment shall be
made with respect to such Adjusted Contract.
8. Working Capital Adjustment
If the amount of Working Capital as of the Closing Date
shall be less than negative $5,000,000, then:
-7-
Negative $5,000,000 minus the amount of Working Capital as
of the day prior to the Closing Date.
9. Duplication Adjustments
If any change, amendment or adjustment to any Customer
Agreement results in a Lost Customer Adjustment or an
Impaired Customer Adjustment and also results in a
contractual reduction in Decremented Minutes or Service
Revenue for either Measurement Period, then the
appropriate Lost Customer Adjustment or Impaired Customer
Adjustment will be taken and (x) the calculated
Decremented Minutes for the First Decremented Minutes
Adjustment or Second Decremented Minutes Adjustment, as
applicable, will be increased by the number of Lost
Minutes, if any, for the applicable Measurement Period;
and (y) the calculated Service Revenues for the First
Service Revenue Adjustment or Second Service Revenue
Adjustment, as applicable, will be increased by the amount
of Lost Service Revenues, if any, for the applicable
Measurement Period.
B. DEFINITIONS
"Adjusted Contract" has the meaning set forth above in this
Exhibit 13.1.
"Adjustment Consent" has the meaning set forth above in this
Exhibit 13.1.
"Adjusted Rate" has the meaning set forth above in this
Exhibit 13.1.
"Adjusted Stores" has the meaning set forth above in this
Exhibit 13.1.
"Annualized Incremental Marketing Costs" has the meaning set
forth above in this Exhibit 13.1.
"Current Assets" means (i) all of the balance sheet accounts
that would be included in the Current Asset account on a balance sheet prepared
in accordance with GAAP, plus (ii) the Allowance for Doubtful Accounts balance
as at September 30, 1998, minus (iii) cash and cash equivalents, minus (iv) the
New Millennium Note, minus (v) current portion of any Excluded Asset, minus (vi)
Trade Accounts Receivable Reserves, which shall be calculated with the following
baskets:
Age of Account Reserve %
-------------- ---------
0-30 days 5%
31-60 days 15%
61-90 days 50%
90-120 days 90%
Over 120 days 100%
-8-
and for receivables existing on the Closing Date related
to Adjusted Contracts: 100% (provided that in the event
any amounts are subsequently collected pursuant to such
Adjusted Contract receivables, such amounts shall be
remitted by Buyer to the Company in accordance with
Section 2.2(g)).
"Current Liabilities" means (a) all of the balance sheet
accounts that would be included in the Current Liabilities account on a balance
sheet prepared in accordance with GAAP other than the following accounts: (i)
Accrued Interest Payable, (ii) Current Portion of Long-Term Debt, (iii)
Liability for Discontinued Operations, and (iv) the following sub-accounts
included in Other Accrued Expenses: Other, Legal and Professional Fees, and
Unidentified, minus (b) current portion of Excluded Liabilities.
"Expected Minutes" has the meaning set forth above in this
Exhibit 13.1.
"Impaired Customer" has the meaning set forth above in this
Exhibit 13.1.
"Incremental Marketing Costs" has the meaning set forth above
in this Exhibit 13.1.
"Lost Customer Agreement" has the meaning set forth above in
this Exhibit 13.1.
"Lost Minutes" means, for each Adjusted Contract for each
relevant Measurement Period, the difference between (A) actual Decremented
Minutes for the third fiscal quarter of 1998 and (B) actual Decremented Minutes
in the relevant Measurement Period, but only to the extent such difference is
the result of the adjustment that resulted in such Adjusted Contract being
deemed an Adjusted Contract.
"Lost Revenues" means, for each Adjusted Contract for each
relevant Measurement Period, the difference between (A) actual Service Revenues
for the third fiscal quarter of 1998 and (B) actual Service Revenues in the
Three Month Measurement Period or 150% of actual Service Revenues in the Two
Month Measurement Period, as the case may be, but only to the extent such
difference is the result of the adjustment that resulted in such Adjusted
Contract being deemed an Adjusted Contract.
"New Millennium Note" means, collectively, (i) that certain
12.5% Senior Secured Note due 1999 issued by New Millennium Communications Corp.
in favor of SmarTalk TeleServices, Inc. for $572,039.85, dated as of September
16, 1998; (ii) that certain 12% Senior Secured Note due 1999 issued by New
Millennium Communications Corp. in favor of SmarTalk TeleServices, Inc. for
$19,067,995, dated as of June 12, 1998; (iii) that certain 12.5% Senior Secured
Note due 1999 issued by New Millennium Communications Corp. in favor of SmarTalk
TeleServices, Inc. for $613,751.09, dated as of December 12, 1998, and (iv) any
other note of New Millenium Communications Corp. in favor of SmarTalk
TeleServices, Inc. or any of its subsidiaries that is not an Asset.
"New Rate" has the meaning set forth above in this Exhibit
13.1.
-9-
"Reduced Minutes" has the meaning set forth above in this
Exhibit 13.1.
"Three Month Measurement Period" means the three calendar
month period concluding at the end of the calendar month preceding the month in
which the Closing occurs.
"Two Month Measurement Period" means the two calendar month
period concluding at the end of the calendar month that follows the calendar
month in which the Closing occurs.
"Measurement Period" means either of the Two Month Measurement
Period and the Three Month measurement Period.
"Working Capital" means, as of any date, Currents Assets (as
defined herein) as of such date minus Current Liabilities (as defined herein) as
of such date.
C. ESTIMATED AND ACTUAL ADJUSTMENTS
"Good Faith Estimate" means an estimate that is made in good
faith, with the concurrence of the Company's independent auditors, and is based
upon a review of any monthly, weekly or other operating or financial information
made available from time to time to or prepared by the Chief Executive Officer,
Chief Financial Officer, General Counsel or Controller of the Company.
"Estimated First Decremented Minutes Adjustment" means a Good
Faith Estimate of the First Decremented Adjustment based upon a Good Faith
Estimate of the total number of Decremented Minutes for the Three Month
Measurement Period.
"Estimated First Revenue Adjustment" means a Good Faith
Estimate of the First Revenue Adjustment based upon a Good Faith Estimate of
total Service Revenues for the Three Month Measurement Period.
"Estimated Second Decremented Minutes Adjustment" means a Good
Faith Estimate of the Second Decremented Adjustment based upon a Good Faith
Estimate of the total number of Decremented Minutes for the Three Month
Measurement Period and the Two Month Measurement Period.
"Estimated Second Revenue Adjustment" means a Good Faith
Estimate of the Second Revenue Adjustment based upon a Good Faith Estimate of
total Service Revenues for the Three Month Measurement Period and the Two Month
Measurement Period.
"Estimated Impaired Customer Adjustment" means a Good Faith
Estimate of the Impaired Customer Adjustment based upon a Good Faith Estimate of
the Assumed Contracts that will be Adjusted Contracts as of the Closing Date and
the Adjusted Rate, New Rate, Reduced Minutes, Expected Minutes and Annualized
Incremental Marketing Costs (in each case, if any) associated with each such
Adjusted Contract.
-10-
"Estimated Lost Customer Adjustment" means a Good Faith
Estimate of the Lost Customer Adjustment based upon a Good Faith Estimate of the
Assumed Contracts that will be Lost Customer Agreements as of the Closing Date
and the value and Decremented Minutes associated with each such Lost Customer
Agreement.
"Estimated Working Capital Adjustment" means a Good Faith
Estimate of the Working Capital Adjustment based upon a Good Faith Estimate of
the amount of Working Capital as of the day prior to the Closing Date.
"Estimated Adjustments" means the Estimated First Decremented
Minutes Adjustment, the Estimated Second Decremented Minutes Adjustment, the
Estimated First Revenue Adjustment, the Estimated Second Revenue Adjustment, the
Estimated Lost Customer Adjustment, the Estimated Impaired Customer Adjustment,
and the Estimated Working Capital Adjustment.
"Actual First Decremented Minutes Adjustment" means the First
Decremented Adjustment based upon the actual total number of Decremented Minutes
for the Three Month Measurement Period as indicated in the Closing Statements
delivered pursuant to Section 13.2.
"Actual First Revenue Adjustment" means the First Revenue
Adjustment based upon the actual total Service Revenues for the Three Month
Measurement Period as indicated in the Closing Statements delivered pursuant to
Section 13.2.
"Actual Second Decremented Minutes Adjustment" means the
Second Decremented Adjustment based upon the actual total number of Decremented
Minutes for the Two Month Measurement Period as indicated in the Closing
Statements delivered pursuant to Section 13.2.
"Actual Second Revenue Adjustment" means the Second Revenue
Adjustment based upon the actual total Service Revenues for the Three Month
Measurement Period as indicated in the Closing Statements delivered pursuant to
Section 13.2.
"Actual Impaired Customer Adjustment" means the Customer
Adjustment based upon the actual Assumed Contracts that are Adjusted Contracts
as of the Closing Date and the Adjusted Rate, New Rate, Reduced Minutes,
Expected Minutes and Annualized Incremental Marketing Costs (in each case, if
any) associated with each such Adjusted Contract.
"Actual Lost Customer Adjustment" means the Customer
Adjustment based on the actual Assumed Contracts that are Lost Customer
Agreements as of the Closing Date and the value and Decremented Minutes
associated with each such Lost Customer Agreement.
"Actual Working Capital Adjustment" means the Working Capital
Adjustment based upon the actual amount of Working Capital as of the day prior
to the Closing Date as indicated in the Closing Statements delivered pursuant to
Section 13.2.
-11-
"Actual Adjustments" means the Actual First Decremented
Minutes Adjustment, the Actual Second Decremented Minutes Adjustment, the Actual
First Revenue Adjustment, the Actual Second Revenue Adjustment, the Actual Lost
Customer Adjustment, the Actual Impaired Customer Adjustment, and the Actual
Working Capital Adjustment.
-12-