Exhibit 10.1
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MEMBERSHIP INTEREST PURCHASE AGREEMENT
among
CITIZENS COMMUNICATIONS COMPANY,
CU CAPITAL LLC
and
INTEGRA TELECOM HOLDINGS, INC.
February 6, 2006
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TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS; INTERPRETATION............................................................................1
1.1 DEFINITIONS.........................................................................................1
1.2 INTERPRETATION.....................................................................................11
ARTICLE 2. PURCHASE AND SALE.....................................................................................12
2.1 PURCHASE AND SALE..................................................................................12
2.2 PAYMENT OF THE PURCHASE PRICE......................................................................12
2.3 PURCHASE PRICE ADJUSTMENT..........................................................................13
2.4 ALLOCATION.........................................................................................14
2.5 RETAINED ASSETS; ELIMINATION OF INTERCOMPANY DEBT..................................................15
2.6 PURCHASE DEPOSIT...................................................................................15
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLERS.............................................................15
3.1 AUTHORITY OF SELLERS...............................................................................15
3.2 CAPITALIZATION; OWNERSHIP..........................................................................16
3.3 ORGANIZATION; SUBSIDIARIES.........................................................................16
3.4 NO CONFLICTS; CONSENTS AND APPROVALS...............................................................16
3.5 REAL PROPERTY; NETWORK AND CONDITION OF ASSETS.....................................................17
3.6 INTELLECTUAL PROPERTY..............................................................................19
3.7 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES...........................................20
3.8 NO MATERIAL ADVERSE CHANGE.........................................................................22
3.9 TAX MATTERS........................................................................................22
3.10 LITIGATION.........................................................................................23
3.11 EMPLOYEE BENEFITS AND RELATED MATTERS..............................................................24
3.12 MATERIAL CONTRACTS.................................................................................25
3.13 COMMUNICATIONS LICENSES............................................................................26
3.14 BROKERS AND FINDERS................................................................................27
3.15 EMPLOYEES..........................................................................................27
3.16 ENVIRONMENTAL......................................................................................27
3.17 COMPLIANCE WITH LAWS; LICENSES.....................................................................28
3.18 ABSENCE OF CHANGES.................................................................................28
3.19 TRANSACTIONS WITH AFFILIATES.......................................................................29
3.20 INSURANCE..........................................................................................29
3.21 CUSTOMERS..........................................................................................29
3.22 CONSTRUCTION-IN-PROGRESS...........................................................................29
3.23 T1 LOOPS...........................................................................................29
3.24 CIRCUIT LEASES.....................................................................................30
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................................................30
4.1 AUTHORITY OF PURCHASER.............................................................................30
4.2 CONSENTS AND APPROVALS.............................................................................30
4.3 BROKERS, ETC.......................................................................................30
4.4 SECURITIES.........................................................................................30
4.5 FINANCING..........................................................................................31
4.6 SOLVENCY...........................................................................................31
4.7 FINANCIAL STATEMENTS...............................................................................31
4.8 MATERIAL ADVERSE CHANGE............................................................................32
4.9 INDEPENDENT INVESTIGATION..........................................................................32
4.10 LEGAL QUALIFICATIONS...............................................................................32
ARTICLE 5. COVENANTS.............................................................................................32
5.1 REASONABLE BEST EFFORTS; REGULATORY APPROVALS; THIRD PARTY CONSENTS................................32
5.2 PRE-CLOSING ACCESS.................................................................................34
5.3 OPERATION OF BUSINESS PRIOR TO CLOSING.............................................................34
5.4 CONFIDENTIALITY....................................................................................36
5.5 EMPLOYEE MATTERS...................................................................................37
5.6 RECORDS; POST-CLOSING ACCESS TO INFORMATION........................................................39
5.7 CONTINUED OPERATIONS...............................................................................39
5.8 COMMUNICATIONS LICENSES............................................................................39
5.9 NOTICE OF DEVELOPMENTS.............................................................................40
5.10 COOPERATION IN LITIGATION..........................................................................41
5.11 TRANSFER OF RETAINED ASSETS........................................................................41
5.12 REASONABLE BEST EFFORTS TO OBTAIN FINANCING........................................................41
5.13 EXCLUSIVITY........................................................................................42
5.14 AUDIT..............................................................................................42
5.15 ENVIRONMENTAL INVESTIGATION........................................................................42
5.16 INSURANCE..........................................................................................43
5.17 CONTINUED FINANCIALS...............................................................................43
5.18 PURCHASER'S FINANCIALS.............................................................................43
5.19 COVENANT NOT TO COMPETE; NON-SOLICITATION..........................................................43
5.20 COOPERATION IN TRANSITION..........................................................................44
5.21 NO ADDITIONAL REPRESENTATIONS......................................................................45
5.22 LONG DISTANCE SERVICES.............................................................................45
ARTICLE 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER......................................................46
6.1 WARRANTIES TRUE AS OF PRESENT DATE AND CLOSING DATE................................................46
6.2 COMPLIANCE WITH AGREEMENTS AND COVENANTS...........................................................46
6.3 COMPETITION LAW APPROVALS..........................................................................46
6.4 TRANSACTION DOCUMENTS..............................................................................46
6.5 CONSENTS...........................................................................................46
6.6 INJUNCTIONS........................................................................................46
6.7 CERTIFICATE........................................................................................46
6.8 DELIVERIES BY SELLERS..............................................................................46
6.9 FINANCING..........................................................................................46
6.10 AUDITED FINANCIAL STATEMENTS.......................................................................46
ARTICLE 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS........................................................46
7.1 WARRANTIES TRUE AS OF PRESENT DATE AND CLOSING DATE................................................47
7.2 COMPLIANCE WITH AGREEMENTS AND COVENANTS...........................................................47
7.3 COMPETITION LAW APPROVALS..........................................................................47
7.4 TRANSFER OF RETAINED ASSETS........................................................................47
7.5 TRANSACTION DOCUMENTS..............................................................................47
7.6 INJUNCTIONS........................................................................................47
7.7 CERTIFICATE........................................................................................47
7.8 DELIVERIES BY PURCHASER............................................................................47
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ARTICLE 8. CLOSING; TERMINATION..................................................................................47
8.1 CLOSING............................................................................................47
8.2 DELIVERIES OF SELLERS..............................................................................47
8.3 DELIVERIES OF PURCHASER............................................................................48
8.4 TERMINATION........................................................................................48
8.5 FURTHER ASSURANCES.................................................................................49
ARTICLE 9. SURVIVAL AND INDEMNIFICATION..........................................................................49
9.1 SURVIVAL...........................................................................................49
9.2 INDEMNIFICATION BY PARENT..........................................................................50
9.3 INDEMNIFICATION BY PURCHASER.......................................................................50
9.4 BASKET FOR CLAIMS..................................................................................50
9.5 NET LOSSES; SUBROGATION; MITIGATION................................................................51
9.6 CLAIMS.............................................................................................51
9.7 NOTICE OF THIRD PARTY CLAIMS; ASSUMPTION OF DEFENSE................................................52
9.8 SETTLEMENT OR COMPROMISE...........................................................................52
9.9 LIMITATIONS ON LIABILITY...........................................................................53
9.10 EXCLUSIVE REMEDY...................................................................................53
9.11 PURCHASE PRICE ADJUSTMENTS.........................................................................53
ARTICLE 10. TAX MATTERS..........................................................................................53
10.1 FILING TAX RETURNS; PAYMENT OF TAXES...............................................................53
10.2 COOPERATION ON TAX MATTERS.........................................................................54
10.3 TAX INDEMNIFICATION................................................................................54
10.4 REFUNDS............................................................................................54
10.5 AUDITS AND CONTESTS WITH RESPECT TO TAXES..........................................................55
10.6 AUDIT ADJUSTMENTS..................................................................................56
10.7 TAX WITHHOLDING....................................................................................56
10.8 TAX SHARING AGREEMENTS.............................................................................57
ARTICLE 11. MISCELLANEOUS........................................................................................57
11.1 EXPENSES...........................................................................................57
11.2 AMENDMENT..........................................................................................57
11.3 NOTICES............................................................................................57
11.4 WAIVERS............................................................................................58
11.5 COUNTERPARTS.......................................................................................58
11.6 HEADINGS...........................................................................................58
11.7 APPLICABLE LAW.....................................................................................58
11.8 ASSIGNMENT.........................................................................................59
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11.9 NO THIRD PARTY BENEFICIARIES.......................................................................59
11.10 SCHEDULES..........................................................................................59
11.11 INCORPORATION......................................................................................59
11.12 COMPLETE AGREEMENT.................................................................................59
11.13 PUBLIC ANNOUNCEMENTS...............................................................................59
11.14 SEVERABILITY.......................................................................................59
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Exhibits
--------
Exhibit A.........Retained Assets
Exhibit B-1.......Transition Services Agreement (Option A)
Exhibit B-2.......Transition Services Agreement (Option B)
Exhibit C-1.......Lease
Exhibit C-2.......Lease
Exhibit D Letter Agreement
Exhibit E [Reserved]
Exhibit F.........Confidentiality Agreement
Exhibit G.........Commitment Letters
Exhibit H.........Purchaser's Severance Arrangements
Exhibit I.........Purchaser's Financial Statements
Exhibit J.........Regulatory Opinion
Schedules
Schedule 1.1(a) Indebtedness
Schedule 1.1(b) Permitted Liens
Schedule 1.1(c) State PUC Consents
Schedule 2.4 Allocation of Purchase Price
Schedule 3.2 Capitalization; Ownership
Schedule 3.3 Organization; Subsidiaries
Schedule 3.4 No Conflicts; Consents and Approvals
Schedule 3.5 Real Property; Network and Condition of Assets
Schedule 3.6 Intellectual Property
Schedule 3.7 Financial Statements; Absence of Undisclosed
Liabilities
Schedule 3.8 Material Adverse Change
Schedule 3.9 Tax Matters
Schedule 3.10 Litigation
Schedule 3.11 Employee Benefits
Schedule 3.12 Material Contracts
Schedule 3.13 Communications Licenses
Schedule 3.15 Employees
Schedule 3.16 Environmental
Schedule 3.17 Compliance with Laws; Licenses
Schedule 3.18 Absence of Change
Schedule 3.19 Transactions with Affiliates
Schedule 3.20 Insurance
Schedule 3.21 Customers
Schedule 3.22 Construction-in-Progress
Schedule 3.23 T1 Loops
Schedule 3.24 Circuit Leases
Schedule 5.3 Operation of Business Prior to Closing
Schedule 5.20 Cooperation in Transition
Schedule 6.5 Consents
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MEMBERSHIP INTEREST PURCHASE AGREEMENT
This MEMBERSHIP INTEREST PURCHASE AGREEMENT is entered into as of the 6th
day of February, 2006 between Citizens Communications Company, a Delaware
corporation ("Parent"), CU Capital LLC, a Delaware limited liability company
("CU Capital" and collectively with Parent, "Sellers"), and Integra Telecom
Holdings, Inc., an Oregon corporation ("Purchaser").
WHEREAS, Parent is the sole member of CU Capital, and owns 100% of the
outstanding membership interests in CU Capital;
WHEREAS, CU Capital is the sole member of Electric Lightwave, LLC, a
Delaware limited liability company (together with its corporate predecessor
entity, the "Company"), and owns 100% of the outstanding membership interests in
the Company;
WHEREAS the Company is in the business of providing local telephone, data,
network, and long distance services to small and medium enterprises as well as
wholesale carrier services to other communications companies over its
communications network (the "Business");
WHEREAS, subject to the terms and conditions set forth herein, CU Capital
desires to sell, assign and transfer to Purchaser, and Purchaser desires to
purchase and take assignment and delivery from CU Capital of, all of the issued
and outstanding membership interests of the Company;
WHEREAS, prior to the Closing, the Company shall transfer certain assets
set forth on Exhibit A hereto (the "Retained Assets") to an entity designated by
Parent and such Retained Assets shall not be included as part of the Business
being acquired by Purchaser in connection with the transactions contemplated
hereby;
WHEREAS, simultaneously with the Closing, Parent and Purchaser shall enter
into a Transition Services and Network Sharing Agreement in either the form
attached hereto as Exhibit B-1 or Exhibit B-2, as provided in Section 5.20 (the
form of such agreement actually entered into by Parent and Purchaser being
referred to as the "Transition Services Agreement"), pursuant to which Parent
shall provide Purchaser with certain transition services and Purchaser will
share its network with Parent for a specified period of time after the Closing
(as defined in Section 2.1);
WHEREAS, simultaneously with the Closing, Parent and Purchaser shall enter
into leases in the forms attached hereto as Exhibits C-1 and C-2 (collectively,
the "Lease") pursuant to which Parent shall lease a portion of the Headquarters
(as defined below) to Purchaser for a specified period of time after the
Closing; and
WHEREAS, simultaneously with the execution of this Agreement, Parent and
Purchaser are entering into a letter agreement in the form attached hereto as
Exhibit D (the "Letter Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, Purchaser and Sellers agree as follows:
ARTICLE 1.
DEFINITIONS; INTERPRETATION
1.1 Definitions. The following terms shall have the following meanings for
the purposes of this Agreement:
"Adjusted Purchase Price" shall have the meaning set forth in Section 2.3.
"Affiliate" means with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" having meanings correlative to the
foregoing.
"Affiliated Group" means any affiliated group within the meaning of Section
1504 of the Code or any similar group defined under a similar provision of
state, local or foreign Law.
"Agreement" means this Membership Interest Purchase Agreement, including
all Appendices, Schedules and Exhibits hereto, as it may be amended from time to
time in accordance with its terms.
"Agreement to Sell" shall have the meaning set forth in Section 3.2.
"Another Transaction" shall have the meaning set forth in Section 5.13.
"Assigning Party" shall have the meaning set forth in Section 11.8.
"Audit" shall have the meaning set forth in Section 5.14.
"Audited Financial Statements" shall have the meaning set forth in Section
5.14.
"Benefit Plans" means employee benefit plan, program, policy, arrangement
or agreement, including "employee welfare benefit plans" and "employee pension
benefit plans", as defined in Sections 3(1) and 3(2), respectively, of ERISA,
(i) sponsored, maintained or contributed to by the Company or to which the
Company is a party, (ii) covering or benefiting any current or former employee,
officer, director, or manager of the Company (or any dependent or beneficiary of
any such individual), or (iii) with respect to which the Company has (or could
have) any obligation or liability.
"Business" shall have the meaning set forth in the recitals of this
Agreement.
"Business Day" means any day of the year other than (a) any Saturday or
Sunday, or (b) any other day on which banks located in New York, New York or
Stamford, Connecticut generally are closed for business.
"Carrier Agreement" shall have the meaning set forth in Section 3.5.
"Closing" shall have the meaning set forth in Section 2.1.
"Closing Balance Sheet" shall have the meaning set forth in Section 2.3.
"Closing Cash" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 8.1.
"Closing Indebtedness" shall have the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended, and all
regulations, rulings and other pronouncements issued thereunder, as in effect
from time to time.
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"Communications Act" shall mean the Communications Act of 1934, as amended,
and the FCC Rules.
"Commitment Letters" shall have the meaning set forth in Section 4.5.
"Communications Contracts" means all Network Agreements and all agreements,
joint venture agreements, purchase and sale agreements, service agreements,
license agreements, technology agreements, manufacture or vendor agreements,
supply agreements, Licenses and any other agreements to which the Company is a
party or by which it is bound that are material to the operation of the Business
as currently operated by the Company and that involve or relate to
Communications Equipment, including municipal franchises and other contracts,
agreements, permits or Licenses granting the Company access to or use of private
or public rights-of-way and including software Licenses necessary to operate the
Communications Equipment, in each case that are material to the operation of the
Business as currently operated by the Company, other than Communications
Licenses. Communications Contracts shall not include any Retained Contracts.
"Communications Equipment" means, whether owned or leased, the Metropolitan
Access Network, Long Haul Fiber Route and any switch, router, node or other
electronic equipment or software or other equipment used in providing local
telephone, data, network, and long distance services to small and medium
enterprises or providing wholesale carrier services to other communications
companies over its communications network.
"Communications Licenses" means the FCC Licenses and the State PUC
Licenses. Municipal franchises and other contracts, agreements, permits or
Licenses granting the Company access to or use of public rights-of-way are not
included within the term Communications Licenses.
"Company" shall have the meaning set forth in the recitals of this
Agreement.
"Company Benefit Plan" shall have the meaning set forth in Section 3.11.
"Company Employee" shall have the meaning set forth in Section 3.15.
"Competing Business" shall have the meaning set forth in Section 5.19.
"Confidentiality Agreement" means that certain confidentiality letter
agreement, dated October 27, 2005, between Parent and Integra Telecom, Inc., a
copy of which is attached as Exhibit F hereto.
"Controlled Group Liability" shall have the meaning set forth in Section
3.11.
"CU Capital" shall have the meaning set forth in the preamble hereof.
"Damages" shall have the meaning set forth in Section 9.2(a).
"Deposit" shall have the meaning set forth in Section 2.6.
"Dispute Notice" shall have the meaning set forth in Section 2.3(a).
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"Environment" shall mean any of the following media:
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(i) land, including surface land, sub-surface strata, sea bed and
river bed under water (as defined in clause (ii) hereof) and any natural or
man-made structures;
(ii) water, including coastal and inland waters, surface waters,
ground waters, drinking water supplies and waters in drains and sewers,
surface and sub-surface strata; and
(iii) air, including indoor and outdoor air.
"Environmental Laws" means all Laws relating to protection of the
Environment and Releases of Hazardous Substances, including the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as
amended, the Clean Water Act, as amended, the Clean Air Act, as amended, and any
applicable United States federal, state or local Law having a similar subject
matter.
"Environmental Matter" shall mean:
(i) pollution or contamination of the Environment, including soil or
groundwater contamination or the occurrence or the existence of or the
continuation of the existence of a Release;
(ii) the treatment, disposal or Release of any Hazardous Substance;
(iii) exposure of any person to any Hazardous Substance; or
(iv) the material violation of any Environmental Law or any
Environmental Permit.
"Environmental Permit" shall mean any License issued, granted or required
under Environmental Laws, including Licenses relating to the disposal of
batteries.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all regulations, rulings and other pronouncements issued
thereunder, as in effect from time to time.
"ERISA Affiliate" shall have the meaning set forth in Section 3.11.
"Estimated Balance Sheet" shall have the meaning set forth in Section 2.2.
"Estimated Purchase Price" shall have the meaning set forth in Section 2.2.
"Estimated Working Capital" shall have the meaning set forth in Section
2.2.
"Excluded Cash" shall have the meaning set forth in Section 2.2.
"Exclusivity Period" shall have the meaning set forth in Section 5.13.
"FCC" means the Federal Communications Commission or any successor agency
thereof.
"FCC Consent" means the grant by the FCC of its consent in connection with
the consummation of the transactions contemplated hereby.
"FCC Licenses" means all Licenses issued or granted by the FCC to the
Company.
4
"FCC Rules" means all rules, regulations, published policies and decisions
of the FCC promulgated under the Communications Act of 1934, as amended, or
other statutory authority.
"FICA" means the Federal Insurance Contributions Act.
"Final Closing Cash" shall have the meaning set forth in Section 2.3.
"Final Closing Indebtedness" shall have the meaning set forth in Section
2.3.
"Final Order" means a written action, decision or order issued by the FCC
or a State PUC setting forth the consent of the FCC or the State PUC (a) which
has not been reversed, stayed, enjoined set aside, annulled or suspended, and
(b) with respect to which (i) no requests have been filed for administrative or
judicial review, reconsideration, appeal or stay, and the applicable time for
filing any such requests and for the FCC or the State PUC to set aside the
action on its own motion (whether upon reconsideration or otherwise) has
expired, or (ii) in the event of review, reconsideration or appeal, the time for
further review, reconsideration or appeal has expired.
"Final Working Capital" shall have the meaning set forth in Section 2.3.
"Financial Statements" means, collectively, (a) (i) the consolidated
unaudited statements of earnings, cash flows and owners' equity of the Company
and the Subsidiary for the year ended December 31, 2004, and (ii) the
consolidated unaudited balance sheet of the Company and the Subsidiary as of
December 31, 2004, and (b) (i) the consolidated unaudited statements of
earnings, cash flows and owners' equity of the Company and the Subsidiary for
the year ended December 31, 2005, and (ii) the consolidated unaudited balance
sheet of the Company and the Subsidiary as of December 31, 2005, (the "Latest
Balance Sheet" and collectively with the items referred to in (b)(i), the
"Latest Financial Statements") all of which are attached hereto as Schedule 3.7.
"Financing" shall have the meaning set forth in Section 4.5.
"Franchise Agreements" means the municipal franchises that are necessary
for the operation of the Business as currently conducted by the Company and
other material contracts, agreements, permits or Licenses granting the Company
access to or use of public rights-of-way.
"FSAs" shall have the meaning set forth in Section 5.5.
"GAAP" means United States generally accepted accounting principles in
effect from time to time.
"GAAP Exceptions" shall have the meaning set forth in Section 3.7.
"Governmental Authority" means any U.S. federal, state or municipal entity
or government and any political subdivision or other executive, legislative,
administrative, judicial or other governmental department, commission, court,
board, bureau, agency or instrumentality.
"Governmental Required Consents" means (i) all applicable waiting periods
under the HSR Act shall have expired or been terminated, (ii) the FCC Consents
and (iii) the State PUC Consents.
"Gross Purchase Price" shall have the meaning set forth in Section 2.2.
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"Hazardous Substance" shall mean, collectively, any (a) petroleum or
petroleum products, or derivative or fraction thereof, radioactive materials
(including radon gas), asbestos in any form that is friable, urea-formaldehyde
foam insulation ("UFI"), lead paint and polychlorinated biphenyls ("PCBs"), and
(b) any chemical, material, substance or waste, which is now defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "toxic substances," "restricted hazardous wastes,"
"contaminants," or "pollutants", in each case as regulated under Environmental
Laws, including materials that are deemed hazardous pursuant to any
Environmental Laws.
"Headquarters" shall mean the building currently used as the Company's
headquarters located at ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended.
"Income Taxes" means federal, state, local or foreign income or franchise
Taxes or other Taxes measured in whole or in part by income or profits and any
interest and penalties or additions thereon.
"Income Tax Returns" means any Tax Returns of or with respect to Income
Taxes.
"Indebtedness" means (a) any indebtedness for borrowed money or guarantees
of any such indebtedness (excluding any intercompany indebtedness that is
extinguished as provided for in Section 2.5) and (b) any liabilities relating to
any capital lease obligation of the Company arising out of any agreement set
forth on Schedule 1.1(a).
"Indemnified Party" means a Seller Indemnified Party or a Purchaser
Indemnified Party, as applicable.
"Indemnifying Party" means the Person or Persons claimed by the Indemnified
Party to be obligated to provide indemnification under Article 9.
"Intellectual Property" means United States and foreign: (a) registered and
unregistered trade names, trademarks and service marks, (b) patent registrations
and patent applications, (c) copyrights and copyright registrations and
copyright applications therefor and (d) know-how, trade secrets, confidential
information, database rights, domain names, IP numbering blocks, autonomous
system numbers, customer lists, inventions, designs, drawings, blueprints,
proprietary software and all other intellectual and industrial property rights
and equivalent or similar forms of protection, other than off-the-shelf computer
software.
"Interconnection Agreement" shall have the meaning set forth in Section
3.5.
"Interim Conversion Work" shall have the meaning set forth in Section 5.20.
"IRS" means the Internal Revenue Service.
"IRU" means an irrefutable or indefeasible right of use agreement.
"Latest Balance Sheet" shall have the meaning referred to in the definition
of Financial Statements.
"Latest Financial Statements" shall have the meaning referred to in the
definition of Financial Statements.
6
"Law" means any law, statute, regulation, published policy, ordinance,
rule, order, decree, judgment, consent decree or governmental requirement
enacted, promulgated, entered into or imposed by any Governmental Authority.
"LD" means long distance originating traffic services, terminating traffic
services, operator assistance, directory assistance and any other related
services currently provided to the Company by the Company's or Parent's existing
LD carriers.
"Leased Real Property" shall have the meaning set forth in Section 3.5(b).
"Letter Agreement" shall have the meaning set forth in the recitals of this
Agreement.
"License" means all licenses, franchises, permits, consents, waivers,
registrations, certificates, and other permits, authorizations or approvals
issued or granted or required to be issued or granted by a Governmental
Authority for the operation of the Business and/or for the ownership, lease or
operation of the Company's properties. Except when used specifically in the
context of the Communications Licenses, the term License shall exclude any
Communications License.
"Lien" means any lien, security interest, charge, claim, mortgage,
servitude, easement, right of way, equitable interest, possessory interest,
pledge, preference, priority, deed of trust, option, interest under a
conditional sale agreement, assignment, lease or other encumbrance.
"Long-Haul Agreement" shall have the meaning set forth in Section 3.5.
"Long Haul Fiber Route" means the fiber network used by the Company that
connects the Metropolitan Access Network.
"Material Adverse Effect" means a material adverse change or effect (or any
development that is reasonably likely to result in any such change or effect) on
the assets, operations, results of operation or condition (financial or
otherwise) of the Company; provided, that, for purposes of this Agreement, a
Material Adverse Effect shall not include changes or effects resulting from (a)
changes to the U.S. or global economy, as a whole, or the industry or markets in
which the Company operates, unless in case of this clause (a), the changes
adversely effect the Company in a disproportionate manner, (b) changes in the
financial, banking or securities market conditions (including any disruption
thereof and any decline in the price of any security (including any security of
Parent) or any market index), (c) the announcement or disclosure of the
transactions contemplated herein, (d) military action or any act of terrorism or
any worsening thereof, unless in case of this clause (d), the changes adversely
effect the Company in a disproportionate manner, (e) changes in regulatory or
political conditions generally unless in case of this clause (e), the changes
adversely effect the Company in a disproportionate manner, or (f) compliance
with specific instructions from Purchaser in accordance with the terms of this
Agreement.
"Material Contracts" means (other than the Retained Contracts) all
agreements, joint venture agreements, purchase and sale agreements, service
agreements, license agreements, technology agreements, manufacture or vendor
agreements, supply agreements, debt agreements and any other agreements (and any
amendments or supplements thereto) to which the Company is a party or by which
it is bound that is or involves:
(a) aggregate payments by or to the Company in excess of $500,000 in
any given year or has an aggregate future liability or payment
from or to any Person in excess of $2,500,000;
7
(b) employment of any person or non-employee sales representative or
agent to the extent, with respect to non-employee sales
representatives or agents, there has been more than $150,000 in
payments under the agreement in either of the last two calendar
years;
(c) a covenant not to compete or other covenant of the Company
restricting the Company from engaging in any business;
(d) any manager, member or Affiliate of the Company or any current or
former officer or employee of the Company or any of its
Affiliates (other than the employment agreements covered by
sub-clause (b) above);
(e) the granting of a Lien (other than a Permitted Lien) upon any
material Company asset;
(f) indemnification of any Person with respect to liabilities
relating to any current or former business of the Company or any
predecessor Person;
(g) an agreement not made in the ordinary course of business and that
is material to the Business;
(h) any Governmental Authority that is material to the Business;
(i) a joint venture or partnership;
(j) any Real Property Agreement, Network Agreement and any other
Communication Contract; or
(k) a license, sublicense, option or other agreement relating in
whole or in part to the material Intellectual Property of or used
by the Company.
"Metropolitan Access Network" means the fiber network used by the Company
within each of the Company's business market areas.
"Network Agreement" means each Franchise Agreement, Interconnection
Agreement, Carrier Agreement, material Metropolitan Access Network Agreement and
material Long Haul Agreement.
"New Plans" shall have the meaning set forth in Section 5.5.
"Non-assigning Party" shall have the meaning set forth in Section 11.8.
"Option Agreement" shall have the meaning set forth in Section 3.2.
"Owned Real Property" shall have the meaning set forth in Section 3.5(a).
"Parent" shall have the meaning set forth in the preamble hereof.
"Parent Plan" shall have the meaning set forth in Section 3.11.
8
"Permitted Liens" means: (a) Liens in respect of liabilities to the extent
shown or reflected as Liens on the Latest Balance Sheet or disclosed on Schedule
1.1(b), (b) Liens arising by operation of Law for Taxes or other governmental
charges not yet due and payable or due but not delinquent or being contested in
good faith by appropriate proceedings, (c) Liens arising by operation of Law, in
the ordinary course of business, including Liens arising by virtue of the rights
of customers, suppliers and subcontractors in the ordinary course of business
under general principles of commercial Law that do not detract from the value of
the property or the use thereof in any material respect and that are for amounts
not due and payable, (d) Liens securing rental payments under capital lease
arrangements disclosed on Schedule 1.1(a), (e) restrictions on the
transferability of securities arising under applicable securities Laws, (f)
restrictions arising under applicable zoning and other land use Laws that do
not, individually or in the aggregate, materially detract from the present use
or occupancy of the property subject thereto, (g) defects in title, easements,
rights of way, restrictions, covenants, or similar items relating to real
property that do not, individually or in the aggregate, materially detract from
the present use or occupancy of, or materially detract from the value of, the
real property subject thereto, and (h) Liens arising under leases to lessees of
a portion of the Owned Real Property that are disclosed in the Schedules to this
Agreement.
"Person" means any individual, corporation, partnership, association,
limited liability company, trust, governmental or quasi-governmental authority
or body or other entity or organization.
"Portland Franchise Dispute" shall have the meaning set forth on Schedule
3.10.
"Pre-Closing Tax Periods" shall have the meaning set forth in Section
10.1(a).
"Proposed Final Balance Sheet" shall have the meaning set forth in Section
2.3.
"Proposed Final Statements" shall have the meaning set forth in Section
2.3.
"Proposed Final Working Capital" shall have the meaning set forth in
Section 2.3.
"Purchase Price" shall have the meaning set forth in Section 2.2(a).
"Purchased Business Markets" shall have the meaning set forth in Section
5.20.
"Purchased Interests" shall have the meaning set forth in Section 2.1.
"Purchaser" shall have the meaning set forth in the preamble hereof.
"Purchaser Flexible Spending Plan" shall have the meaning set forth in
Section 5.5.
"Purchaser Indemnified Party(ies)" shall have the meaning set forth in
Section 9.2.
"Purchaser's knowledge," or variations thereof, means the actual knowledge
of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, and ▇▇▇ ▇▇▇▇▇▇▇.
"Purchaser's Severance Arrangements" shall have the meaning set forth in
Section 5.5.
"Real Property" means the Owned Real Property and the Leased Real Property.
"Real Property Agreement" shall have the meaning set forth in Section
3.5(b).
"Records" shall have the meaning set forth in Section 5.6(b).
"Regulations" shall mean the Treasury Regulations promulgated under the
Code.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, migration or leaching of any
Hazardous Substances into the Environment, and "Released" shall be construed
accordingly.
9
"Required Cash Amount" shall have the meaning set forth in Section 4.5.
"Retained Assets" shall mean those assets set forth on Exhibit A to this
Agreement.
"Retained Contracts" means those contracts to which the Company is a party
that are included in the Retained Assets on Exhibit A hereto.
"Retained Employees" shall have the meaning set forth in Section 5.5(a).
"Reviewing Accountant" shall have the meaning set forth in Section 2.3.
"Schedules" means the schedules attached to this Agreement and forming
part of this Agreement.
"▇▇▇▇▇-▇▇▇▇" shall have the meaning set forth in the recitals of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Sellers" shall have the meaning set forth in the preamble hereof.
"Seller Flexible Spending Plan" shall have the meaning set forth in Section
5.5.
"Seller Indemnified Party(ies)" shall have the meaning set forth in Section
9.3.
"Seller Savings Plan" means the Citizens 401(k) Savings Plan.
"Sellers' knowledge," or variations thereof, means the actual knowledge of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ Best, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and
▇▇▇ ▇▇▇▇▇▇.
"Settlement Proposal" shall have the meaning set forth in Section 5.10(b).
"State PUC" means any state or local governmental department or commission
having regulatory authority over the Business, as conducted in any jurisdiction.
"State PUC Consents" means the grant by any State PUC to the Company of its
consent in each applicable jurisdiction in connection with the consummation of
the transactions contemplated hereby, as set forth on Schedule 1.1(c).
"State PUC Licenses" means all Licenses issued by a State PUC to the
Company in each applicable jurisdiction.
"Straddle Period" means any Tax Period beginning before the Closing Date
and ending after the Closing Date.
"Subsidiary" shall have the meaning set forth in Section 3.3.
"Tax" or "Taxes" mean (i) all taxes, charges, fees, duties, levies or other
assessments, including income, gross receipts, capital stock, net proceeds, ad
valorem, turnover, real, personal and other property (tangible and intangible),
sales, use, franchise, excise, value added, stamp, leasing, lease, user,
transfer, fuel, excess profits, occupational, interest equalization, windfall
profits, unitary, severance and employees' income withholding, unemployment and
Social Security taxes, duties, assessments and charges (including the recapture
of any tax items such as investment tax credits), which are imposed by any
Governmental Authority, including any interest, penalties or additions to tax
related thereto imposed by any Governmental Authority with respect to such
Taxes, (ii) liabilities in respect of any items described in clause (i) payable
by reason of being a member of an Affiliated Group for any period, and (iii)
liabilities in respect of any items described in clause (i) or (ii) payable as a
result of any express or implied obligation to indemnify any other Person with
respect to such amount by reason of contract, assumption, transferee liability,
operation of Law or otherwise, including any liability for Taxes of a
predecessor or transferor entity.
10
"Tax Advantage" means the amount of any refund, credit or reduction in
otherwise required Tax payments (net of any reduction of depreciation,
amortization or other deductions as a result of an adjustment to the Purchase
Price) actually realized in the Tax year in which the event occurs giving rise
to the related Damages.
"Tax Benefits" shall have the meaning set forth in Section 10.6(a).
"Tax Detriments" shall have the meaning set forth in Section 10.6(a).
"Tax Period" or "Taxable Period" means any period prescribed by any
Governmental Authority for which a Tax Return is required to be filed or a Tax
is required to be paid.
"Tax Return" means any return, report, information return or other document
(including any related or supporting information) filed or required to be filed
with any Governmental Authority in connection with the determination, assessment
or collection of any Tax or the administration of any Laws, regulations or
administrative requirements relating to any Tax.
"Third Party Claim" shall have the meaning set forth in Section 9.9.
"Transaction Documents" means, when used in reference to Sellers, this
Agreement, the Transition Services Agreement, the Lease, the Letter Agreement
and the certificate delivered by Sellers pursuant to Section 6.7 and, when used
in reference to Purchaser, this Agreement, the Transition Services Agreement,
the Lease, the Letter Agreement and the certificate delivered by Purchaser
pursuant to Section 7.7.
"Transition Services Agreement" shall have the meaning set forth in the
recitals of this Agreement.
"Working Capital" shall have the meaning set forth in Section 2.2.
1.2 Interpretation. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The headings preceding the text of Articles
and Sections included in this Agreement and the headings to Schedules attached
to this Agreement are for convenience only and shall not be deemed part of this
Agreement or be given any effect in interpreting this Agreement. The use of the
masculine, feminine or neuter gender or the singular or plural form of words
herein shall not limit any provision of this Agreement. The use of the terms
"including" or "include" shall in all cases herein mean "including, without
limitation" or "include, without limitation," respectively. Reference to any
Person includes such Person's successors and assigns to the extent such
successors and assigns are permitted by the terms of any applicable agreement.
Reference to any agreement (including this Agreement), document or instrument
means such agreement, document or instrument as amended or modified and in
effect from time to time in accordance with the terms thereof and, if
applicable, the terms hereof. References to any federal, state, local, or
foreign statute or Law shall be deemed to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. Underscored
references to Articles, Sections, paragraphs, clauses, Exhibits or Schedules
shall refer to those portions of this Agreement. The use of the terms
"hereunder," "hereof," "hereto" and words of similar import shall refer to this
Agreement as a whole and not to any particular Article, Section, paragraph or
clause of, or Exhibit or Schedule to, this Agreement. "As presently conducted"
or "as currently conducted" with respect to the Company or the Business means
the consistent conduct of the Business or Company as of and since December 31,
2004.
11
ARTICLE 2.
PURCHASE AND SALE
2.1 Purchase and Sale. Subject to the terms and conditions hereof, at the
closing of the transactions contemplated hereby (the "Closing"), CU Capital
shall sell, assign and deliver to Purchaser free and clean of any Lien other
than those related to transferability under applicable securities Laws, and
Purchaser shall purchase and take assignment and delivery of all of the
membership interests of the Company (the "Purchased Interests") owned by CU
Capital, representing all of the issued and outstanding membership interests of
the Company.
2.2 Payment of the Purchase Price.
(a) Subject to the provisions of Section 2.3, the purchase price (the
"Purchase Price") payable by Purchaser by wire transfer of immediately
available funds to Parent, on behalf of Sellers, for the Purchased
Interests shall be that amount equal to:
(i) $247,286,922 (the "Gross Purchase Price"), minus
(ii) that amount equal to all Indebtedness of the Company as of
the Closing Date (the "Closing Indebtedness") based on the Estimated
Balance Sheet;
(iii) if the Estimated Working Capital (as defined below) is
greater than zero, then plus the amount by which the Estimated Working
Capital exceeds zero, or if the Estimated Working Capital is less than
zero, then minus the amount by which the Estimated Working Capital is
less than zero.
Immediately prior to the Closing, Sellers shall cause the Company to
distribute all of its cash and cash equivalents as of the Closing Date
(excluding cash or cash equivalents (i) supporting payment or performance bonds
or similar instruments or deposits or (ii) reserved for the Portland Franchise
Dispute, if any, such amount referred to as "Excluded Cash") (the cash and cash
equivalents to be distributed as aforesaid being referred to as the "Closing
Cash"), based on the Estimated Balance Sheet (as defined below) but subject to
adjustment as set forth below.
(b) Sellers shall cause the Company to deliver to Purchaser at least
three (3) Business Days prior to the Closing Date, an estimated balance
sheet (the "Estimated Balance Sheet"), showing the estimated amounts of
Closing Cash and Closing Indebtedness, along with a reasonable estimation
of Working Capital as of the Closing Date (the "Estimated Working Capital")
prepared in good faith and in accordance with GAAP (applied on a consistent
basis with the Financial Statements but not subject to the exception set
forth in Section 3.7(a)(ii)(z)), and a notice specifying the "Estimated
Purchase Price" after giving effect to such deductions from and additions
to the Gross Purchase Price based on the Estimated Balance Sheet (including
the estimates of Closing Indebtedness and Closing Cash reflected therein)
and the Estimated Working Capital. Purchaser shall have an opportunity to
review and object to the Estimated Balance Sheet, such review to be prompt
and any objection to be reasonable and in good faith. Parent shall consider
such objections in good faith but Parent's reasonable determination of the
Estimated Working Capital shall be final and binding for purposes of
Closing.
12
(c) Working Capital. For purposes of this Agreement, "Working Capital"
means the excess of "current assets" of the Company (other than Closing
Cash) over "current liabilities" of the Company, determined in good faith
using the same accounting principles, practices, procedures, policies and
methods that were employed by the Company in preparation of the Financial
Statements; provided, however, that (1) "current liabilities" shall (x)
exclude the current portion of any pre-paid IRU obligation and the current
portion of any Closing Indebtedness, (y) include an accrual of $200,000
with respect to the Company's paid time off obligations, and (z) to the
extent provided in Section 5.10(b), reduce the accrual for interest
associated with the Portland Franchise Dispute, and (2) "current assets"
shall (x) exclude Excluded Cash relating to the Portland Franchise Dispute
to the extent there is not a corresponding liability included in "current
liabilities" and (y) exclude pre-paid licenses to the extent the pre-paid
licenses become assets of the Company in connection with Section 5.20(b).
2.3 Purchase Price Adjustment. The Purchase Price shall be adjusted as set
forth in this Section 2.3.
(a) Calculation of Final Working Capital. On or before forty-five (45)
Business Days after the Closing Date, Parent shall deliver to Purchaser a
balance sheet, dated as of the Closing Date, in reasonable detail (and, in
any event, in no less detail than the Latest Balance Sheet) prepared in
good faith and in accordance with GAAP (applied on a consistent basis with
the Financial Statements but not subject to the exception set forth in
Section 3.7(a)(ii)(z)) (the "Proposed Final Balance Sheet") showing the
amounts of Closing Cash and Closing Indebtedness, along with a calculation
of the Working Capital as of the Closing Date (the "Proposed Final Working
Capital" and collectively with the Proposed Final Balance Sheet, the
"Proposed Final Statements") based on the Proposed Final Balance Sheet. The
Proposed Final Statements shall be accompanied by an officer's certificate
of Parent certifying that the Proposed Final Statements were prepared in
good faith in a manner consistent with this Agreement. Upon receipt of the
Proposed Final Statements, Purchaser shall have timely access to all of the
books and records of the Company or Parent with respect to or relating to
the Company related to the calculation of the Proposed Final Statements,
including all of the detail and work papers used in Parent's preparation of
the Proposed Final Statements. Within twenty (20) Business Days of
Purchaser's receipt of such Proposed Final Statements, Purchaser may give
written notice to Parent that it disputes certain items contained in any of
the Proposed Final Statements (the "Dispute Notice") which shall specify in
reasonable detail the dollar amount, if known, of any objection and basis
therefor; provided, however, that if Purchaser does not deliver a Dispute
Notice by such date, Purchaser will be deemed to have accepted such
Proposed Final Statements and the Proposed Final Statements shall be final
and binding on Purchaser and Sellers. Upon timely delivery of the Dispute
Notice, Purchaser and Parent agree to confer in good faith with regard to
the disputed items and an appropriate adjustment to the Proposed Final
Statements shall be made to the extent agreed upon by Purchaser and Parent.
If within twenty (20) Business Days after delivery of a Dispute Notice,
Purchaser and Parent are unable to resolve the matter, either of them may
within twenty (20) Business Days after the end of the previous twenty (20)
Business Day period notify in writing (i) the other party and (ii) Deloitte
& Touche LLP or another firm of independent accountants selected jointly by
Purchaser and Parent (the "Reviewing Accountant"), who shall adjudicate
only those items still in dispute with respect to the Proposed Final
Statements. Purchaser and Parent shall have the opportunity to provide
written submissions regarding their positions on the disputed matters,
which written submissions shall be provided to the Reviewing Accountant, if
at all, no later than fifteen (15) Business Days after the date of referral
of the disputed matters to the Reviewing Accountant. The determination of
the Reviewing Accountant shall be based solely on the written submissions
by Purchaser and Parent and their respective representatives and shall not
be by independent review. The Reviewing Accountant shall deliver a written
report resolving only the disputed matters and setting forth the basis for
13
such resolution within thirty (30) Business Days after Purchaser and Parent
have submitted in writing (or have had the opportunity to submit in writing
but have not submitted) their positions as to the disputed items. The
determination of the Reviewing Accountant with respect to the correctness
of each matter in dispute shall be final and binding on Purchaser and
Sellers. The fees, costs and expenses of the Reviewing Accountant shall be
borne entirely by the party whose assertions regarding the Final Working
Capital, Final Closing Cash and Final Closing Indebtedness differ in the
aggregate by the greatest amount from the Final Working Capital, Final
Closing Cash and Final Closing Indebtedness, in the aggregate, as
determined by the Reviewing Accountant. The closing balance sheet agreed
upon by Purchaser and Parent (or deemed accepted by Purchaser) under this
subsection, as adjusted, if necessary based on a decision by the Reviewing
Accountant hereunder, is referred to herein as the "Closing Balance Sheet"
and the final calculation of the Closing Cash, Closing Indebtedness and
Working Capital reflected on such Closing Balance Sheet shall be referred
to as the "Final Closing Cash," "Final Closing Indebtedness" and "Final
Working Capital," respectively.
(b) Purchase Price Adjustment.
(i) If the Final Working Capital is less than the Estimated
Working Capital, then the Purchase Price shall be decreased by the
difference.
(ii) If the Final Working Capital is greater than the Estimated
Working Capital, then the Purchase Price shall be increased by the
difference.
(iii) If the Final Closing Indebtedness is less than the Closing
Indebtedness reflected on the Estimated Balance Sheet, then the
Purchase Price shall be increased by the difference.
(iv) If the Final Closing Indebtedness is greater than the
Closing Indebtedness reflected on the Estimated Balance Sheet, then
the Purchase Price shall be decreased by the difference.
(v) If the Final Closing Cash is less than the Closing Cash
reflected on the Estimated Balance Sheet, then the Purchase Price
shall be decreased by the difference.
(vi) If the Final Closing Cash is greater than the Closing Cash
reflected on the Estimated Balance Sheet, then the Purchase Price
shall be increased by the difference.
If the Purchase Price, adjusted as provided above (the "Adjusted Purchase
Price"), is greater than the Purchase Price paid by Purchaser at Closing, then
Purchaser shall pay to Parent the difference between the Adjusted Purchase Price
and the Purchase Price paid at Closing. If the Adjusted Purchase Price is less
than the Purchase Price paid by Purchaser at Closing, then Parent shall pay to
Purchaser the difference between the Adjusted Purchase Price and the Purchase
Price paid at Closing. Any payment due pursuant to this Section 2.3(b) shall be
made within ten (10) Business Days after the Closing Balance Sheet becomes final
and binding as provided in Section 2.3(a) by wire transfer of immediately
available funds.
2.4 Allocation. Schedule 2.4 sets forth an allocation of the Purchase Price
(and all liabilities of the Company treated as assumed by Purchaser and other
capitalized costs includible in the amount deemed paid for such assets, for
Income Tax purposes; provided, however, that for the avoidance of doubt, any
pre-paid IRU obligations shall not be includible in the amount deemed paid for
the assets of the Company) among the assets of the Company (other than the
Retained Assets) in accordance with Section 1060 of the Code and the Treasury
regulations thereunder (and any similar provision of state, local or foreign Tax
Law, as appropriate). Purchaser and Sellers and their respective Affiliates
shall report, act and file Tax Returns (including, but not limited to IRS Forms
8594) in all respects and for all purposes consistent with Schedule 2.4. Neither
Purchaser, Sellers nor any of their respective Affiliates shall take any
position (whether in audits, Tax Returns or otherwise) which is inconsistent
with such allocation unless required to do so by applicable Law.
14
2.5 Retained Assets; Elimination of Intercompany Debt. It is understood and
agreed by Purchaser that the Company shall transfer all of the Company's right,
title and interest in, to and under the Retained Assets to an entity designated
by Parent prior to the Closing and Purchaser shall not acquire any interest in
the Retained Assets (or any interest therein) in connection with the
transactions contemplated hereby. Immediately prior to the Closing, in order to
extinguish all intercompany indebtedness owed to or by the Company by or to
Sellers or any Affiliate of Sellers, Sellers shall contribute to the capital of
the Company all intercompany indebtedness owed by the Company to Sellers or any
Affiliate of Sellers, and the Company shall distribute to CU Capital as a
Retained Asset all intercompany indebtedness owed to the Company by Sellers or
any Affiliate of Sellers. Parent shall pay and be solely responsible for any
Taxes that may result from the transfer of the Retained Assets or the
cancellation and extinguishment of the intercompany indebtedness.
2.6 Purchase Deposit. Concurrently with the execution of this Agreement,
Purchaser has deposited $1.5 million with Parent to be held as provided herein.
At the Closing, Sellers shall credit the amount of such deposit, along with an
amount equal to 4.3% per annum on the deposit calculated from the date of the
deposit to the application of the deposit in accordance with this Agreement
(such amount, along with the $1.5 million deposit, the "Deposit") as part of the
Purchase Price, and such amount shall reduce the amount payable by Purchaser
pursuant to Section 2.2(a). If this Agreement is terminated pursuant to Section
8.4(c) (if such termination is a result of Purchaser's failure to fulfill any
obligation under this Agreement or the failure to satisfy the condition set
forth in Section 6.9), 8.4(d), or 8.4(f) then Parent shall retain such amount.
If this Agreement is terminated for any other reason, the Deposit shall be paid
by Parent to Purchaser within ten (10) Business Days of such termination.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers each represent and warrant to Purchaser as follows, except as set
forth on the Schedules hereto, on the date of this Agreement (and such
representations and warranties shall be deemed made on the Closing Date except
to the extent that any such representation or warranty is made solely as of the
date hereof or as of another date earlier than the Closing Date):
3.1 Authority of Sellers. Parent is validly existing and in good standing
under the laws of the State of Delaware, and has all requisite corporate power
and authority to enter into this Agreement and to carry out the transactions
contemplated herein. CU Capital is validly existing and in good standing under
the laws of the State of Delaware, and has all requisite limited liability
company power and authority to enter into this Agreement and to carry out the
transactions contemplated herein. The execution, delivery and performance of
this Agreement by Sellers has been duly authorized by all necessary corporate
action in the case of Parent and all necessary limited liability company action
in the case of CU Capital. This Agreement has been duly and validly executed and
delivered by each Seller and constitutes the legal, valid and binding obligation
of each Seller, enforceable against such Seller in accordance with its terms,
except as may be limited by (a) applicable bankruptcy, insolvency, moratorium,
reorganization or similar Laws from time to time in effect which affect
creditors' rights generally, or (b) legal and equitable limitations on the
availability of specific remedies.
15
3.2 Capitalization; Ownership. All the issued and outstanding ownership and
membership interests in CU Capital are issued to and owned by Parent and have
been duly authorized and validly issued. The Purchased Interests, all of which
are issued to and owned by CU Capital, constitute all the outstanding ownership
and membership interests in the Company. All of the Purchased Interests have
been duly authorized and validly issued. Except as set forth on Schedule 3.2,
neither of Sellers nor the Company is a party to or bound by any (referred to as
an "Agreement to Sell") contract, agreement or arrangement to issue, sell or
otherwise dispose of or redeem, purchase or otherwise acquire any membership
interests in the Company or any other security of the Company or any other
security exercisable or exchangeable for or convertible into any membership
interests in the Company or any other security of the Company, and, except as
set forth in this Agreement or on Schedule 3.2, neither of Sellers nor the
Company is a party to or bound by any outstanding option, warrant or other right
to subscribe for or purchase, or contract, agreement or arrangement with respect
to, any membership interests or any other security of the Company or any other
security exercisable or exchangeable for or convertible into any membership
interests or any other security of the Company (referred to as an "Option
Agreement"). The Company is not a party to or bound by any agreement to provide
funds to or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity. No ownership or membership interests of the
Company were issued in violation or contravention of any securities Laws or
regulations or in violation of any preemptive rights of any person or entity.
The Purchased Interests are not represented by certificates.
3.3 Organization; Subsidiaries.
(a) The Company is a limited liability company validly existing and in
good standing under the laws of the State of Delaware and has the limited
liability company power and authority to own, lease and operate its
properties and carry on its business as now being conducted. The Company is
duly qualified to do business and is in good standing in each jurisdiction
where the conduct of its business or ownership of its properties requires
such qualification, except where the failure to so qualify would not
reasonably be expected to have a Material Adverse Effect.
(b) Except for Electric Lightwave NY, LLC (the "Subsidiary"), a
Delaware limited liability company, and as set forth on Schedule 3.3(b)(i),
the Company does not own or control, directly or indirectly, any interest
in any entity. As of the date hereof, the Company owns all the issued and
outstanding ownership and membership interests in the Subsidiary. None of
Sellers, the Company or the Subsidiary is a party to or bound by any
Agreement to Sell or Option Agreement with respect to the Subsidiary. The
Subsidiary is a limited liability company validly existing and in good
standing under the laws of the State of Delaware and has the limited
liability company power and authority to own, lease and operate its
properties and carry on its business as now being conducted. The Subsidiary
is duly qualified to do business and is in good standing in the State of
New York. The Subsidiary has no assets other than the assets listed on
Schedule 3.3(b)(ii) and does not engage in any business.
3.4 No Conflicts; Consents and Approvals. The execution and delivery of
this Agreement by Sellers does not, and the consummation of the transactions
contemplated hereby and the performance by Sellers of their respective
obligations hereunder, assuming the receipt of the Governmental Required
Consents and the consents, approvals and waivers listed on Schedule 3.4, will
not: (a) violate or conflict with any term, condition or provision of (i) the
charter, operating agreement, by-laws or analogous organizational document of
either of Sellers or the Company, (ii) any agreement, lease, instrument,
mortgage, License or franchise to which either of Sellers or the Company is a
party or by which any of their respective properties are bound (other than with
respect to the Retained Assets), or (iii) any Law applicable to either of
Sellers or the Company and which violation would, in the case of clauses (ii)
and (iii), reasonably be expected to have a Material Adverse Effect; or (b)
result in the creation of any Lien upon any of the properties material to the
16
Company (or any interest of Sellers in the Company) or give to others (other
than to Purchaser) any interest or right in any of their respective material
properties, including a right to purchase any of such properties. Except for the
Governmental Required Consents, and for such consents, authorizations and
approvals as set forth on Schedule 3.4, no authorization, consent, or approval
of, or filing with, any Governmental Authority is required in connection with
the execution and delivery of, or performance by Sellers of their respective
obligations under, this Agreement. Except for the consents, authorizations and
approvals set forth on Schedule 3.4, any consents, authorizations and approvals
in connection with the Retained Assets, and those, the failure to obtain which
would not result in the loss of a material right of the Company, no
authorization, consent or approval of, or filing with, any third-party that is
not a Governmental Authority is required in connection with the execution and
delivery of, or performance by Sellers of their respective obligations under,
this Agreement.
3.5 Real Property; Network and Condition of Assets.
(a) Owned Real Property. Schedule 3.5(a) lists each parcel of real
property owned by the Company (other than the Retained Assets) along with a
corresponding street address for each parcel (the "Owned Real Property").
The Company is the sole owner in fee simple title of each parcel of Owned
Real Property. The Company has good and marketable title to each parcel of
Owned Real Property, free and clear of any Liens other than Permitted
Liens. No Owned Real Property, including buildings and improvements
thereon, is in material violation of any material zoning, land use or
similar Laws. To Sellers' knowledge, there are no Laws requiring material
repair, alteration or correction of any existing condition on any parcel of
Owned Real Property. To Sellers' knowledge, the premises located on the
Owned Real Property are in good condition and repair and are sufficient for
the Business being conducted thereon, ordinary wear and tear excepted and
subject to normal maintenance and repair in the ordinary course of
business.
(b) Leased Real Property. Schedule 3.5(b) describes all material
leases, subleases, licenses, easements, rights of way and other occupancy
agreements, including network and line leases, (each of the foregoing, a
"Real Property Agreement" and the premises leased thereunder, the "Leased
Real Property," which is referred to herein collectively with the Owned
Real Property as the "Real Property") to which the Company is a party. The
Real Property Agreements are the only leases, subleases, licenses,
easements, rights-of-way or other occupancy agreements that are material to
the operation of the Business in the ordinary course as presently conducted
by the Company. The Company does not use or occupy any material Real
Property, including buildings, improvements and points of presence, for
which the Company does not have a right to use or occupy such material Real
Property pursuant to a Real Property Agreement. The Company has a good and
valid leasehold interest in and to, and is in occupancy of, all of the
Leased Real Property under which it is a tenant or lessee, free and clear
of any Liens other than Permitted Liens. All Leased Real Property of the
Company that is material to the Business is in all material respects in the
condition required of such property by the terms of the Real Property
Agreement applicable thereto and is in adequate condition for its current
operation and use.
(c) Certain Network Agreements. Schedule 3.5(c)(i) lists all of the
Franchise Agreements, including each modification, amendment and supplement
thereto. Schedule 3.5(c)(ii) lists (i) each interconnection or similar
agreement that is necessary to the operation of the Business as currently
conducted by the Company, including each modification, amendment and
supplement thereto ("Interconnection Agreement"), together with the
counterparty, and (ii) each material telecommunications and data
carrier/vendor or similar agreement (other than any Retained Contracts),
including each modification, amendment and supplement thereto ("Carrier
Agreement"), together with the counterparty. Each Interconnection
Agreement, including each amendment or modification thereto and each other
Communications Contract, including any access charge arrangements, that, in
each case, are required to be filed by the Company, or to Sellers'
knowledge, except as set forth on Schedule 3.5(c)(iii), the other party
17
thereto, with a Governmental Authority, has been duly and timely filed with
the appropriate Governmental Authority. Except as set forth on Schedule
3.5(c)(iv), there are no written, or to Sellers' knowledge, other, disputes
or claims of any kind over $100,000 (individually or in the aggregate) with
respect to any of the Network Agreements. Except as set forth on Schedule
3.5(c)(v), there are no written, or to Sellers' knowledge, other, claims or
notices from a third party alleging or advising the Company that it
considers the Company liable for any tariff or other payment of due but
unpaid interstate or intrastate access charges or it believes the Company
has provided services to Voice over IP services providers or other data
service providers that are claimed to be in violation of federal or state
Law or that have caused the Company to be liable for intrastate or
interstate access charges or other fees or charges that the Company has not
paid. Schedule 3.5(c)(vi) lists each payment or performance bond or letter
of credit or other credit support for the Company's obligations under any
Network Agreement (regardless of the Person providing such support).
(d) Metropolitan Access Network. Sellers have provided to Purchaser
maps showing in reasonable detail the Metropolitan Access Network,
including, in reasonable detail, (i) the switching and transport network,
which identifies by type and location all of the Company's switching or
concentrator sites where the Company has purchased and installed switching
assets, (ii) the routes of all fiber, buried conduit and copper plant
installed and owned by the Company, (iii) the routes of all transport
facilities which the Company leases or obtains from others, (iv) the fiber
routes or lines, (v) approximate number of fibers available in each such
fiber route, and (vi) approximate route miles in the Metropolitan Access
Network. The Company owns or has a valid and existing right to use, attach
or locate (including pole attachments) pursuant to a license, lease or
other written agreement ("Metropolitan Access Network Agreement"), all of
the equipment and fiber in the Metropolitan Access Network. Schedule
3.5(d)(i) sets forth any material Metropolitan Access Network Agreement
(not otherwise listed on Schedule 3.5), together with the counterparty.
There are no other material agreements, including maintenance agreements,
related to the Metropolitan Access Network, other than those on Schedule
3.5(d)(i) or otherwise set forth in Schedule 3.5. The Company has paid or
pre-paid, among others, the obligations associated with the Metropolitan
Access Network Agreements set forth on Schedule 3.5(d)(ii).
(e) Long Haul Fiber Route. Sellers have provided to Purchaser maps
showing in reasonable detail the Long Haul Fiber Route, and which depict
the number and location of all regeneration facilities in the route, the
fiber routes or lines, approximate number of fibers available in each such
fiber route, and approximate route miles in the Long Haul Fiber Route. The
Company has a valid and existing right to use, pursuant to a lease, IRU or
other written agreement (including any swap agreement, "Long Haul
Agreement"), all of the equipment and fiber reflected on the Long Haul
Fiber Route maps. Schedule 3.5(e)(i) lists each material Long Haul
Agreement, together with the counterparty. There are no other material
agreements, including maintenance agreements, related to the Long Haul
Fiber Route, other than those on Schedule 3.5(e). The Company has paid or
pre-paid, among others, the obligations associated with the Long Haul
Agreements set forth on Schedule 3.5(e)(ii).
(f) Fiber. The fiber reflected on the Metropolitan Access Network maps
and the Long Haul Fiber Route maps are all of the fiber used for the
conduct of the Business as presently conducted by the Company. All of the
fiber owned by the Company is free and clear of any Lien, other than
Permitted Liens. The Metropolitan Access Network and the Long Haul Fiber
Route comply, and have been maintained and perform, in all material
respects, with applicable Bellcore, Underwriters' Laboratory, Network
Equipment Building Standards and Electronic Industry Alliance -
Telecommunications Industry Association standards or equivalents. All fiber
in the Metropolitan Access Network and the Long Haul Fiber Route has been
built and installed substantially in accordance with applicable permits and
the Metropolitan Access Network and the Long Haul Fiber Route are currently
operational.
18
(g) Equipment and Other Assets. Schedule 3.5(g) lists, as of December
31, 2005, all personal property of the Company, including Communications
Equipment (other than fiber or equipment otherwise referenced in Schedule
3.5), which is material to the operation of the Business as presently
conducted by the Company, such Schedules setting forth the location of the
assets as of such date. Except as set forth on Schedule 3.5(g), the Company
owns or has a valid right to use all items of Communications Equipment and
other personal property assets used in the conduct of the Business as
presently conducted by the Company. The assets of the Company necessary for
the conduct of the Business as presently conducted by the Company (other
than the Retained Assets) are in good working order (ordinary wear and tear
excepted), are, to Sellers' knowledge, free from any material defect and
have been maintained in all material respects in accordance with the past
practice of the Company. The Company has good and transferable title to all
of its Communication Equipment and other material personal property and
assets (other than (i) the Retained Assets and (ii) leased personal
property and assets, with respect to which the Company has good and valid
leasehold interests other than set forth on Schedule 3.5(g)), free and
clear of all Liens, except Permitted Liens. The Sellers have made available
to Purchaser true, correct and complete copies of the material personal
property leases, together with all amendments, modifications or supplements
thereto. Each of the material personal property leases is valid, binding
and enforceable against each Company and, to the knowledge of the Company
and the Sellers, the other parties thereto in accordance with its terms.
All leased personal property of the Company that is material to the
Business is in all material respects in the condition required of such
property by the terms of the lease applicable thereto.
3.6 Intellectual Property.
(a) Except as set forth on Schedule 3.6(a), the Company owns or has
the right to use (exclusive of Sellers) pursuant to valid licenses,
sublicenses, agreements or permissions, obtained either directly or through
Parent, all material items of Intellectual Property necessary for the
operation of the Business as presently conducted, including Licenses for
software for Communications Equipment. At Closing, each item of
Communications Equipment will operate under a CALEA compliant version (for
the purposes for which the Company is using such Communications Equipment)
of the software used to operate the Communications Equipment.
(b) Except as set forth on Schedule 3.6(b), since December 31, 2002,
the Company has not received any written notice alleging that the Company
has infringed upon any Intellectual Property rights of third parties. To
Sellers' knowledge, the Company has not infringed upon any Intellectual
Property rights of third parties, except for matters that would not,
individually or in the aggregate, have a Material Adverse Effect. To
Sellers' knowledge, except as set forth on Schedule 3.6(b), since December
31, 2002, no third party has infringed upon any Intellectual Property
rights of the Company, except for matters that (i) would not, individually
or in the aggregate, have a Material Adverse Effect and/or (ii) relate to
Intellectual Property rights included in the Retained Assets.
(c) Schedule 3.6(c) identifies each issued patent and each registered
trademark, service ▇▇▇▇, domain name, IP numbering blocks, autonomous
system numbers and copyright owned by the Company (other than those
included in the Retained Assets) and identifies each pending patent
application or other application for registration that has been made with
respect to any Intellectual Property owned by the Company (other than the
Retained Assets). With respect to each item of Intellectual Property owned
by the Company, except for matters set forth in Schedule 3.6(c):
(i) the Company possesses all right, title and interest in and to
the item, free and clear of any Lien, except for Permitted Liens; and
19
(ii) no proceeding is pending or, to Sellers' knowledge,
threatened which challenges the legality, validity, enforceability,
use or ownership of the item.
(d) Schedule 3.6(d) identifies each material item of Intellectual
Property that any third party (including, for this purpose, Parent and its
other Affiliates) owns and that the Company uses pursuant to a license,
sublicense, agreement or with permission, such Schedule listing the license
or agreement and any related maintenance agreement. Sellers have made
available to Purchaser copies of all such licenses, sublicenses, agreements
and permissions and any related maintenance agreement, each as amended to
date. With respect to each such item of Intellectual Property identified on
Schedule 3.6(d):
(i) the license, sublicense, agreement or permission covering the
item is in full force and effect;
(ii) the Company has not received written notice regarding any
actual or alleged material breach, violation or failure to comply with
any such license, sublicense, agreement or permission and the Company
is in material compliance with any such license, sublicense, agreement
or permission and any related maintenance agreement;
(iii) neither Seller has knowledge of any material breach,
violation or failure to comply under any such license, sublicense,
agreement or permission by the other party or parties thereto;
(iv) to Sellers' knowledge, no proceeding is pending or
threatened which challenges the legality, validity or enforceability
of the underlying item of Intellectual Property;
(v) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement or permission;
(vi) except as set forth on Schedule 3.6(d), there are no
maintenance fees, "right to use" fees, license fees, taxes, annuity
fees or other costs with respect to any license, sublicense, agreement
or permission covering the item in excess of $25,000 per month.
(e) There are no outstanding or unpaid (whether or not billed) "right to
use" or similar fees for any Intellectual Property that the Company owns, has a
right to use or uses, including those arising out of or related to an audit of
"right to use" fees associated with switches.
3.7 Financial Statements; Absence of Undisclosed Liabilities.
(a) The Financial Statements, which are attached hereto as Schedule
3.7, and the Audited Financial Statements, when delivered to Purchaser,
will:
(i) have been prepared from, and are in accordance with, the
books and records of the Company,
(ii) have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except with respect to
the Financial Statements (x) for the absence of footnotes, (y) for the
absence of normal year-end adjustments, and (z) with respect to
determining materiality for purposes of GAAP, the Financial Statements
were prepared based on materiality relating to the Parent rather than
materiality relating to the Company and the Subsidiary on a
stand-alone basis (collectively the "GAAP Exceptions")),
20
(iii) present fairly, in all material respects (with respect to
the Company), the financial position of the Company as of the
referenced dates and the results of operations and cash flows of the
Company for the periods presented.
(b) The books of account and other financial records of the Company: (i)
reflect all material items of income and expense and all material assets and
liabilities required to be reflected therein in accordance with GAAP applied on
a consistent basis during the periods covered by the Financial Statements, and
(ii) are in all material respects complete and correct.
(c) Schedule 3.7(c) sets forth the detailed profit and loss statements of
the Company and each territory of operation for each of the nine months ended
September 30, 2005 (the "Internal P&L Statements"). The Internal P&L Statements
were derived from the books and records of the Company and reflect what Sellers
believe to be a reasonably appropriate allocation of revenue and expense among
the Company's territories, which allocation methodologies have been applied on a
consistent basis through the periods referred to above and on a basis consistent
with past preparation of such statements by the Company and Parent. Given the
allocation methodologies referred to above, the Internal P&L Statements, taken
as a whole, fairly present, in all material respects, the information set forth
therein. The Internal P&L Statements eliminate, or do not reflect, intercompany
revenue.
(d) Schedule 3.7(d) sets forth the churn, renewals and new sold monthly
recurring revenue by channel of the Company for (i) each of the twelve months
ended December 31, 2004 and (ii) each of the nine months ended September 30,
2005 and the twelve months ended December 31, 2005. Such information is derived
directly from the Company's billing systems and is presented on a consistent
basis through the periods referred to above and consistent with past preparation
by the Company and Parent.
(e) The Company has no liability or obligation (whether absolute, accrued,
contingent or otherwise) ("Liability"), including any Liability for any
Indebtedness, except: (i) Liabilities reflected or reserved against in, or set
forth on, the Latest Balance Sheet; (ii) liabilities that are disclosed in the
Schedules; and (iii) Liabilities that either (A) were incurred in the ordinary
course of business since the Latest Balance Sheet, (B) would not be required to
be reflected on, reserved against or set forth on a balance sheet or notes
thereto, prepared in accordance with GAAP (with respect to the Company) or (C)
are not material in amount or significance to the Company. The Company has no
capital lease obligations, other than as set forth on Schedule 1.1(a).
(f) Parent maintains internal controls over financial reporting ("Internal
Controls") which are designed to provide reasonable assurance, but not absolute
assurance, that (i) records are maintained in reasonable detail, to accurately
and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) access to the Company's
assets is permitted only in accordance with management's authorization. No
representation or warranty is made in this Section 3.7(f) that the Parent's
Internal Controls will prevent all error or all fraud.
(g) The notes and accounts receivable of the Company are reflected properly
in all material respects on its books and records and have arisen out of bona
fide sales and deliveries of goods, performance of services and other business
transactions in the ordinary course of business consistent with past practice.
21
3.8 No Material Adverse Change. Except as set forth on Schedule 3.8, since
September 30, 2005 there has not occurred any change in the condition (financial
or otherwise) or results of operations of the Company that has had or would
reasonably be expected to have a Material Adverse Effect.
3.9 Tax Matters. Except as set forth in Schedule 3.9:
(a) the Company and each Affiliated Group of which the Company is or
has been a member (but only for the Taxable Period during which the Company
has been a member thereof) has filed, or has had filed on its behalf, all
Income Tax Returns and other material Tax Returns required to have been
filed by or with respect to it and has directly, or has had on its behalf,
paid or withheld, all Income Taxes and other material Taxes (whether or not
shown on any Tax Returns as owing) due and payable by it, except for Taxes
being contested in good faith, in which case the Company has made adequate
provision in the Financial Statements in accordance with GAAP (applied on a
consistent basis with the Financial Statements and subject to the
exceptions set forth in Section 3.7(a)(ii)) for such Taxes. All such Tax
Returns were at the time they were filed true, correct and complete in all
material respects;
(b) there have been no waivers or extensions of any statute of
limitations filed with any Governmental Authority responsible for assessing
or collecting Taxes of, or with respect to, the Company or the Business, or
with respect to any Tax Return of, or which includes, the Company;
(c) there is no material action, suit, proceeding, investigation,
audit, claim or assessment pending or, to Sellers' knowledge, proposed with
respect to any liability for Tax of, or with respect to, the Company or the
Business, or with respect to any Tax Return of, or which includes, the
Company. No power of attorney with respect to any Taxes has been executed
or filed with any Governmental Authority by or on behalf of the Company
that currently is in effect;
(d) there are no material Liens for Taxes on any of the assets of the
Company other than Liens for Taxes not yet due and payable;
(e) no claim has ever been made in writing, or otherwise to Sellers'
knowledge, by a Governmental Authority in any jurisdiction where the
Company, or any of the Sellers with respect to the Company or the Business,
does not file Tax Returns that the Company, or any of the Sellers with
respect to the Company or the Business, is or may be subject to Tax by that
jurisdiction. The Company (i) has never been a member of an Affiliated
Group (other than the Affiliated Group of which the Parent is the common
parent), and (ii) has no liability for the Taxes of any Person (other than
itself) under Treasury Regulations Section 1.1502-6 (or any corresponding
provision of state, local or foreign Law), or as a transferee or successor,
or by contract, or otherwise. The Company is not a party to any Tax
allocation, sharing, indemnification or similar agreement;
(f) (i) the amount of the Company's liability for unpaid Taxes for all
periods ending on or before the date of the Financial Statements does not,
in the aggregate, exceed by a material amount the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) with
respect to the Company, as such accruals are reflected on the Latest
Financial Statements, (ii) from and after the date of the Latest Financial
Statements no liability for Taxes has been (or prior to Closing will be)
incurred by the Company other than in the ordinary course of business and
consistent with past practices, and (iii) the amount of the Company's
liability for unpaid Taxes for all Pre-Closing Tax Periods and that portion
of a Straddle Period relating to the period ending on the Closing Date
shall not, in the aggregate, exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes), as such
accruals are reflected in the Closing Balance Sheet;
22
(g) CU Capital has been properly classified as a "domestic eligible
entity" disregarded as an entity separate from Parent within the meaning of
Treasury Regulations Section 301.7701-3(b)(1)(ii) (and any comparable
provisions of state, local or foreign Law) since February 4, 2003. The
Company has been properly classified as a "domestic eligible entity"
disregarded as an entity separate from Sellers within the meaning of
Treasury Regulations Section 301.7701-3(b)(1)(ii) (and any comparable
provisions of state, local or foreign Law) since December 31, 2002 and the
Subsidiary has made a valid election, effective as of January 20, 2004, to
be classified as a corporation within the meaning of Treasury Regulations
Section 301.7701-3(c) (and any comparable provisions of state, local or
foreign Law) and will continue to be properly classified as a corporation
through the Closing Date;
(h) the Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
stockholder, independent contractor, creditor or other third party. The
Company is not obligated to make any payment or payments and is not a party
to (or a participating employer in) any agreement or Benefit Plan that
could obligate it or Purchaser to make any payment or payments that would
not be deductible because of the application of Section 280G of the Code
(or any similar provision of state, local or foreign Law), or that would
give rise to additional Taxes or interest under Section 409A of the Code
(or any similar provision of state, local or foreign Law);
(i) the Purchaser will not be required to include any item of income
in, or exclude any item of deduction from, taxable income for any Taxable
Period (or portion thereof) ending after the Closing Date as a result of
any: (i) change made on or prior to the Closing Date in method of
accounting for a Taxable Period ending on or prior to the Closing Date;
(ii) "closing agreement" as described in Section 7121 of the Code (or any
similar provision of state, local or foreign Income Tax Law) executed on or
prior to the Closing Date; (iii) intercompany transactions occurring at or
prior to the Closing or any excess loss account in existence at Closing
described in Treasury Regulations under Section 1052 of the Code (or any
similar provision of state, local or foreign Income Tax Law); or (iv)
installment sale or open transaction disposition made on or prior to the
Closing Date; and
(j) the Company has not engaged in, or has any commitment to engage
in, a "reportable transaction" as set forth in Treasury Regulation
1.6011-4(b) or any transaction that is the same as or substantially similar
to one of the types of transactions that the Internal Revenue Service has
determined to be a tax avoidance transaction and identified by notice,
regulation, or other form of published guidance as a "listed transaction,"
as set forth in Treasury Regulations Section 1.6011-4(b)(2).
3.10 Litigation. Except as set forth on Schedule 3.10 and except for
administrative agency proceedings of general applicability, there is no demand,
claim, suit, action, arbitration or legal, administrative or other proceeding
pending or, to Sellers' knowledge, any pending investigation or audit or any of
the foregoing threatened against the Company or any of its officers, managers,
directors, employees, assets, properties or businesses and relating to the
Business or properties of the Company that:
(a) relates to or is reasonably likely to involve more than $100,000;
(b) seeks any material injunctive relief; or
(c) seeks to enjoin or obtain damages with respect to the consummation
of the transactions contemplated hereby.
The Company has no liability to Qwest with respect to the dispute covered
by that certain letter agreement described on Schedule 3.10 hereto.
23
3.11 Employee Benefits and Related Matters.
(a) Set forth on Schedule 3.11(a) is a list of all Benefit Plans that
are sponsored or maintained or contributed to by Parent (each, a "Parent
Plan"). Neither the Company nor the Purchaser will have any material
liability of any kind (whether direct or contingent) after the Closing with
respect to any Parent Plan.
(b) Set forth on Schedule 3.11(b) is a list of all Benefit Plans that
are sponsored or maintained by the Company (each, a "Company Benefit
Plan"). With respect to each Company Benefit Plan, the Company has
delivered or made available to Purchaser a true, correct and complete copy
of each writing constituting a part of such Company Benefit Plan (or, in
the case of unwritten Company Benefit Plans, a complete and accurate
description of each such Company Benefit Plan). No Company Benefit Plan is
intended to be a "qualified plan" within the meaning of Section 401(a) of
the Code. Except as specifically provided in the foregoing documents
delivered or made available to Purchaser, there are no amendments to any
Company Benefit Plan that have been adopted or approved nor has the Company
undertaken to make any such amendments or to adopt or approve any new
Company Benefit Plan. There has been no amendment, interpretation or other
announcement (written or oral) by the Company, any of its ERISA Affiliates
or any other Person relating to, or change in participation or coverage
under, any Company Benefit Plan that, either alone or together with other
such items or events, could materially increase the expense to the Company
of maintaining such Company Benefit Plan (or the Company Benefit Plans
taken as a whole) above the level of expense incurred with respect thereto
for the most recent fiscal year included in the Financial Statements.
(c) All of the Company Benefit Plans comply (and have, at all times
complied) in form and in operation in all material respects with all
applicable requirements of Law and each Company Benefit Plan has been
administered at all times and in all material respects in accordance with
its terms. All of the Parent Plans comply (and have, at all times complied)
in form and in operation with all applicable requirements of Law, including
the Code and ERISA and have been administered in all material respects in
accordance with their terms, except, in each case, for such compliance
failures and/or administration failures that would not result in a material
liability to the Company. There has been no nonexempt "prohibited
transactions" (as described in Section 406 of ERISA and Section 4975 of the
Code) with respect to any of the Company Benefit Plans that could result in
a material liability to the Company.
(d) Each Benefit Plan that is intended to be qualified under Section
401(a) of the Code (i) is the subject of an unrevoked favorable
determination letter from the IRS with respect to its qualified status
under the Code, as amended by the Tax Reform Act of 1986 and all subsequent
legislation, including, without limitation, that legislation commonly
referred to as "GUST" and "EGTRRA," (ii) has remaining a period of time
under the Code or applicable Treasury regulations or IRS pronouncements in
which to request, and make any amendments necessary to obtain, such a
letter from the IRS, or (iii) is a prototype or volume submitter plan that
is entitled, under IRS Announcement 2001-77, to rely on the favorable
opinion or advisory letter issued by the IRS to the prototype or volume
submitter plan sponsor of the Seller Savings Plan. Nothing has occurred, or
is reasonably expected by the Company or any of its ERISA Affiliates to
occur, that could adversely affect the qualification or exemption of the
Seller Savings Plan or its related trust or group annuity contract.
(e) With respect to each Benefit Plan sponsored or maintained or
contributed to (or required to be sponsored or maintained or contributed
to) by the Company or any of its ERISA Affiliates at any time during the
last six years that is subject to Title IV or Section 302 of ERISA or
Section 601 et seq. of ERISA or Section 412, 4971 or 4980B of the Code,
there does not now exist, nor, to Sellers' knowledge, do any circumstances
exist that could result in, any Controlled Group Liability (as defined
24
below) that would be a liability of the Company following the Closing.
"Controlled Group Liability" means any liability (i) under Title IV or
Section 302 of ERISA or Section 412 or 4971 of the Code or (ii) as a result
of the failure to comply with the continuation coverage requirements of
Section 601 et seq. of ERISA or Section 4980B of the Code, and, without
limiting the foregoing, neither the Company nor any of its ERISA Affiliates
has engaged in any transaction described in Section 4069 or Section 4204 or
4212 of ERISA. For purposes of this Agreement, "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. Neither the Company nor any of its ERISA Affiliates
has sponsored or maintained or contributed to (or been required to sponsor
or maintain or contribute to) any Benefit Plan that is (or was) subject to
Title IV of ERISA or Section 302 of ERISA or Section 412 or 4971 of the
Code and that covered employees of the Company at any time during the last
six years.
(f) Except as set forth on Schedule 3.11(f) and for the accelerated
vesting under the Seller Savings Plan contemplated by Section 5.5(c),
neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated by this Agreement will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting,
funding or delivery of, or increase the amount or value of, any payment or
benefit to any employee, officer or director of the Company, or result in
any limitation on the right of the Company to amend, merge, terminate or
receive a reversion of assets from any Company Benefit Plan or Parent Plan
or related trust. The terms of each Company Benefit Plan and Parent Plan
permit the Company or Seller, as applicable, to amend and terminate such
Benefit Plan or permit the Company to terminate its participation therein
at any time and for any reason without penalty and without material
liability or expense. None of the rights of the Company or any ERISA
Affiliate under any Benefit Plan will be impaired in any way by this
Agreement or the consummation of the transactions contemplated by this
Agreement.
(g) Except as set forth on Schedule 3.11(g), none of the Company, any
of its ERISA Affiliates or any Benefit Plan provides or has any obligation
to provide (or contribute toward the cost of) post-employment or
post-termination benefits of any kind, including, without limitation, death
and medical benefits, with respect to any current or former officer,
employee, agent, director or independent contractor of the Company, other
than (i) continuation coverage mandated by Sections 601 through 608 of
ERISA and Section 4980B(f) of the Code, (ii) retirement benefits under any
Benefit Plan that is qualified under Section 401(a) of the Code, and (iii)
deferred compensation that is accrued as a current liability on the
Financial Statements.
(h) There are no actions, suits or claims (other than routine claims
for benefits) pending or, to Sellers' knowledge, threatened with respect to
(or against the assets of) (i) any Company Benefit Plan, or (ii) any Parent
Plan that would result in a material liability to the Company, nor, to
Sellers' knowledge, is there a basis for any such action, suit or claim.
None of the Company Benefit Plans nor the Seller Savings Plan is currently
under investigation, audit or review, directly or indirectly, by any
Governmental Authority, and, to Sellers' knowledge, no such action is
contemplated or under consideration by any Governmental Authority. No
Parent Benefit Plan is currently under investigation, audit or review by
any Governmental Authority, and, to Sellers' knowledge, no such action is
contemplated or under consideration by any Governmental Authority, in each
case, to the extent that would result in a material liability to the
Company.
3.12 Material Contracts. Schedule 3.12 lists all of the Material Contracts.
Except as set forth on Schedule 3.12, the Company is not in receipt of any
written claim (or to Sellers' knowledge, oral claim) of breach of or failure to
comply with any, and the Company is not in material breach of and is in material
compliance with each, Material Contract. To Sellers' knowledge, each of the
25
other parties to the Material Contracts has performed all material obligations
required to be performed by such party, and is not in material default under,
any Material Contract, and except as set forth on Schedule 3.12(b), no event has
occurred that, with notice and lapse of time, or both, would constitute a
material default or give rise to a right in the counterparty thereto to
terminate such Material Contract prior to the stated term thereof. Each of the
Material Contracts is a valid and binding obligation of the Company, is in full
force and effect, and to Sellers' knowledge, is enforceable by the Company in
accordance with its terms, except as may be limited by (i) applicable
bankruptcy, insolvency, moratorium, reorganization or similar Laws from time to
time in effect which affect creditors' rights generally, or (ii) legal and
equitable limitations on the availability of specific remedies. True, correct
and complete copies of all Material Contracts, including all modifications,
amendments and supplements, have been provided or made available to Purchaser.
No counterparty to any Material Contract has notified the Company in writing or,
to Sellers' knowledge, otherwise, of its intent to terminate such Material
Contract.
3.13 Communications Licenses. Schedule 3.13 lists all of the Communications
Licenses, which include any renewals, extensions or modifications thereof, and
any pending applications for any Communications Licenses. The Company is the
authorized legal holder of the Communications Licenses. All of the
Communications Licenses are valid and in full force and effect and no
Communications License is subject to any condition or requirement that is not
generally imposed on such authorizations. The Company holds all Communications
Licenses required under applicable Law for the current operation of the
Business. Except as set forth on Schedule 3.13, the Company (i) is and has
operated in all material respects in compliance with all terms of the
Communications Licenses; (ii) is in compliance in all material respects with,
and the conduct of the Business by the Company is in compliance in all material
respects with, the Communications Act and any applicable state or local Laws,
including those of State PUCs, and (iii) has filed all registrations and
renewals and all other material reports and other applicable documents (which
are complete and accurate in all material respects) and paid all required fees,
including any renewal applications, required by the Communications Act or any
applicable state or local Laws, including those of State PUCs. There is not now
pending or, to Sellers' knowledge, threatened, any action or proceeding by or
before the FCC or any State PUC in which the requested remedy is the revocation,
suspension, cancellation, rescission or modification of any of the
Communications Licenses or the imposition of a monetary fine or other penalty.
To Sellers' knowledge, no Person has asserted in writing to a Governmental
Authority, and no Governmental Authority has asserted in writing, that any
Communications License should be suspended, cancelled, revoked or modified, or
that the Company is not in compliance with any Communications License. To
Sellers' knowledge, no event has occurred that permits the suspension,
cancellation, or revocation of any Communications License, or the imposition of
any restriction thereon or that would prevent any Communications License from
being renewed on a routine basis in the ordinary course. The execution and
delivery of this Agreement by Sellers does not, and the consummation of the
transactions contemplated hereby and the performance by Sellers of their
respective obligations hereunder, assuming the receipt of the Governmental
Required Consents, will not violate or conflict with any term, condition or
provision of any material Communication License, will not result in any
revocation, cancellation, suspension, or material modification of any material
Communications License, or give rise to the right of any Governmental Authority
to take any such action or fail to renew any material Communications License.
Except for the representations and warranties of Sellers expressly set
forth in this Section 3.13 or as specifically referred to elsewhere in this
Agreement, neither of Sellers nor any other Person makes any other express or
implied representation or warranty with respect to Communications Licenses, and
none of the other representations and warranties contained in this Agreement
shall be deemed to be given in relation to Communications Licenses.
26
3.14 Brokers and Finders. Except for ▇.▇. ▇▇▇▇▇▇ Securities Inc. and
Greenbridge Partners LLC, the fees and expenses of which shall be the
responsibility of Sellers, no broker or investment banker acting on behalf of
Sellers or the Company or under the authority of any of them is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from either of Sellers or the Company in connection with
any of the transactions contemplated herein.
3.15 Employees. Except as set forth on Schedule 3.15, (a) the Company is
not a party to a collective bargaining agreement having provisions covering its
employees and is not currently negotiating such an agreement, (b) no complaint
against the Company is currently pending or, to Sellers' knowledge, threatened
before the National Labor Relations Board or the Equal Employment Opportunity
Commission or before any other analogous entity in the United States, and (c)
there are no labor strikes, disputes, requests for representation, slowdowns, or
stoppages actually pending or, to the Company's or Sellers' knowledge,
threatened against the Company. Sellers have made available to Purchaser true
and correct copies of any written material relating to the material personnel
policies of the Company. Sellers have provided to Purchaser a list setting forth
each individual, along with position, salary and hire date, who is employed by
the Company as of the end of the most recent payroll period prior to the date of
this Agreement (each such individual, a "Company Employee").
3.16 Environmental.
(a) Sellers have disclosed and made available to Purchaser all
material Records and correspondence in the possession of the Company, or of
which the Company is aware, relating to Environmental Matters with respect
to the Real Property (other than the Retained Assets) and/or the Business
of the Company, including those prepared for or submitted to applicable
Governmental Authorities and any reports or assessments prepared by outside
consultants or otherwise;
(b) Except as set forth in Schedule 3.16, neither of Sellers nor the
Company has received written notice within the last five years alleging
that the Company might be potentially responsible for any material Release
of Hazardous Substances with respect to the Real Property or the Business
of the Company or for any material costs arising under, or material
violation of, Environmental Laws with respect thereto or any Environmental
Permit;
(c) The Company is and has been in compliance in all material respects
with Environmental Laws and Environmental Permits, including those relating
to underground and/or above ground storage tanks and including obtaining or
having required Environmental Permits, except as would not reasonably be
expected to result in any material costs under, or material violation of,
Environmental Laws or any Environmental Permit. To Sellers' knowledge, all
batteries and underground and/or above ground storage tanks are in sound
condition and not leaking.
(d) Except as set forth in Schedule 3.16, there is not pending or, to
the Sellers' knowledge, threatened against the Company any actions, orders,
decrees, suits, demands, notices, directives, claims, Liens,
investigations, proceedings or notices of noncompliance, liability or
violation by any Governmental Authority or other Person alleging liability,
whether contingent or otherwise (including investigation or remediation
costs, administrative oversight costs and natural resource damages) arising
out of, based on or related to Environmental Matters.
(e) Except as would not result in any material cost to the Company,
the Company has not caused and is not aware of any Release of Hazardous
Substances, or that any Hazardous Substances had been Released, at any
property currently or formerly owned or operated by the Company, or, except
in compliance with Environmental Laws, the Company has not caused or
arranged for any Release of Hazardous Substances at any off-site disposal
location in connection with the current or past operations of Company. To
Sellers' knowledge and except as set forth on Schedule 3.16, no property
owned, leased or used by the Company contains or had contained asbestos in
any form, lead paint, UFI or any PCBs (including transformers, capacitors,
ballasts or other equipment which contain dielectric fluid containing
PCBs).
27
Except for the representations and warranties of Sellers expressly set
forth on this Section 3.16, neither of Sellers nor any other Person makes any
other express or implied representation or warranty with respect to
Environmental Matters, and none of the other representations and warranties
contained in this Agreement shall be deemed to be given in relation to
Environmental Matters.
3.17 Compliance with Laws; Licenses. Except as set forth on Schedule 3.17:
(a) the Company is currently in compliance with all applicable Laws, except
where the failure to so comply would not reasonably be expected to have a
Material Adverse Effect, and (b) the Company is in possession of all Licenses
required under applicable Law for the current operation of the Business,
including construction permits, highway crossing licenses and permits and other
similar licenses and permits, and right-of-way licenses to own, operate and use
its network, and are in compliance with the requirements and limitations
included in such Licenses, except where the failure to so possess or comply
would not reasonably be expected to have a Material Adverse Effect.
3.18 Absence of Changes. Except as set forth in Schedule 3.18, since
December 31, 2004, the business of the Company has been conducted in the
ordinary course of business and in substantially the same manner as previously
conducted and has made reasonable efforts consistent with past practices to
preserve the relationships of the Company with customers, suppliers,
Governmental Authorities and others with whom the Company deals. Except as set
forth in Schedule 3.18, since September 30, 2005, there has not been:
(a) any granting by the Company to any officer or employee of the
Company of (i) any increase in compensation, severance or termination pay
or (ii) any right to participate in (by way of bonus or otherwise) the
profits of the Company, except, in each case, in the ordinary course of
business consistent with past practice or as was required under employment
agreements or salary or wage policies referred to and disclosed in
accordance with this Agreement;
(b) any damage, destruction or loss, whether or not covered by
insurance, to any material property of the Company or any material
Communications Equipment;
(c) any assets or rights of the Company sold, removed, transferred,
distributed, assigned or diverted directly or indirectly to either Seller
or any Affiliate of Sellers, other than cash sweeps to Parent (or its
designee) in the ordinary course of business and the payment of
intercompany payables with cash in the ordinary course of business
consistent with past practice and reflected in the Financial Statements and
other than the transfer of the Retained Assets pursuant hereto;
(d) any termination or amendment to any Company Benefit Plan (or the
adoption of any plan that would be a Company Benefit Plan if adopted),
except in each case as required by Law;
(e) any change in any method of accounting or accounting practice or
policy other than those required by GAAP;
(f) any acquisition by merging or consolidating with, or by purchasing
a material portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire any assets (other than in the
ordinary course of business) that are material, individually or in the
aggregate, to the Company; or
28
(g) any entry into, amendment, modification or termination of any
Material Contract, other than any such entry, amendment, modification or
termination (A) that is in the ordinary course of business consistent with
past practice and (B) the effect of which is not materially adverse to the
Business.
3.19 Transactions with Affiliates. Except as set forth on Schedule 3.19(a)
and except for (a) normal advances to employees consistent with past practice,
(b) payment of compensation for employment to employees consistent with past
practice, (c) participation in Parent Plans by employees, (d) intercompany
Indebtedness set forth on the face of the Latest Balance Sheets or to be set
forth on any financial statement to be delivered pursuant to Section 5.17, (e)
the provision of benefits and services by Parent to the Company necessary for
the operation of the Business as conducted by the Company on the date hereof and
described in Schedule 3.19(a) and (f) the transfer or retention of the Retained
Assets, the Company has not (i) purchased, acquired, used or leased any
property, goods or services from, (ii) transferred or leased any property to or
provided services (with or without compensation) to, (iii) become an obligee
with respect to any Indebtedness of, or (iv) entered into or been subject to any
management, consulting or similar agreement with, any officer, director or
member or Affiliate of the Company, nor has the Company incurred any
Indebtedness payable to or in favor of any such Person. After the Closing,
Sellers and their Affiliates will have no equity interest or, except as
specifically contemplated by this Agreement or set forth on Schedule 3.19(b) or
otherwise agreed to by Purchaser, other direct or indirect interest in the
Company and will have no arrangements of the type described in Schedule 3.19(a)
with the Sellers.
3.20 Insurance. The Company or Parent has maintained and will continue to
maintain until the Closing Date the insurance described in Schedule 3.20, which
insurance covers the Company's tangible real and personal property and assets,
whether owned or leased, against loss or damage by fire or other casualty. All
such insurance is in full force and effect on the date of this Agreement. The
Company has promptly and adequately notified the Parent's or Company's, as the
case may be, insurance carriers of any and all claims known to Sellers with
respect to the operations, products or services of the Company for which the
Company is insured. The Company or the Parent, with respect to the Business, has
not been refused any insurance coverage by any insurance carrier to which either
has applied for insurance during the past three years.
3.21 Customers. Schedule 3.21 lists, for the most recent completed fiscal
year, the 20 largest carrier customers and 20 largest enterprise customers of
the Company, in each case by revenues, such Schedule including aggregate sales
per customer during the relevant periods. Except as set forth in Schedule 3.21,
since December 31, 2004, there has not been (i) any material adverse change in
the business relationship with any customer named in Schedule 3.21 or (ii) any
material change in any material term (including credit terms) of the sales
agreements or related agreements with any such customer.
3.22 Construction-in-Progress. Schedule 3.22 sets forth, as of the date of
this Agreement, a reasonably detailed description of each project involving in
the aggregate $500,000 or more, where the Company is constructing, or has
contracted or otherwise arranged for the construction (through a joint venture
type of arrangement or otherwise), of any fiber or other network assets.
3.23 T1 Loops. Attached to Schedule 3.23 is the complete agreement with
Qwest Communications regarding any obligation of the Company to purchase T1
loops from Qwest (the "Qwest Regional Commitment Plan"). Schedule 3.23 sets
forth: (i) the number and the associated monthly recurring cost or expense of
"special access" T1 loops the Company purchased or leased from Qwest, and the
number and the associated monthly recurring cost or expense of UNEs the Company
otherwise purchased or leased from Qwest, in each case as of October 31, 2005
and (ii) the minimum aggregate and monthly number, and associated monthly
recurring cost or expense, of "special access" T1 loops and other leased
circuits the Company is obligated to purchase or lease from Qwest.
29
3.24 Circuit Leases. Schedule 3.24 lists all of the circuits the Company
leases as of January 25, 2006, along with the counterparty. All such circuits
are leased for the sole operation of the Business as presently conducted by the
Company. The circuits listed on Schedule 3.24 are all of the circuits necessary
for the operation of the Business as presently conducted by the Company. Except
for those circuits listed on Schedule 3.19(a)(1) as Retained Assets (which
circuits are used for the operation of the Parent's business), the circuits
listed on Schedule 3.24 that the Company leases from Parent or an Affiliate of
Parent are used in or for the operation of the Company's business as opposed to
the operation of Parent's business.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers as follows on the date of this
Agreement (and such representations and warranties shall be deemed made on the
Closing Date):
4.1 Authority of Purchaser. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of Oregon, with all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Purchaser has all requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations under this Agreement. The execution, delivery and performance of
this Agreement by Purchaser has been duly authorized by all necessary corporate
action. This Agreement has been duly and validly executed and delivered by
Purchaser and constitutes the legal, valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms, except as may be
limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or
similar Laws from time to time in effect that affect creditors' rights generally
or (b) legal and equitable limitations on the availability of specific remedies.
4.2 Consents and Approvals. Assuming the receipt of the Governmental
Required Consents of the Purchaser and consents in connection with its financing
of the transactions contemplated by this Agreement, the execution and delivery
of this Agreement by Purchaser does not, and the consummation of the
transactions contemplated hereby and performance by Purchaser of its obligations
hereunder will not, violate or conflict with any provision of: (i) the charter,
operating agreement, by-laws or analogous organizational document of Purchaser;
(ii) any material agreement, lease, instrument, mortgage, license or franchise
to which Purchaser is a party or by which any of its properties is bound; or
(iii) any Law applicable to Purchaser and which violation or conflict would
reasonably be expected to have a material adverse effect on Purchaser's ability
to consummate the transactions contemplated hereby. Except for the Governmental
Required Consents of Purchaser, no authorization, consent or approval of, or
filing with, any Governmental Authority is required in connection with the
execution and delivery of, or performance by Purchaser of its obligations under,
this Agreement.
4.3 Brokers, Etc. Except for FTI Consultants, the fees and expenses of
which shall be the responsibility of Purchaser, no broker or investment banker
acting on behalf of Purchaser is or will be entitled to any broker's or finder's
fee or any other commission or similar fee directly or indirectly in connection
with any of the transactions contemplated hereby.
4.4 Securities. Purchaser hereby acknowledges that the Purchased Interests
are not registered under the Securities Act or registered or qualified for sale
under any applicable securities Law of the United States or any other country or
any state or province of the United States or any other country and cannot be
resold without registration thereunder or exemption therefrom. Purchaser is
acquiring the Purchased Interests for its own account as principal, for
investment purposes and has no present intention to dispose of the Purchased
Interests, in whole or in part, or of any interest in the Purchased Interests to
any other Person whether by public distribution or otherwise. Purchaser has
sufficient knowledge and experience in financial and business matters to enable
it to evaluate the risks of investment in the Purchased Interests and has the
ability to bear the economic risks of such investment.
30
4.5 Financing. Attached as Exhibit G are complete and accurate copies of
the commitment letters (the "Commitment Letters") executed by the financing
sources thereto, pursuant to which those financing sources have committed,
subject only to the terms and conditions set forth in the Commitment Letters, to
provide the financing to consummate the purchase of the Company in accordance
with this Agreement (the "Financing"). Purchaser has the financial ability to
consummate the transactions contemplated by this Agreement, subject only to
obtaining the Financing. The obligation to fund the Financing under the
Commitment Letters is not subject to any condition other than as set forth in
the Commitment Letters. The Commitment Letters are in full force and effect; all
commitment fees required to be paid thereunder have been paid in full or will be
duly paid in full if and when due; and the Commitment Letters have not been
amended or terminated. Purchaser has no reason to believe that any condition to
the Commitment Letters that is within its control will not be satisfied or
waived prior to Closing. As of the Closing, subject to receiving the Financing,
Purchaser will have received cash in an aggregate amount sufficient to pay all
amounts required to be paid by it in connection with the Closing, including the
Purchase Price and all payments, fees and expenses related to or arising out of
the acquisition of the Purchased Interests (the "Required Cash Amount").
4.6 Solvency. Immediately after giving effect to the transactions
contemplated by this Agreement and the closing of any financing to be obtained
by Purchaser, Purchaser and its subsidiaries shall be able to pay their
respective debts as they become due and shall own property having a fair
saleable value greater than the amounts required to pay their respective debts
(including a reasonable estimate of the amount of all contingent liabilities).
Immediately after giving effect to the transactions contemplated by this
Agreement and the closing of any financing to be obtained by Purchaser in order
to give effect to the transactions contemplated by this Agreement, Purchaser and
its subsidiaries shall have adequate capital to carry on their respective
businesses. No transfer of property is being made and no obligation is being
incurred in connection with the transactions contemplated by this Agreement and
the closing of any financing to be obtained by Purchaser in order to effect the
transactions contemplated by this Agreement with the intent to hinder, delay or
defraud either present or future creditors of Purchaser.
4.7 Financial Statements.
(a) The (i) consolidated audited statements of earnings, cash flows
and owners' equity of Integra Telecom, Inc. and its subsidiaries for the
year ended December 31, 2004, (ii) the consolidated unaudited statements of
earnings, cash flows and owners' equity of Integra Telecom, Inc. and its
subsidiaries for the year ended December 31, 2005, (iii) the consolidated
audited balance sheet of Integra Telecom, Inc. and its subsidiaries as of
December 31, 2004 and (iv) the unaudited consolidated balance sheet of
Integra Telecom, Inc. and its subsidiaries as of December 31, 2005,
attached as Exhibit I ("Purchaser's Financial Statements) (x) have been
prepared from, and are in accordance with, the books and records of
Purchaser, (y) have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved and (z) present fairly, in all
material respects, the financial position of Purchaser and its subsidiaries
as of the referenced dates and the results of operations and cash flows of
Purchaser and its subsidiaries for the periods presented.
(b) Purchaser has no Liability, including any Liability for any
indebtedness, except: (i) Liabilities reflected or reserved against in, or
set forth on, the Purchaser's Financial Statements; and (ii) Liabilities
that either (A) were incurred in the ordinary course of business since the
date of the Purchaser's Financial Statements, (B) would not be required to
be reflected on, reserved against or set forth on a balance sheet or notes
thereto, prepared in accordance with GAAP, or (C) are not material in
amount or significance to Purchaser.
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4.8 Material Adverse Change. Since September 30, 2005 there has not
occurred any change in the condition (financial or otherwise) or results of
operations of the Company that has had or would reasonably be expected to have a
Material Adverse Effect on Purchaser or its subsidiaries (as if the definition
of Material Adverse Effect applied to Purchaser instead of the Company).
4.9 Independent Investigation. In making the decision to enter into this
Agreement and to consummate the transactions contemplated hereby, other than
reliance on the representations, warranties, covenants and obligations of
Sellers set forth in this Agreement, Purchaser has relied solely on its own
independent investigation, analysis and evaluation of the Company (including
Purchaser's own estimate and appraisal of the value of the Business, financial
condition, assets, operations and prospects of the Company). Purchaser confirms
to Sellers that Purchaser is sophisticated and knowledgeable in the Business of
the Company and is capable of evaluating the matters set forth above.
4.10 Legal Qualifications. Purchaser is qualified under the Communications
Act of 1934, as amended, and FCC Rules, to control the Company. Neither
Purchaser nor any entity holding 5% or more of the direct or indirect voting
equity in Purchaser has been determined by the FCC not to be qualified to hold
an FCC License or to control a holder of an FCC License, and no proceeding in
which such qualifications are at issue is pending, or to Purchaser's knowledge,
threatened, before the FCC or on appeal of an FCC order. Neither Purchaser nor
any entity holding 5% or more of the direct or indirect voting equity in
Purchaser has been determined by any State PUC not to be qualified to hold a
State PUC License or to control a holder of a State PUC License, and no
proceeding in which such qualifications are at issue is pending before any State
PUC or on appeal of a State PUC order.
ARTICLE 5.
COVENANTS
5.1 Reasonable Best Efforts; Regulatory Approvals; Third Party Consents.
(a) On the terms and subject to the conditions of this Agreement, each
party shall use commercially reasonable efforts to cause the Closing to
occur, including taking all reasonable actions necessary (i) to comply
promptly with all legal requirements that may be imposed on it or any of
its Affiliates with respect to the Closing, (ii) to obtain each
Governmental Required Consent of such party and each other consent of, and
make necessary filings with, a Governmental Authority, which if not
obtained or made is reasonably likely to have a material adverse effect on
the ability of the parties to consummate the transactions contemplated by
this Agreement or result in a Material Adverse Effect and (iii) to cause
the occurrence or meeting of the conditions precedent set forth in Articles
6 and 7.
(b) In furtherance of and not in limitation of the provisions of
Section 5.1(a), Sellers shall, and shall cause the Company to, and
Purchaser shall, cooperate with the other with respect to obtaining the
Governmental Required Consents and other consents, approvals and waivers
required to be obtained to consummate the transactions contemplated by this
Agreement. In particular, where permitted by the applicable Governmental
Authority, Sellers shall, and shall cause the Company to, and Purchaser, or
persons nominated thereby, will, promptly provide drafts to the other
party, allow reasonably adequate time for comment by the other party and
agree promptly, to the extent the same are accurate and reasonable, to the
contents of all notifications, filings, submissions, further documentation
and evidence to be submitted to all relevant Governmental Authorities.
32
Sellers shall, and Sellers shall cause the Company to, and Purchaser shall,
in each case where permitted by the relevant Governmental Authority, allow
individuals nominated by each of the other parties to attend all meetings
with Governmental Authorities and, where appropriate, to make oral
submissions at such meetings. Purchaser shall, and Sellers shall, and shall
cause the Company to, (i) furnish to the other such necessary information
and reasonable assistance as the other may require in connection with its
preparation of any notification, filing, submission or further
documentation or evidence that is necessary in obtaining Governmental
Required Consents, and (ii) where permitted by the applicable Governmental
Authority, promptly disclose to the other all correspondence received from
or sent to any relevant Governmental Authority in connection herewith and
shall keep the other fully informed of any other related communication in
whatever form with any of the relevant Governmental Authorities. Purchaser
shall, and Sellers shall, and shall cause the Company to, use commercially
reasonable efforts to comply promptly with any inquiry or request for
additional information from any relevant Governmental Authority in
connection herewith and shall use commercially reasonable efforts to
promptly provide any supplemental information requested in connection with
the notifications, filings and/or submissions made hereunder for the
purposes of obtaining the Governmental Required Consents. Notwithstanding
the foregoing, the provisions of this Section 5.1(b) are subject to Section
5.4 hereof and the Confidentiality Agreement and any other confidentiality
or privilege limitations applicable to the parties hereto and their
Affiliates.
(c) In furtherance of and not in limitation of the provisions of
Sections 5.1(a) and (b), each of Sellers and Purchaser shall, as promptly
as practicable, but in no event later than fifteen (15) Business Days
following the execution and delivery of this Agreement, file, or cause to
be filed with the United States Federal Trade Commission and the United
States Department of Justice the notification and report form, if any,
required for the transactions contemplated hereby and any supplemental
information requested in connection therewith pursuant to the HSR Act. Any
such notification and report form and supplemental information shall be in
substantial compliance with the requirements of the HSR Act. Sellers and
Purchaser shall, to the extent each is able, seek early termination of the
applicable waiting period under the HSR Act. Notwithstanding anything in
this Agreement to the contrary, Purchaser shall not be required to take any
action in connection with any competition laws (including HSR) that would
require Purchaser or any of its Affiliates to agree to, or proffer to, not
compete in any market or divest or hold separately any assets or any
portion of any business of Purchaser or its Affiliates, or the Company or
its Subsidiary.
(d) In furtherance of and not in limitation of the provisions of
Sections 5.1(a) and (b), each of Sellers and Purchaser shall, as promptly
as practicable, but in no event later than twenty (20) Business Days
following the execution and delivery of this Agreement, file, or cause to
be filed:
(i) with the FCC the necessary application or applications
seeking the FCC Consents.
(ii) with the applicable State PUCs the necessary application or
applications seeking the State PUC Consents. The parties shall
cooperate to make any notice filings required in connection with this
matter on a timely basis.
(e) Prior to the Closing Date, Parent shall cause the Company to use
commercially reasonable efforts to obtain all consents and waivers from
third parties in respect of contracts and other obligations, in each case,
of the Company, to the extent such contracts and other obligations require
such consents and waivers as a result of the transactions contemplated
hereby, such consents being set forth on Schedule 3.4. Parent shall pay all
of the costs of obtaining the consents referred to in this clause (e),
including all fees, charges, costs and expenses levied by a counterparty in
granting its consent, including assignment fees. Purchaser shall use
commercially reasonable efforts to provide cooperation and assistance in
this regard including providing to any such third party all necessary
information (including financial information) and agreeing to enter into
guarantees or similar arrangements in favor of any such third party, in
33
each case, as required by any such third party in order to secure the
necessary consents and waivers, subject to the agreements on
confidentiality contained in this Agreement and the Confidentiality
Agreement. Prior to the Closing Date, Purchaser shall use commercially
reasonable efforts to obtain all consents and waivers from third parties in
respect of contracts and other obligations, in each case, of Purchaser, to
the extent such contracts and other obligations require such consents and
waivers as a result of the transactions contemplated hereby. Parent shall
use commercially reasonable efforts to provide cooperation and assistance
in this regard including providing to any such third party all necessary
information. From and after the Closing Date, Purchaser shall be
responsible for obtaining all consents and waivers referred to above
(including those consents and waivers pursuant to contracts and obligations
of the Company) and Parent shall use commercially reasonable efforts to
provide cooperation and assistance in that regard.
5.2 Pre-Closing Access. From the date hereof to the Closing, except to the
extent prohibited or limited by applicable Law, Sellers shall cause the Company
to permit representatives of Purchaser (including financial and legal
representatives) to have reasonable access, at all reasonable times during
normal business hours and on reasonable prior notice and in a manner that does
not disrupt normal business operations, to all personnel, accountants, counsel
and other representatives of Sellers associated with the Business and the
Company (provided Purchaser shall not unreasonably interfere with the duties and
responsibilities of such personnel and representatives and shall obtain access
to such personnel only through ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or other representatives of
Sellers designated by Parent who shall respond reasonably promptly to requests
for access by Purchaser) and to all premises, properties, books, records,
contracts and documents of or pertaining to the Company.
5.3 Operation of Business Prior to Closing. Prior to the Closing Date,
except as set forth on Schedule 5.3, or as otherwise contemplated by this
Agreement (including, without limitation this Section 5.3), and except for the
transfer of the Retained Assets to an entity designated by Parent, or with the
prior written consent of Purchaser (which consent shall not be unreasonably
withheld or delayed), Sellers shall cause the Company to be operated in the
ordinary course of business and not permit the Company to do any of the
following: (i) make any change in its authorized capitalization, operating
agreement or other analogous organizational document; or (ii) issue or sell any
membership interests or securities convertible into or exchangeable for, or its
rights to, its membership interests. In furtherance of the foregoing, Sellers
shall cause the Company not to do any of the following without the prior written
consent of Purchaser (which consent shall not be unreasonably withheld or
delayed):
(a) adopt, terminate or amend any Company Benefit Plan (or any plan
that would be a Company Benefit Plan if adopted) or enter into
any collective bargaining agreement or other agreement with any
labor organization, union or association, except in each case as
required by Law;
(b) grant any officer or employee of the Company: (i) any increase in
compensation, severance or termination pay, or (ii) any right to
participate in (by way of bonus or otherwise) the profits of the
Company, except, in each case, in the ordinary course of business
consistent with past practice, as was required under employment
agreements, salary or wage policies referred to and disclosed in
accordance with this Agreement;
(c) hire or terminate an officer, or make any material changes in the
number or duties of the employees, of the Company, or, except as
agreed in writing with Purchaser, transfer employees between the
Company and other Affiliates of the Company, including Parent;
34
(d) incur or assume any liabilities, obligations or indebtedness for
borrowed money or guarantee any such liabilities, obligations or
indebtedness, other than in the ordinary course of business and
consistent with past practice; provided, however, that in no
event shall the Company incur or assume any long-term
indebtedness for borrowed money;
(e) waive any claims or rights of substantial value, other than in
the ordinary course of business consistent with past practice;
(f) except for intercompany transactions in the ordinary course of
business consistent with past practice and the transfer of
Retained Assets in accordance with this Agreement, pay, loan or
advance any amount to, or sell, transfer or lease any of its
assets to or purchase or lease any assets from, or enter into any
agreement or arrangement with, Sellers or any of their
Affiliates;
(g) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP;
(h) acquire by merging or consolidating with, or by purchasing a
material portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire
any assets (other than in the ordinary course of business) that
are material, individually or in the aggregate, to the Company;
(i) make or incur any capital expenditure not contained in a capital
budget made available to Purchaser prior to the date of this
Agreement and that, individually, is in excess of $200,000, or
make or incur any such expenditures that, in the aggregate, are
in excess of $500,000, in each case, except to the extent deemed
necessary by the Company in connection with the operation of the
Business in the ordinary course of business;
(j) sell, lease, license, assign, swap, grant a right to use,
transfer or otherwise dispose of any of its material assets,
except inventory and obsolete or excess equipment sold in the
ordinary course of business and consistent with past practice and
except for the transfer of the Retained Assets as provided in
this Agreement, or sell, lease, license, assign, swap, grant a
right to use, transfer or otherwise dispose of any of its fiber;
(k) except for cash sweeps to Parent (or its designee) in the
ordinary course of business and the payment of intercompany
payables with cash in the ordinary course of business consistent
with past practice of the Company or as otherwise specifically
contemplated by this Agreement, make any dividend, distribution,
transfer or other distribution of any cash or assets of the
Company to Sellers or any other Affiliates of Sellers;
(l) enter into, amend, modify or terminate any Material Contract,
other than any such entry, amendment, modification or termination
(A) that is in the ordinary course of business consistent with
past practice and disclosed to Purchaser and (B) the effect of
which is not materially adverse to the Business;
35
(m) make any material change in the operation, function or components
of the network or operations of the Company from the present
operation, function or components;
(n) sell, lease, license or otherwise grant a right to use any dark
fiber or network services of the Company, where the terms of such
sale, lease, license or other right to use includes any
prepayment for the use or service or similar term that provides
for customer payments in advance of the use or service;
(o) sell, lease, license or otherwise grant a right to use any
material dark fiber of the Company;
(p) prepay in any way any capital lease of the Company, including
those listed on Schedule 1.1(a);
(q) institute any proceeding with respect to, or otherwise materially
change, amend, or supplement any of its tariffs on file with the
FCC or any State PUC, except in the ordinary course of business,
or as required by Law;
(r) with respect to the Company or any Affiliated Group of which the
Company (as distinguished from any of the Sellers) is the common
parent, (i) make any Tax election inconsistent with past
practice, (ii) change any Tax election already made, (iii) settle
or compromise any federal, state, local or foreign Tax liability
or agree to an extension of a statute of limitations, (iv) fail
to file any Income Tax Return or other material Tax Return when
due (or, alternatively, fail to file for available extensions) or
fail to cause such Income Tax Returns or other material Tax
Returns when filed to be complete and accurate, or (v) fail to
pay any Income Taxes or other material Taxes when due, in each
case, in any manner materially adverse to the Company; provided,
however, nothing set forth in this clause (r) shall prohibit the
Company from changing, electing, settling or compromising Tax
liabilities to the extent required by Law; or
(s) authorize any of, or commit to agree, whether in writing or
otherwise, to do any of, the foregoing.
5.4 Confidentiality.
(a) Purchaser acknowledges that the information being provided to it
in connection with the transactions contemplated hereby is subject to the
terms of the Confidentiality Agreement; provided that Purchaser may
disclose such information concerning the Company as is reasonably necessary
to obtain the Financing, including through the use of a confidential
private placement memorandum or offering circular. In no way limiting the
generality of the foregoing, the terms of the Confidentiality Agreement
shall not prevent the Company from using, after Closing, the confidential
and proprietary information governed by the Confidentiality Agreement that
relates primarily to the Company; provided that Purchaser acknowledges that
any and all other information provided to it by Sellers or any of their
Affiliates or representatives concerning Sellers or any of their Affiliates
(other than with respect to the Company) shall remain subject to the terms
and conditions of the Confidentiality Agreement and the Company shall, to
the same extent as Purchaser, be subject to all confidentiality provisions
of the Confidentiality Agreement as though it were a party thereto.
36
(b) At all times from and after the Closing Date, Sellers shall keep
secret and maintain in confidence, and shall not use for their benefit or
for the benefit of others, any confidential or proprietary information
relating to the Business or the Company's financial or other affairs,
including all of the Company's Intellectual Property and files and records
(other than the Retained Assets), other than any of such information that
is in the public domain (unless and to the extent any of such information
enters the public domain in whole or in part due to action or inaction of
Sellers following the Closing). The foregoing shall not prohibit use or
disclosure of such information (i) as is required by Law, (ii) as is
necessary to prepare Tax Returns (including Tax Returns of Sellers or of
any of their Affiliates) or other filings with Governmental Authorities or
to defend or object to any reassessment of Taxes, (iii) as is necessary for
Sellers (or their representatives) to prepare and disclose, as may be
required, accounting or other financial statements or (iv) to assert or
protect any rights of Sellers hereunder or under any applicable Law or
otherwise.
(c) Sellers and Purchaser acknowledge and agree that in the event of a
breach of this Section 5.4 by either party or of the Confidentiality
Agreement by Purchaser, the other party would suffer irreparable harm for
which it would be difficult to determine damages and for which money
damages alone would be an inadequate remedy for the injuries suffered by
such party, and that such party shall be entitled to specific performance
and injunctive or other equitable relief to enforce this Section 5.4 and/or
the Confidentiality Agreement, without any requirement to submit proof of
the economic value of any confidential or proprietary information or post a
bond or any other security. Such remedy shall not be deemed to be the
exclusive remedy for breach of this Section 5.4 or of the Confidentiality
Agreement but shall be in addition to all other remedies available at Law
or equity.
5.5 Employee Matters.
(a) From and after the Closing Date, Purchaser shall, or shall cause
the Company to, provide Company Employees retained by the Purchaser or the
Company following the Closing (each a "Retained Employee") with all
employee benefit plans (other than equity compensation plans) as are
provided by Purchaser and its subsidiaries to their own employees who are
similarly situated to such Company Employees (the "New Plans"). The
foregoing shall not constitute any commitment, contract, understanding,
undertaking, guarantee (express or implied) on the part of Purchaser or
Company to continue the employment of any Company Employee for any period
of time or on any terms except as determined by Purchaser.
(b) For purposes of each New Plan that may provide medical, dental,
pharmaceutical, life, disability and/or vision benefits to any Retained
Employee, Purchaser shall use commercially reasonable efforts to cause the
relevant insurer(s) (i) to waive all eligibility waiting periods,
pre-existing condition exclusions and actively-at-work requirements for
such Retained Employee and his or her covered dependents and (ii) to take
into account any eligible expenses incurred by a Retained Employee and his
or her covered dependents during the portion of the plan year of the Parent
Plan or Company Benefit Plan (ending on the date the employee's
participation in the corresponding New Plan begins) for purposes of
satisfying any deductible, coinsurance and maximum out-of-pocket
requirements applicable to the Retained Employee and his or her covered
dependents for the applicable plan year. For all purposes (other than
benefit accrual under a defined benefit pension plan) under the New Plans
(including any Purchaser severance plans) each Retained Employee shall be
credited with his or her years of service with the Company to the same
extent such Retained Employee was entitled to eligibility, vesting or
benefit accrual credit, as applicable, for such service under any similar
Parent Plan or Company Benefit Plan in which such Retained Employee
participated immediately prior to the Closing.
(c) Immediately prior to the Closing, Parent shall cause each Company
Employee to become fully vested in his or her accrued benefit under the
Seller Savings Plan or other Parent Plan that is intended to be qualified
under Section 401(a) of the Code. After the Closing, Purchaser and Seller
shall cooperate to ensure that Retained Employees are permitted to rollover
their account balances under the Seller Savings Plan, including in-kind
rollovers of participant loans into Purchaser's 401(k) plan; provided,
however, that Purchaser shall not be required to permit any such rollovers
by Retained Employees if it determines that any such rollover could
jeopardize the tax-qualified status of Purchaser's 401(k) plan.
37
(d) Prior to the Closing, Sellers or the Company, as the case may be,
shall pay in full all obligations owed under the 2005 Annual Incentive Plan
Design (which shall not continue into 2006 unless Parent assumes all of the
liabilities under such plans or accrues such liabilities on the Closing
Balance Sheet and such plans do not give rise to any liability of the
Company or Purchaser (excluding accrued amounts) following the Closing) and
any other similar plan.
(e) Purchaser shall provide severance benefits and payments to any
Company Employee whose employment is terminated by Purchaser (i) within the
first six (6) months following the Closing, in accordance with the
Company's severance programs in effect immediately prior to Closing;
provided that, such severance program only provides for severance based on
base salary and not any other pay or compensation (except to the extent of
subsidized COBRA payments as provided in the Company's severance programs
in effect immediately prior to Closing), and (ii) following such six (6)
month period, in accordance with Purchaser's severance programs
("Purchaser's Severance Arrangements"), taking into account, to the extent
relevant, such Company Employee's combined service with Seller and/or its
Affiliates prior to the Closing Date and Purchaser from and after the
Closing Date. A summary of Purchaser's Severance Arrangements is set forth
on Exhibit H.
(f) Purchaser shall provide each Retained Employee with any accrued
and unused days of paid time off that he or she is eligible to take as of
the Closing Date in accordance with the applicable paid time off policy of
the Company. Notwithstanding Section 5.5(a), Purchaser in its discretion
may maintain Retained Employees on the paid time off policy of the Company
until December 31, 2006.
(g) (i) Purchaser shall have in effect as of the Closing Date a
flexible spending account plan qualified under Section 125 of the Code (the
"Purchaser Flexible Spending Plan"), and Purchaser shall cause the
Purchaser Flexible Spending Plan to accept a spin-off of the assets and
liabilities related to the Retained Employees' flexible spending accounts
("FSAs") from the flexible spending plan of Seller in which the Retained
Employees participate immediately prior to the Closing (the "Seller
Flexible Spending Plan") and to honor and continue through the end of the
calendar year in which the Closing Date occurs the elections made by each
Retained Employee under the Seller Flexible Spending Plan in respect of the
FSAs that are in effect immediately prior to the Closing Date; and (ii) as
soon as practicable following the Closing Date, Seller shall (a) cause to
be transferred from the Seller Flexible Spending Plan to the Purchaser
Flexible Spending Plan the excess of the aggregate accumulated
contributions to the FSAs made prior to the Closing Date during the year in
which the Closing Date occurs by Retained Employees over the aggregate
reimbursement payouts made prior to the Closing Date for such year from
such accounts to the Retained Employee, and (b) provide Purchaser with an
itemized schedule of each Retained Employee's election amount and benefits
paid prior to the Closing Date during the year in which the Closing Date
occurs. If the aggregate reimbursement payouts from such FSAs made prior to
the Closing Date during the year in which the Closing Date occurs to the
Retained Employees exceed the aggregate accumulated contributions to such
accounts prior to the Closing Date for such year by the Retained Employees,
Purchaser shall make a payment equal to the value of such excess to Seller
as soon as practicable following the Closing Date. Seller Flexible Spending
Plan shall be responsible for any covered claims submitted for
reimbursement before the Closing Date. Except as provided in the preceding
sentence, on and after the Closing Date, Purchaser shall assume and be
solely responsible for all unpaid claims by Retained Employees under the
Seller Flexible Spending Plan incurred at any time during the calendar year
in which the Closing Date occurs, including claims incurred prior to the
Closing Date, that have not been submitted before the Closing Date, and
following the Closing Date, Purchaser shall hold Seller and its affiliates
harmless from any and all claims for reimbursement by Retained Employees
under the Seller Flexible Spending Plan incurred at any time during the
calendar year in which the Closing Date occurs but which were not submitted
to the Seller Flexible Spending Plan before the Closing Date. For purposes
of this paragraph, a claim for reimbursement shall be deemed to have been
incurred on the date on which the charge or expense giving rise to such
claim is incurred.
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5.6 Records; Post-Closing Access to Information.
(a) Notwithstanding anything to the contrary contained in this
Agreement, Sellers may retain all (i) original agreements, documents,
books, records and files prepared in connection with the transactions
contemplated hereby, including bids received from other parties and
analyses relating to the Company and (ii) Tax Returns.
(b) Subject to Section 10.2(a), for a period of seven years after the
Closing Date, Purchaser shall use commercially reasonable efforts to
preserve and retain, or cause the Company to preserve and retain, all
material agreements, documents, books, records and files (including any
documents relating to any governmental or non-governmental actions, suits,
proceedings or investigations) relating to the conduct of the Business and
operations of the Company prior to the Closing Date (collectively,
"Records"). Subject to Section 10.2(a), for a period of seven years after
the Closing Date, Sellers shall use commercially reasonable efforts to
preserve and retain all Records, including all financial records, policies
and procedures customarily required for the completion of an audit by an
independent accounting firm, in its and its Affiliates possession following
the Closing, and shall provide Purchaser and the Company access to all such
records at reasonable times upon reasonable notice.
(c) Subject to Section 10.2(a), from and after the Closing Date,
Purchaser shall cause the Company to afford Sellers and their counsel,
accountants and other authorized representatives, upon reasonable prior
notice, reasonable access during normal business hours to the respective
premises, properties, personnel, books and records of the Company and any
other assets or information that Sellers reasonably deem necessary,
including in connection with the preparation of any report or Tax Return
required to be filed by Sellers under applicable Law or otherwise (but so
as not to unduly disrupt the normal course of operations of the Company),
including preparing or defending any Tax Return and any interim or annual
report or other accounting statements. Personnel of Purchaser and the
Company shall assist Sellers in the preparation of Tax Returns relating to
the Pre-Closing Tax Periods in accordance with Article 10.
5.7 Continued Operations. Purchaser shall be responsible for any costs in
connection with its termination of any Company Employee's employment on or after
the Closing Date, and Purchaser shall assume and be responsible for any
liability arising under the Worker Adjustment and Retraining Notification Act,
and/or any other plant or mass layoff closing Law, in connection with its
termination of any Company Employee's employment on or after the Closing Date.
5.8 Communications Licenses. Prior to the Closing, the Company shall
maintain the validity of the Communications Licenses and Franchise Agreements,
including those set forth on Schedule 6.5, comply in all material respects with
all requirements of the Communications Licenses, Franchise Agreements and the
Communications Act and any applicable state or local Laws, including those of
State PUCs. Prior to the Closing, the Company shall use commercially reasonable
efforts to (a) refrain from taking any action that would jeopardize the validity
of any of the Communications Licenses, (b) prosecute with due diligence any
pending applications with respect to the Communications Licenses, including any
renewals thereof and applications seeking FCC Consents and the State PUC
Consents as set forth on Schedule 6.5 and (c) with respect to Communications
Licenses, file all registrations, reports, renewal applications, and other
documents and pay all required fees and contributions, in each case, that are
required by the Communications Act or any applicable state or local Laws,
including those of State PUCs as and when such filings or reports are necessary
or appropriate.
39
5.9 Notice of Developments.
(a) Each party shall promptly notify the other party in writing of all
events, circumstances, facts and occurrences arising subsequent to the date
of this Agreement that could result in any material breach of a
representation or warranty by or covenant of such party in this Agreement
or that could have the effect of making any representation or warranty by
such party in this Agreement untrue or incorrect in any material respect.
(b) Each party shall, in each case as soon as possible upon becoming
aware, from time to time prior to the Closing Date, supplement in writing
the Schedules hereto with respect to any event, circumstance, fact or
occurrence hereafter arising that, if existing as of the date of this
Agreement, would have been required to be set forth or described in the
Schedules; provided, however, that (i) except as and to the extent provided
in this Section 5.9(b), none of such disclosures shall be deemed to modify,
amend or supplement the representations and warranties by such party or the
Schedules for the purposes of this Agreement, unless the other party shall
have consented thereto in writing and (ii) upon consummation of the
Closing, regardless of any other provisions of this Section 5.9, such
disclosures shall automatically be deemed to modify the Schedules for all
purposes, including for purposes of Article 9 hereof. The party receiving
such supplemented Schedules must notify the party that has supplemented the
Schedules within twenty-one (21) days of receipt of such supplemented
Schedules whether the supplemental information disclosed therein, taken
together with all other supplemental information provided pursuant to this
Section 5.9(b), constitutes facts or circumstances giving rise to a
Material Adverse Effect or otherwise giving rise to a failure of the
condition set forth in Section 6.1 or Section 7.1 hereto, as the case may
be. If no such notice is given within such twenty-one (21) Business Day
period, then such disclosure shall be deemed to modify, amend or supplement
the representations and warranties by such party and the Schedules and to
have cured any misrepresentation or breach of any representation or
warranty that might have existed by reason of the development. The
supplementing party agrees to cooperate in good faith in timely providing
complete and correct documents or other information reasonably necessary
for the receiving party to have a basis for determining whether to deliver
the notice referred to above.
(c) Without limiting any other provision of this Agreement, subject to
applicable Laws and the instructions of any Governmental Authority, the
parties shall keep each other apprised of the status of matters relating to
completion of the transactions contemplated hereby, including promptly
furnishing the other with copies of notices or other communications
received by such party from any Governmental Authority or other Person with
respect to the transactions contemplated by this Agreement. Each party
shall give prompt notice to the other parties of any failure of any
condition to such party's obligations to effect the transactions
contemplated by this Agreement.
(d) Notwithstanding the foregoing, with respect to Schedules
3.19(a)(1) and 3.24, Parent shall provide Purchaser with up to date
schedules of circuits leased by the Company in effect as of a date within
three (3) Business Days of the Closing Date that shall be prepared in a
manner consistent with Schedules 3.19(a) and 3.24 attached hereto. Such
updated schedules shall indicate, among other things, those circuits leased
by the Company to be retained by Parent as Retained Assets (that shall have
the effect of amending Exhibit A hereto), which leased circuits shall be
the responsibility of Parent following the Closing Date. The circuits noted
on Attachment 3.19(a) to Schedule 3.19(a)(1) shall identify (1) circuits to
be retained by Parent as circuits that are used in or for the operation of
the Parent's business as opposed to the operation of the Company's business
and (2) circuits not to be retained by Parent as circuits that are used in
or for the operation of the Company's business as opposed to the operation
of the Parent's business in the same manner as currently identified on
Attachment 3.19(a). Purchaser shall have the opportunity to review the
updated schedules provided pursuant to this clause (d) and consult with
Parent regarding thereto. Such updated schedules shall be deemed to modify,
amend and supplement Schedules 3.19(a) and 3.24 and Exhibit A hereto and
the corresponding representations and warranties for all purposes of this
Agreement.
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5.10 Cooperation in Litigation.
(a) Each party hereto will fully cooperate with the other in the
defense or prosecution of any litigation or proceeding already instituted
or which may be instituted hereafter against or by such party relating to
or arising out of the conduct of the Business prior to the Closing Date
(other than litigation arising out of the transactions contemplated by this
Agreement). Subject to the indemnity obligations set forth in Article 9,
the party requesting such cooperation shall pay the out-of-pocket expenses
(including legal fees and disbursements) of the party providing such
cooperation and of its officers, directors, managers, employees and agents
reasonably incurred in connection with providing such cooperation, but
shall not be responsible to reimburse the party providing such cooperation
for such party's time spent in such cooperation or the salaries or costs of
fringe benefits or similar expenses paid by the party providing such
cooperation to its officers, managers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding. The Company has maintained, and, to the extent required to do
so, will continue to escrow and maintain, a cash escrow with respect to the
Portland Franchise Dispute that is sufficient to pay in full all amounts
(other than statutory interest thereon) that may be required to be paid in
respect of such matter, and, subject to Section 5.10(b), will reserve an
amount on the Closing Balance Sheet necessary to pay any statutory
interest.
(b) Notwithstanding Section 5.10(a) above, the Company shall not
settle the Portland Franchise Dispute prior to Closing without the prior
written consent of Purchaser. If Parent seeks Purchaser's consent to a
written, definitive settlement proposal acceptable to Parent and the City
of Portland (the "Settlement Proposal") and Purchaser refuses to consent to
such Settlement Proposal, then for purposes of determining Working Capital
as of the Closing Date, the parties agree that the Company's accrual with
respect to the Portland Franchise Dispute shall be reduced by an amount
equal to the difference (if a positive number) between (x) the amount that
the Company has accrued for the interest related to the Portland Franchise
Dispute through the date Parent presents the Settlement Proposal to
Purchaser in writing and (y) the amount the Company and/or Parent would
have to pay to the City of Portland in interest pursuant to the Settlement
Proposal. In addition, under such circumstances, for purposes of
determining Working Capital as of the Closing Date, the parties agree that
the Company shall not be obligated to accrue any additional statutory
interest with respect to the Portland Franchise Dispute after the date
Parent presents the Settlement Proposal to Purchaser in writing through the
Closing Date.
5.11 Transfer of Retained Assets. Sellers shall use commercially reasonable
efforts to transfer the Retained Assets to an entity designated by Parent prior
to the Closing. Sellers shall be responsible for any costs, and shall provide
for the assumption of any liabilities, associated with the transfer and
retention of, and otherwise in connection with, the Retained Assets.
5.12 Reasonable Best Efforts to Obtain Financing. Purchaser shall use its
reasonable best efforts to complete the Financing and satisfy its obligations
under the Commitment Letters in accordance with and by the date specified in the
terms and conditions of the Commitment Letters. Purchaser shall keep Parent
reasonably informed of all material developments, positive and negative,
concerning the status of the Financing described in the Commitment Letters.
Without limiting the foregoing, Purchaser agrees to notify Parent promptly, and
in any event within two (2) Business Days, if at any time prior to the Closing
(i) any Commitment Letter shall have expired or be terminated for any reason,
(ii) any financing source that is a party to any Commitment Letter notifies
Purchaser that such source no longer intends to provide financing to Purchaser
on the terms set forth therein, or (iii) Purchaser no longer believes in good
41
faith, subject to receipt of said Financing, that it will be able to obtain the
Required Cash Amount. Purchaser shall not amend or alter, or agree to amend or
alter, any Commitment Letter in any manner that could reasonably be expected to
impair, delay or prevent the transactions contemplated by this Agreement,
without the prior written consent of Parent. If any Commitment Letter shall be
terminated or modified in a manner materially adverse to Purchaser's ability to
consummate the transactions contemplated by this Agreement for any reason,
Purchaser shall use its commercially reasonable efforts to obtain alternative
financing as promptly as practical in any amount that, together with existing
cash resources, will equal the Required Cash Amount. If obtained, Purchaser will
provide Parent with a copy of the new financing commitment letters.
5.13 Exclusivity. Sellers agree that until this Agreement is terminated
under the terms hereof or until the Closing (the "Exclusivity Period"), Sellers
shall not, and shall not permit the Company or any of its respective officers,
directors, managers, agents or Affiliates to: (A) enter into any written or oral
agreement or understanding with any Person (other than Purchaser) regarding the
sale (whether by sale of membership interests, merger, consolidation, sale of
assets (other than the Retained Assets) or other disposition) of all or any part
of the Company or any material portion of its assets or membership interests
("Another Transaction"); (B) enter into or continue any negotiations or
discussion with any Person (other than Purchaser) regarding the possibility of
Another Transaction; or (C) except as otherwise required by Law, order of a
Governmental Authority or similar compulsion, provide any nonpublic financial or
other confidential or proprietary information regarding the Company (including
this Agreement, any materials containing Purchaser's proposal and any other
financial information, projections or proposals regarding the Company) to any
Person (other than Purchaser and its representatives).
5.14 Audit.
(a) Parent shall use commercially reasonable efforts to cause KPMG LLP
or such other accounting firm of international recognition mutually
acceptable to Parent and Purchaser (the "Auditors") to audit (the "Audit")
as promptly as practicable following the date hereof (i) the consolidated
statements of earnings, cash flows and owners' equity of the Company and
the Subsidiary for the years ended December 31, 2005 and December 31, 2004
and (ii) the consolidated balance sheets of the Company and the Subsidiary
as of December 31, 2005 and December 31, 2004.
(b) To the extent the financial statements to be audited in accordance
with clause (a) above include the Retained Assets and the results relating
thereto, Parent shall prepare and deliver to Purchaser as promptly as
practicable following completion of the Audit, unaudited pro forma
financial statements of the Company and the Subsidiary reflecting the
impact of the exclusion of all of the Retained Assets as if their carve-out
had occurred on January 1, 2005.
(c) Upon completion of the Audit, Parent shall cause the Auditors to
deliver to Parent an audit report stating (without qualification) that in
its opinion the financial statements described in Section 5.14(a)(i) and
(ii) (including the notes thereto) (the "Audited Financial Statements")
have been prepared in accordance with GAAP and present fairly, in all
material respects, the financial position of the Company and the Subsidiary
on December 31, 2005 and December 31, 2004 and the results of operations
for the periods covered thereby. Immediately following receipt of such
report, Parent shall deliver to Purchaser such report and the Audited
Financial Statements. In the event the Auditors refuse, decline or indicate
that they are unwilling to deliver the audit report referred to above,
Parent shall promptly notify Purchaser of that fact and the events or
circumstances giving rise thereto. Purchaser and Parent shall each pay
one-half the cost of the Audit.
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5.15 Environmental Investigation. Prior to the Closing, Purchaser shall
have the right, at its sole cost and expense, to (a) inspect non-privileged
records, reports, permits, applications, monitoring results, studies,
correspondence data and any other information or documents relevant to
environmental conditions or environmental noncompliance, (b) conduct Phase 1
environmental audits regarding the facilities of the Company and, with the prior
written consent of Sellers (such consent not to be unreasonably withheld or
delayed), conduct tests of the soil surface or subsurface waters and air quality
at, in, on, beneath or about the facilities of the Company, and to conduct such
other procedures, in each case, as may be recommended by an environmental
consultant engaged by Purchaser based on its professional judgment, in a manner
consistent with good engineering practice; provided that Purchaser and the
Company shall seek and obtain appropriate permission to conduct such tests on
third-party property, and (c) inspect all buildings and equipment at the
facilities of the Company including, without limitation, the visual inspection
of the physical plants for asbestos-containing construction materials; provided
that in each case, such tests and inspections shall be conducted only (i) during
regular business hours and upon reasonable prior notice to the Company and (ii)
in a manner that will not materially interfere with the operation of the
business of the Company and/or the use of, access to or egress from the
facilities of the Company.
5.16 Insurance. Sellers shall cause the Company to maintain in full force
and effect all insurance coverage for the Company's properties and assets
substantially comparable to coverage existing on the date hereof.
5.17 Continued Financials. Within twenty (20) days of the close of each
month, Sellers shall, or shall cause the Company to, deliver to Purchaser,
monthly financial statements for the Company's most recently completed month,
prepared in good faith and in accordance with GAAP (except (i) for the absence
of footnotes, and (ii) for the absence of normal year end adjustments), and
applied on a consistent basis with the Financial Statements, except materiality
shall be based on materiality of the Company and not the Parent. Within twenty
(20) days of the close of each quarter, Sellers shall, or shall cause the
Company to, deliver to Purchaser, quarterly financial statements for the
Company's most recently completed quarter, prepared in good faith and in
accordance with GAAP (except (i) for the absence of footnotes, and (ii) for the
absence of normal year end adjustments) and applied on a consistent basis with
the Financial Statements, except materiality shall be based on materiality of
the Company and not Parent.
5.18 Purchaser's Financials.
(a) As promptly as practicable following the date hereof, Purchaser
shall deliver to Parent, (i) the consolidated audited statements of
earnings, cash flows and owners' equity of Purchaser and its subsidiaries
for the year ended December 31, 2005, (ii) the consolidated audited balance
sheet of Purchaser and its subsidiaries as of December 31, 2005 and (iii)
an audit report of PricewaterhouseCoopers LLP or other accounting firm of
international recognition that such audited financial statements have been
prepared in accordance with GAAP, consistently applied, and present fairly,
in all material respects, the financial position of Purchaser and its
subsidiaries on December 31, 2005 and the results of operations for the
period covered thereby.
(b) Within thirty-five (35) days of the close of each month, Purchaser
shall deliver to Parent, (i) Purchaser's monthly financial statements for
the most recently completed month prepared in good faith and in accordance
with GAAP and applied on a consistent basis with the Purchaser's Financial
Statements and (ii) a statement setting forth Purchaser's EBITDA for the
previous twelve (12) month period ending with the month end covered by such
monthly financial statement, such statement in the form provided to
Purchaser's lenders.
5.19 Covenant Not to Compete; Non-Solicitation.
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(a) Except in connection with their performance under the Transition
Services Agreement, Sellers and their Affiliates shall not, directly or
indirectly, engage or participate in, acquire, manage, operate, control or
participate in the management, operation or control of, or own or possess
an interest in, either alone or jointly, any Person that engages in the
business of operating a Competitive Local Exchange Carrier, including any
long haul business that originates in the areas currently serviced by the
Company on its Metropolitan Access Network (a "Competing Business") in the
markets in which the Company operates on the date hereof (the "Purchased
Business Markets") for a period of eighteen (18) months after the Closing
Date; provided, however, that Sellers and their Affiliates (other than the
Company) shall not be restricted from engaging or participating in any
business or activity in which such entity currently engages or
participates. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 5.19 is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with
a term or provision that is valid and enforceable and that comes closest to
the intention of the invalid or unenforceable term or provision, and this
Agreement shall be enforceable as so modified after expiration of the time
within which the judgment may be appealed.
(b) Sellers covenant and agree that they shall not (and shall assure
that none of their Affiliates), directly or indirectly, for a period from
the date hereof until eighteen (18) months after the Closing Date solicit
to hire or hire, any employee of the Business employed by Purchaser or any
of Purchaser's Affiliates after the Closing Date or any employee currently
employed by Purchaser or Purchaser's Affiliates as of the date hereof or
employed by Purchaser or Purchaser's Affiliates on the Closing Date;
provided, however, that the foregoing shall not prohibit (i) a general
solicitation to the public of general advertising or (ii) a solicitation of
any employee that has been terminated by Purchaser or Purchaser's
Affiliates and provided further that nothing in this Section 5.19(b) shall
prohibit the Sellers or any of Sellers' Affiliates from employing any
person who contacts them on his or her own initiative (including in
response to a general solicitation) and without any direct or indirect
solicitation or encouragement or inducement by the Sellers or any of
Sellers' Affiliates.
(c) Purchaser covenants and agrees that it shall not (and shall assure
that none of its Affiliates), directly or indirectly, for a period from the
date hereof until eighteen (18) months after the Closing Date solicit to
hire or hire, any employee of Sellers or any of Sellers' Affiliates;
provided, however, that the foregoing shall not prohibit (i) Purchaser from
hiring any of the Company Employees; or (ii) a general solicitation to the
public of general advertising; and provided further that nothing in this
Section shall prohibit Purchaser and Purchaser's Affiliates from employing
any person who contacts them on his or her own initiative (including in
response to a general solicitation) and without any direct or indirect
solicitation by Purchaser or Purchaser's Affiliates.
5.20 Cooperation in Transition.
(a) The parties to this Agreement agree that Parent and Purchaser will
need to work together prior to Closing to prepare for appropriate
transition of operations and support provided by Parent to the Company. In
furtherance thereof and until the effectiveness of the Transition Services
Agreement, Parent shall, and shall cause the Company to, reasonably
cooperate with Purchaser and assist and facilitate the analysis and
preparation for the conversion of the systems data, information and
functionality from Parent's operating systems and applications to
Purchaser's operating systems and applications ("Interim Conversion Work").
In addition, Parent shall, and shall cause the Company to, reasonably
cooperate with Purchaser, and assist and facilitate Purchaser, in
developing the collection and remittance capabilities currently provided to
the Company by Parent. Parent shall designate a Project Manager(s) for the
purpose of working with Purchaser to provide the necessary data,
information and functions as reasonably requested by Purchaser to perform
the Interim Conversion Work. The Project Manager(s) shall meet weekly with
a representative of Purchaser or on a mutually agreed upon schedule.
44
(b) Parent shall use commercially reasonable efforts to cause the
vendors of the software that are listed on Schedule 5.20(b), during the
twenty-one (21) day period immediately following the date hereof to agree
to enter into separate software licenses with the Company on substantially
the same terms as apply to the Company currently pursuant to the licenses
with such vendors now in effect with the Parent, except to the extent
Parent and Purchaser determine to enter into the Transition Services
Agreement attached as Exhibit B-2 to this Agreement. Such separate licenses
will be fully paid through the periods indicated on Schedule 5.20(b).
Purchaser will be responsible for any future payments relating to periods
after the Closing (including maintenance obligations) under such separate
licenses, and Parent will be responsible for any fees or charges associated
with such vendors agreeing to enter into separate licenses for the benefit
of the Company. If Parent is able to cause each of such vendors to enter
into such a separate license on such terms as outlined above, then, if
Purchaser and Parent shall agree, Parent and Purchaser shall enter into the
Transition Services Agreement attached as Exhibit B-1 to this Agreement. If
(i) Parent is unable to cause each of such vendors to enter into such a
separate license on such terms as outlined above and/or (ii) Purchaser and
Parent do not agree to enter into the Transition Services Agreement
attached as Exhibit B-1 to this Agreement, in either case within twenty-one
(21) days following the date hereof, or if Parent otherwise elects, then
Parent and Purchaser shall enter into the Transition Services Agreement
attached as Exhibit B-2 to this Agreement.
(c) If, pursuant to Section 5.20(b), Parent and Purchaser agree to
enter into the Transition Services Agreement attached as Exhibit B-1, then
Purchaser shall, or shall cause the Company to, effective at Closing, offer
employment to approximately 15 of Parent's IT personnel who are listed on
Schedule 5.20(c) and who are qualified to support the Company's OSS
applications. Parent shall, and shall cause the Company to, reasonably
cooperate with Purchaser in providing Purchaser information with respect to
such personnel's capabilities in order to assist Purchaser in determining
which of such personnel are suited to support the Company's OSS
applications following the Closing.
5.21 No Additional Representations. Purchaser acknowledges that (i) neither
of the Sellers nor any other Person has made any representation or warranty,
expressed or implied, as to the Company or the Business, or the accuracy or
completeness of any information regarding the Company or the Business furnished
or made available to Purchaser and its representatives, except as expressly set
forth in this Agreement and (ii) Purchaser has not relied on any representation
or warranty from Sellers or any other Person in determining to enter into this
Agreement, except as expressly set forth in this Agreement.
5.22 Long Distance Services. Parent and Purchaser shall seek agreement with
the Company's existing LD carriers to augment those carrier's services to
accommodate the additional capacity and/or services currently being provided to
the Company by Parent's LD carriers by the 60th day after the date of this
Agreement. If an agreement is timely reached with the LD carriers, Parent shall
provide the facilities, equipment, manpower and services necessary to augment
the Company's LD switches to accommodate uninterrupted LD services at Closing.
If Parent and Purchaser fail to reach agreement with the Company's existing LD
carriers by the 60th day after the date of this Agreement, Parent shall timely
provide the facilities, equipment, manpower and services necessary to augment
the Company's LD switches to accommodate uninterrupted LD services at Closing
using Purchaser's LD carriers. In each case, Parent shall not charge any ▇▇▇▇-up
or fee or seek reimbursement for any costs except pass-through charges from LD
carriers.
45
ARTICLE 6.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase the Purchased Interests as provided
herein and to consummate the other transactions contemplated hereby is, at the
option of Purchaser, subject to satisfaction of each of the following conditions
precedent on or before the Closing Date:
6.1 Warranties True As of Present Date and Closing Date. The
representations and warranties of Sellers contained herein shall have been
accurate, true and correct in all material respects (other than representations
and warranties qualified as to materiality, which shall have been accurate, true
and correct in all respects) on and as of the date hereof, and, except to the
extent that any such representation or warranty is made solely as of the date
hereof or as of another date earlier than the Closing Date, shall also be
accurate, true and correct in all material respects on and as of the Closing
Date with the same force and effect as though made by Sellers on and as of the
Closing Date.
6.2 Compliance with Agreements and Covenants. Sellers shall have in all
material respects performed and complied with all of its covenants and
obligations contained in this Agreement to be performed and complied with by it
on or prior to the Closing Date.
6.3 Competition Law Approvals. The waiting period under the HSR Act shall
have expired or been terminated.
6.4 Transaction Documents. Parent, and any applicable Affiliate of Parent,
shall have entered into the Transaction Documents.
6.5 Consents. Purchaser shall have received (i) the FCC Consents and State
PUC Consents set forth on Schedule 6.5 and such FCC Consents and State PUC
Consents shall have become Final Orders and (ii) the other consents,
authorizations and approvals set forth on Schedule 6.5.
6.6 Injunctions. As of the Closing Date, no court or other Governmental
Authority shall have issued an order which shall then be in effect restraining
or prohibiting the completion of the transactions contemplated hereby, and no
suit shall have been instituted by a Governmental Authority with at least a
reasonable possibility of success seeking the same.
6.7 Certificate. Purchaser shall have received a certificate from each of
Sellers signed on behalf of such Seller by authorized officers of such Seller to
the effect set forth in Sections 6.1 and 6.2.
6.8 Deliveries by Sellers. Sellers shall have effected the deliveries
required pursuant to Section 8.2, each in form and substance reasonably
satisfactory to Purchaser.
6.9 Financing. The closing conditions set forth in the Commitment Letters
shall have been satisfied or waived and the Financing shall have been obtained.
6.10 Audited Financial Statements. Sellers shall have received the Audited
Financial Statements and delivered a copy thereof to Purchaser.
ARTICLE 7.
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
46
The obligation of Sellers to sell the Purchased Interests as provided
herein and to consummate the other transactions contemplated hereby is, at the
option of Sellers, subject to the satisfaction of each of the following
conditions precedent on or before the Closing Date:
7.1 Warranties True as of Present Date and Closing Date. The
representations and warranties of Purchaser contained herein shall have been
accurate, true and correct in all material respects (other than representations
and warranties qualified as to materiality, which shall have been accurate, true
and correct in all respects) on and as of the date hereof, and shall also be
accurate, true and correct in all material respects on and as of the Closing
Date with the same force and effect as though made by Purchaser on and as of the
Closing Date.
7.2 Compliance with Agreements and Covenants. Purchaser shall in all
material respects have performed and complied with all of its covenants and
obligations contained in this Agreement to be performed and complied with by it
on or prior to the Closing Date. Notwithstanding the foregoing, Purchaser shall
have paid the Purchase Price in accordance with Section 2.2 on the Closing Date.
7.3 Competition Law Approvals. The waiting period under the HSR Act shall
have expired or been terminated.
7.4 Transfer of Retained Assets. The Retained Assets shall have been
transferred to an entity designated by Parent.
7.5 Transaction Documents. Purchaser shall have entered into the
Transaction Documents.
7.6 Injunctions. As of the Closing Date, no court or other Governmental
Authority shall have issued an order which shall then be in effect restraining
or prohibiting the completion of the transactions contemplated hereby, and no
suit shall have been instituted by a Governmental Authority with at least a
reasonable possibility of success seeking the same.
7.7 Certificate. Sellers shall have received a certificate from Purchaser
signed on behalf of Purchaser by an authorized officer of Purchaser to the
effect set forth in Sections 7.1 and 7.2.
7.8 Deliveries by Purchaser. Purchaser shall have effected the deliveries
required pursuant to Section 8.3, each in form and substance reasonably
satisfactory to Sellers.
Any party Closing the transactions contemplated by this Agreement in the
absence of the satisfaction of a closing condition set forth in Articles 6 and 7
shall not be deemed to have waived the underlying representation or agreement
related to the closing condition not satisfied.
ARTICLE 8.
CLOSING; TERMINATION
8.1 Closing. The Closing shall take place at the offices of ▇▇▇▇▇▇▇ Coie
LLC, ▇▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, at 12:00 noon,
eastern time, on the second Business Day after the date on which all conditions
precedent set forth in Article 6 and Article 7 have been satisfied or waived by
the parties (other than those that by their terms cannot be satisfied until the
time of Closing), or such other date as is mutually agreeable to Sellers and
Purchaser (the "Closing Date").
8.2 Deliveries of Sellers. At the Closing, Sellers shall deliver to
Purchaser:
47
(a) such instrument or instruments of sale, transfer, conveyance and
assignment as Purchaser and its counsel may reasonably request in
connection with the transfer of the Purchased Interests;
(b) the minute book of the Company;
(c) the Transaction Documents, duly executed by Parent or its
Affiliate;
(d) the certificate pursuant to Section 6.7;
(e) a Certificate of Non-Foreign Status in accordance with Treasury
Regulations Section 1.445-2(a)(2) duly executed by Parent;
(f) opinions of regulatory counsel dated the Closing Date regarding
telecommunications regulatory matters, in form and substance, set forth on
Exhibit J hereto; and
(g) any other items required to be delivered by Sellers under the
terms and provisions of this Agreement.
8.3 Deliveries of Purchaser. At the Closing, Purchaser shall deliver to
Sellers:
(a) confirmations of the wire transfers of immediately available funds
required by Section 2.2;
(b) the Transaction Documents, duly executed by Purchaser
(c) the certificate pursuant to Section 7.7; and
(d) any other items to be delivered by Purchaser under the terms and
provisions of this Agreement.
8.4 Termination. This Agreement shall terminate prior to Closing:
(a) upon the mutual written agreement of Sellers and Purchaser;
(b) by either Purchaser or Sellers, if a court of competent
jurisdiction or other Governmental Authority shall have issued a
nonappealable final order, decree or ruling or taken any other action, in
each case having the effect of permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby, except if the
party relying on such order, decree or ruling or other action has not
complied with its obligations under this Agreement;
(c) by either Purchaser or Sellers, if the Closing shall not have
occurred by September 30, 2006, as such date may be extended from time to
time to the extent the termination date in the Commitment Letters has been
extended in writing prior to September 30, 2006, such termination date to
be no later than December 31, 2006; provided, however, that the right to
terminate this Agreement under this Section 8.4(c) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in the failure of, the Closing to occur
on or before such date;
(d) by Sellers, if there has been a breach of any representation,
warranty or covenant or agreement on the part of Purchaser set forth in
this Agreement, which breach (i) causes the conditions set forth in Article
7 not to be satisfied and (ii) shall not have been cured within ten (10)
Business Days following receipt by Purchaser of written notice of such
breach from Sellers;
48
(e) by Purchaser, if there has been a breach of any representation,
warranty or covenant or agreement on the part of Sellers set forth in this
Agreement, which breach (i) causes the conditions set forth in Article 6
not to be satisfied and (ii) shall not have been cured within ten (10)
Business Days following receipt by Sellers of written notice of such breach
from Purchaser; or
(f) by Sellers, if Purchaser has delivered a notice pursuant to the
third sentence of Section 5.12 and (i) has not delivered to Sellers a
proposal letter with respect to alternative financing reasonably acceptable
to Sellers within thirty (30) days of delivery of the notice provided
pursuant to the third sentence of Section 5.12, or (ii) if Purchaser
delivers such a proposal letter(s) within such thirty day period, has not
delivered to Sellers commitment letters with respect to alternative
financing reasonably acceptable to Sellers within thirty (30) days of the
delivery of such proposal letter(s).
If this Agreement is terminated pursuant to this Section 8.4, all further
obligations of the parties under this Agreement shall become null and void and
of no further force or effect, except that (i) Sections 2.6, 5.4, 8.4, 11.1,
11.7, and 11.13 will survive, and (ii) if this Agreement is terminated by a
party because of the breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies shall survive such termination unimpaired.
Notwithstanding the foregoing, if this Agreement is terminated pursuant to
Section 8.4(c), 8.4(d) or 8.4(f) based on the failure of the closing condition
set forth in Section 6.9 (Financing) to occur, Purchaser shall pay Parent as a
termination fee, in addition to the deposit referred to in Section 2.6, $3.5
million, such payment to be made to Parent on the later of (i) twenty (20)
Business Days after termination and (ii) December 31, 2006. For avoidance of
doubt, the retention of the deposit and the amounts set forth in this paragraph,
as well as the rights granted to Parent in the Letter Agreement and the rights
granted to Parent as provided herein, shall be the exclusive remedy against
Purchaser based on a failure to obtain financing.
8.5 Further Assurances. Each party agrees that it shall, from time to time
after the date of this Agreement, execute and deliver such other documents and
instruments and take such other actions as may be reasonably requested by any
other party to carry out the transactions contemplated by this Agreement.
ARTICLE 9.
SURVIVAL AND INDEMNIFICATION
9.1 Survival.
(a) The representations, warranties, covenants and agreements
contained in this Agreement shall survive the consummation of the
transactions contemplated hereby solely for purposes of this Article 9 as
follows: (i) the representations and warranties contained in this Agreement
(other than the representations and warranties contained in Sections 3.1,
3.2, 3.3, 3.9, 3.11 and 4.1) shall survive for eighteen (18) months
following the Closing; (ii) any representations and warranties contained in
Sections 3.1, 3.2, 3.3 and 4.1 shall survive indefinitely; (iii) any
representations and warranties contained in Sections 3.9 and 3.11 shall
survive the Closing for the duration of the applicable statute of
limitations plus sixty (60) days; (iv) any covenants contained in this
Agreement shall survive the Closing in accordance with their respective
terms; and (v) all other provisions of this Agreement shall survive
indefinitely.
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(b) Any right to indemnification or other recovery under this Article
9 shall only apply to Damages (as defined below) with respect to which the
Indemnified Party shall have notified the Indemnifying Party within the
applicable time period set forth in this Section 9.1. If any claim for
indemnification or other recovery is timely asserted under this Article 9,
the Indemnified Party shall have the right to bring an action, suit or
proceeding with respect to such claim within one year after first giving
the Indemnifying Party notice thereof, but may not bring any such action,
suit or proceeding thereafter.
9.2 Indemnification by Parent.
(a) Subject to the limitations set forth in this Article 9, from and
after the Closing, Parent agrees to indemnify Purchaser, its Affiliates (in
their capacity as such and not as lendors) and any of its respective
agents, employees, officers and directors (each, a "Purchaser Indemnified
Party" and collectively, the "Purchaser Indemnified Parties"), against, and
agrees to hold Purchaser Indemnified Parties harmless from, any and all
losses, costs, damages, penalties, fines, liabilities and expenses
(including reasonable legal fees and expenses and costs, fees and expenses
incurred in pursuing indemnification under this Agreement) (collectively,
"Damages") incurred or sustained by any Purchaser Indemnified Party to the
extent arising out of:
(i) any breach of any representation or warranty by Sellers
contained in this Agreement or in the certificate set forth in Section
6.7; and
(ii) a breach by Sellers of any covenants or other agreements
contained herein that are to be performed following the Closing Date.
Following the Closing, solely for purposes of determining whether a
representation or warranty that is qualified by reference to matters "that would
not, individually or in the aggregate, have a Material Adverse Effect" or
language of similar import has been breached for purposes of Section 9.2(a)(i)
only, such Material Adverse Effect qualifier shall be disregarded and in lieu
thereof such representation or warranty shall be deemed to be qualified by
reference to matters "that would not, individually or in the aggregate, give
rise to Damages of $1,000,000 or more"; provided, however, that the parties
acknowledge and agree that such $1,000,000 Damage threshold shall not be applied
for purposes of determining whether a Material Adverse Effect exists or has
occurred.
(b) The aggregate indemnification obligation for Damages under Section
9.2(a)(i) (other than in respect of Damages arising out of breaches of the
representations and warranties contained in Sections 3.1, 3.2, 3.3 and 3.9)
shall not exceed $30,000,000.00.
9.3 Indemnification by Purchaser. From and after the Closing, Purchaser
agrees to indemnify Sellers, their Affiliates and any of their respective
agents, employees, officers, managers, and directors (each, a "Seller
Indemnified Party" and collectively, the "Seller Indemnified Parties") against,
and agrees to hold Seller Indemnified Parties harmless from, any and all Damages
incurred or sustained by any Seller Indemnified Party to the extent arising out
of any of the following:
(a) any breach of any representation or warranty by Purchaser
contained in this Agreement or in the certificate set forth in Section 7.7;
and
(b) a breach by Purchaser of any covenant or other agreement contained
herein that is to be performed following the Closing Date.
9.4 Basket for Claims.
(a) No claim for Damages arising out of any breach (except for Damages
from a breach of a representation and warranty contained in Sections 3.1,
3.2, 3.3 and 3.9) shall be made under Section 9.2(a)(i) unless the
aggregate amount of Damages for which claims are made under Section
9.2(a)(i) exceeds $5,000,000.00 (the "Parent's Basket"), in which case,
Purchaser Indemnified Parties shall be entitled to seek compensation only
for Damages in excess of such amount, subject to Section 9.2(b). There
shall be no Parent's Basket for breaches of Sections 3.1, 3.2, 3.3, and
3.9.
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(b) Notwithstanding anything contained in this Agreement to the
contrary, Parent shall have no obligation to provide indemnification
pursuant to Sections 9.2(a)(i) (other than in respect of Damages arising
out of breaches of the representations and warranties contained in Sections
3.1, 3.2, 3.3 and 3.9) (and no amount shall be deducted from the Parent's
Basket) with respect to any individual claim for indemnification by the
Purchaser Indemnified Parties except to the extent that the amount of
indemnification to which the Purchaser Indemnified Parties shall have
become entitled to under Section 9.2 with respect to such individual claim
for indemnification shall exceed $100,000. All such individual claims in
amounts that exceed $100,000 shall be applied against the Parent's Basket,
and if and when such Parent's Basket is exceeded, Parent shall be
obligated, subject to the other provisions of this Article 9 (including,
without limitation, Section 9.4(a)), to provide indemnification with
respect to such individual claim.
9.5 Net Losses; Subrogation; Mitigation.
(a) Notwithstanding anything contained herein to the contrary, the
amount of any Damages incurred or suffered by an Indemnified Party shall be
calculated after giving effect to (i) any insurance proceeds actually
received by the Indemnified Party (or any of its Affiliates) with respect
to such Damages, (ii) any Tax Advantage realized by the Indemnified Party
(or any of its Affiliates) arising from the facts or circumstances giving
rise to such Damages, and (iii) any recoveries actually received by the
Indemnified Party (or any of its Affiliates) from any other third party.
Each Indemnified Party shall exercise commercially reasonable efforts to
obtain such proceeds, benefits and recoveries. If any such proceeds,
benefits or recoveries are received by an Indemnified Party (or any of its
Affiliates) with respect to any Damages after an Indemnifying Party has
made a payment to the Indemnified Party with respect thereto, the
Indemnified Party (or such Affiliate) shall pay to the Indemnifying Party
the amount of such proceeds, benefits or recoveries (up to the amount of
the Indemnifying Party's payment).
(b) Upon making any payment to an Indemnified Party in respect of any
Damages, and the Indemnified Party's payment in full of Damages, the
Indemnifying Party shall, to the extent of such payment by the Indemnifying
Party, be subrogated to all rights of the Indemnified Party (and its
Affiliates) against any third party in respect of the Damages to which such
payment relates. Such Indemnified Party (and its Affiliates) and
Indemnifying Party shall execute upon request all instruments reasonably
necessary to evidence or further perfect such subrogation rights.
(c) Purchaser and Sellers shall use commercially reasonable efforts to
mitigate any Damages, including by asserting claims against a third party;
provided, that no party shall be required to use such efforts if they
reasonably believe such actions would be detrimental in any material
respect to such party. For avoidance of doubt, any costs or expenses
involved in undertaking mitigation shall be included in Damages.
(d) To the extent that any breach of any representation or warranty
contained in this Agreement or any breach of any other provision of this
Agreement that arises after the Closing is capable of remedy, the
Indemnified Party shall afford the Indemnifying Party a reasonable
opportunity to remedy the matter complained of.
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9.6 Claims. As promptly as is reasonably practicable after becoming aware
of a claim for indemnification under this Agreement that does not involve a
Third Party Claim (as defined in Section 9.7), the Indemnified Party shall give
notice to the Indemnifying Party of such claim, which notice shall, to the
extent such information is reasonably available, specify in reasonable detail
the facts alleged to constitute the basis for such claim, the representations,
warranties, covenants and obligations alleged to have been breached and the
amount that the Indemnified Party seeks hereunder, if known, from the
Indemnifying Party, together with such information, to the extent such
information is reasonably available, as may be reasonably necessary to assist
the Indemnifying Party in determining that the limitations in Section 9.4 have
been satisfied or do not apply. No failure to provide notice under this Section
9.6 or under Section 9.7 in the time frames specified shall adversely affect an
Indemnified Party's rights to indemnification except to the extent the
Indemnifying Party is actually prejudiced or harmed by such failure.
9.7 Notice of Third Party Claims; Assumption of Defense. The Indemnified
Party shall give notice as promptly as is reasonably practicable, but in any
event no later than fifteen (15) Business Days after receiving notice thereof,
to the Indemnifying Party of the assertion of any claim, or the commencement of
any suit, action or proceeding, by any Person not a party hereto in respect of
which indemnity may be sought under this Agreement (a "Third Party Claim")
(which notice shall, to the extent such information is reasonably available,
specify in reasonable detail the facts alleged to constitute the basis for such
claim, the representations, warranties, covenants and obligations alleged to
have been breached and the amount of such claim together with such information
as may be necessary for the Indemnifying Party to determine that the limitations
in Section 9.4 have been satisfied or do not apply). The Indemnifying Party
shall have the right to defend the Indemnified Party against any such claim with
counsel of its choice reasonably satisfactory to the Indemnified Party so long
as the Indemnifying Party notifies the Indemnified Party in writing within
fifteen (15) days after the Indemnified Party has given notice of the claim that
the Indemnifying Party shall assume the defense of such claim. Notwithstanding
the foregoing, the Indemnifying Party shall not be entitled to assume the
defense of any such claim if the claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the Indemnified
Party that the Indemnified Party reasonably determines, after conferring with
its outside counsel and the Indemnifying Party's outside counsel, cannot be
separated from any related claim for money damages. If such equitable relief or
other relief portion of such claim can be so separated from that portion for
money damages, the Indemnifying Party shall be entitled to assume the defense of
the portion relating to money damages.
If the Indemnifying Party assumes such defense, the Indemnified Party shall
have the right (but not the duty) to participate in the defense thereof and to
employ counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party. To the extent the Indemnified Party is entitled to
indemnification hereunder with respect to such claim, if and to the extent the
Indemnifying Party does not assume the defense of any such claim, suit, action
or proceeding, the Indemnifying Party shall nonetheless be responsible for the
payment when due of all reasonable costs and expenses incurred in defense of the
claim, suit, action or proceeding. Whether or not the Indemnifying Party chooses
to defend or prosecute any such claim, suit, action or proceeding, all of the
parties hereto shall cooperate in the defense or prosecution thereof.
9.8 Settlement or Compromise. Any settlement or compromise made or caused
to be made by the Indemnified Party or the Indemnifying Party, as the case may
be, of any such claim, suit, action or proceeding of the kind referred to in
Section 9.7 shall also be binding upon the Indemnifying Party or the Indemnified
Party, as the case may be, in the same manner as if a final judgment or decree
had been entered by a court of competent jurisdiction in the amount of such
settlement or compromise; provided, that (i) no obligation or restriction shall
be imposed on the Indemnified Party as a result of such settlement or compromise
without its prior written consent and no Damage shall be imposed on the
Indemnified Party as a result of such settlement or compromise without its prior
written consent, which consent shall not be unreasonably withheld, and (ii) the
Indemnified Party will not compromise or settle any claim, suit, action or
proceeding without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed.
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9.9 Limitations on Liability. Notwithstanding any provision herein, neither
of Sellers nor Purchaser shall in any event be liable to the other parties
hereto, Purchaser Indemnified Parties or Seller Indemnified Parties, as
applicable, on account of any breach of this Agreement or any of the other
Transaction Documents for any indirect, consequential, special, incidental or
punitive damages. Each of Sellers and Purchaser acknowledge and agree that for
purposes of this Article 9, any damages actually paid by or on behalf of them to
a third party in respect of a Third Party Claim shall be considered direct
damages rather than indirect, consequential, special, incidental or punitive
damages.
9.10 Exclusive Remedy. Following the Closing, the indemnification
provisions set forth in this Article 9 and Article 10 shall provide the
exclusive remedy for breach of any covenant, agreement, representation or
warranty set forth in this Agreement, except that the indemnification provisions
set forth in this Article 9 and Article 10 do not limit (i) either parties right
to seek equitable relief in a court of competent jurisdiction to prevent or
remedy a breach of the other party's obligations hereunder, including the
obligations set forth in Section 5.4, (ii) any party's remedies for breaches of
the non-competition and non-solicitation provisions contained in Section 5.19,
or (iii) any party's remedies with respect to fraud by the other party.
9.11 Purchase Price Adjustments. Any amounts payable under Section 9.2 or
Section 9.3 shall be treated by Purchaser and Sellers as an adjustment to the
Purchase Price.
ARTICLE 10.
TAX MATTERS
10.1 Filing Tax Returns; Payment of Taxes.
(a) Sellers shall cause to be prepared and filed in a timely manner
all Tax Returns for Income Taxes with respect to the income, assets,
properties or operations of the Company for all periods ending on or before
the Closing Date ("Pre-Closing Tax Periods"), including for those
jurisdictions and Governmental Authorities that permit or require a short
period Tax Return for Income Taxes, for the period ending on the Closing
Date. All such Tax Returns shall be prepared and filed in a manner
consistent with past practice of the Company, except as required by
applicable Law. Without undue disruption to the operations of the Company,
Purchaser shall cause the Company to cooperate fully and promptly in
connection with Sellers' preparation and filing of such returns. The books
and records of the Company will be maintained, and the Tax Returns of the
Company will be filed, so as to accurately reflect the operations of the
Company through the end of the Closing Date.
(b) Purchaser shall cause to be prepared and filed in a timely manner
all other Tax Returns required to be filed by the Company for periods
ending on or before the Closing Date and for Straddle Periods, after giving
Sellers the opportunity to review and approve (not to be unreasonably
withheld) any Tax Return relating to a Tax Period including any pre-Closing
item; provided, however, that Sellers shall be responsible for any Taxes
shown on such Tax Returns that are attributable to the Pre-Closing Tax
Period or that portion of a Straddle Period relating to the period ending
on the Closing Date except to the extent such Taxes have been reserved for
as a liability on the Closing Balance Sheet and resulted in a reduction to
the Purchase Price under Section 2.3 hereof.
(c) None of Purchaser or any of its Affiliates shall (or after the
Closing, shall cause or permit the Company to) amend, refile or otherwise
modify (or grant an extension of any statute of limitations with respect
to) any Tax Return relating in whole or in part to the Company (i) with
respect to any Pre-Closing Tax Period, or (ii) with respect to any Straddle
Periods without the prior written consent of Sellers, which consent shall
not be unreasonably withheld. If any position on any Tax Return filed after
the Closing Date with respect to the Company for Tax Periods beginning on
or after the Closing Date could reasonably be expected to affect the Tax
liability of Sellers, Purchaser shall notify Sellers and shall take such
position on such Tax Return only with the approval of Sellers, which shall
not be unreasonably withheld.
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(d) For purposes of this Agreement, Taxes for periods that include,
but do not end on the Closing Date shall be apportioned as follows: (i)
Taxes that are based on or measured by income or gross receipts or imposed
in connection with any sale, transfer or assignment or any deemed sale,
transfer or assignment of property, shall be determined based on an interim
closing of the books as of the close of business on the Closing Date, (ii)
Taxes (other than those described in clause (i)), shall be deemed equal to
the amount of Taxes for the entire taxable period multiplied by a fraction,
the numerator of which is the number of days in the portion of the taxable
period ending on the Closing Date, and the denominator of which is the
total number of days in the entire Taxable Period.
10.2 Cooperation on Tax Matters.
(a) Subject to the provisions of Section 10.5, Purchaser, the Company
and Sellers shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax Returns
pursuant to this Article 10. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. Personnel of the Company shall be available to execute
Tax statute of limitation waivers and amended Tax Returns at Sellers'
request for the Tax Returns for the Tax Period prior to the Closing Date.
Purchaser and Sellers shall (i) retain all books and records with respect
to Tax matters pertinent to the Company relating to any Taxable Period
beginning before the Closing Date until the expiration of the applicable
statute of limitations (and, to the extent notified by Purchaser or
Sellers, any extensions thereof) of the respective Taxable Periods, and to
abide by all record retention agreements entered into with any taxing
authority and (ii) give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if
the other party so requests, Purchaser or Sellers, as the case may be,
shall allow the other party to take possession of such books and records.
(b) Purchaser and Sellers, upon reasonable request by the other party,
shall use all commercially reasonable efforts to obtain any certificate or
other document from any Governmental Authority or any other Person as may
be necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including with respect to the transactions contemplated hereby).
10.3 Tax Indemnification. Without duplication, Parent agrees to indemnify
Purchaser Indemnified Parties against and agrees to hold Purchaser Indemnified
Parties harmless from any and all Taxes imposed on the Company in respect of its
income, business, property or operations, or for which the Company may otherwise
be liable, for any Pre-Closing Tax Period and that portion of a Straddle Period
relating to the period ending on the Closing Date, except to the extent such
Taxes have been reserved for as a liability on the Closing Balance Sheet and
resulted in a reduction to the Purchase Price under Section 2.3 hereof.
Notwithstanding any provision to the contrary herein, Parent's obligation to
indemnify Purchaser Indemnified Parties under this Section 10.3 shall not be
subject to the limitations on indemnification under Section 9.4.
10.4 Refunds.
54
(a) Any required amended Tax Return relating to a Pre-Closing Tax
Period or that portion of a Straddle Period relating to the period ending
on the Closing Date and any refund claims relating to a Pre-Closing Tax
Period or that portion of a Straddle Period relating to the period ending
on the Closing Date shall be prepared by Sellers.
(b) Any refunds or credits of Taxes of the Company for any Pre-Closing
Tax Period or that portion of a Straddle Period relating to the period
ending on the Closing Date shall be for the benefit of Sellers (except to
the extent such refunds have been accrued as an asset on the Closing
Balance Sheet and resulted in an increase to the Purchase Price under
Section 2.3 hereof) and any refunds or credits of the Company for that
portion of a Straddle Period beginning on the day after the Closing Date
shall be for the benefit of Purchaser.
(c) Purchaser shall promptly pay over (or cause the Company to pay
over) to Sellers all refunds received by Purchaser or its Affiliates to
which Sellers are entitled under this Section 10.4 (including interest with
respect thereto), and Sellers shall promptly pay or cause to be paid over
to Purchaser (or the Company) all refunds to which Purchaser (or the
Company) is entitled under this Section 10.4 (including interest with
respect thereto).
10.5 Audits and Contests with Respect to Taxes.
(a) So long as Taxable Periods of the Company ending on or before, or
including, the Closing Date remain open for an assessment of Tax, Purchaser
and Sellers shall notify the other in writing within fifteen (15) Business
Days after receipt by Purchaser or Sellers of written or oral notice of:
(i) any pending or threatened audit or assessment with respect to
Taxes of the Company relating to any Pre-Closing Tax Period or
Straddle Period, and
(ii) any pending or threatened audit or assessment with respect
to Taxes of Purchaser that may affect the Tax liabilities of the
Company for any Pre-Closing Tax Period or Straddle Period.
(b) Within fifteen (15) Business Days after Sellers' receipt of a
notice respecting an item or items for which it is responsible pursuant to
Section 9.2, Sellers may elect, so long as Parent has an obligation to
indemnify Purchaser Indemnified Parties hereunder with respect to such
audit, by written notice to Purchaser, to contest the audit or assessment
in the name of the Company. If Sellers so elect, Sellers, at their expense,
shall be responsible for the defense of the item or items at issue;
provided, however, that Purchaser shall have the right (but not the duty)
to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by Sellers, and agrees to
cooperate, and will cause the Company to cooperate, in the contest of such
audit or assessment by making relevant documents and employees available to
Sellers, and to execute such documents (including powers of attorney) as
may be reasonably necessary to allow Sellers to conduct the defense. If
Sellers elect to conduct a defense, then all decisions with respect to the
negotiation, settlement, or litigation of the item or items at issue shall
be made by Sellers and shall be binding upon Purchaser, except that Sellers
shall not agree to any adjustment, or making any Tax election, that will or
may create an increase in Taxes for the Company or Purchaser in respect of
any period ending after the Closing Date without the prior written consent
of Purchaser, which consent shall not be unreasonably withheld and, subject
to Section 9.10 hereof and so long as Sellers are obligated to indemnify
Purchaser Indemnified Parties hereunder with respect to such audit, shall
promptly indemnify Purchaser for, and hold Purchaser harmless against, any
such increase and no payment shall be made under this Section 10.5 to the
extent that the related Tax Benefits or Tax Detriments have been accrued on
the Closing Balance Sheet and resulted in an adjustment to the Purchase
Price under Section 2.3 hereof.
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10.6 Audit Adjustments.
(a) If as a result of the examination of the federal, state, or local
income or franchise Tax Returns of the Company, or any group of
corporations that includes the Company for a taxable year ending on or
before, or including, the Closing Date, there shall be made after the
Closing Date any adjustment that increases deductions, losses, or credits
against Taxes or that decreases income, gain or recapture of credits
against Taxes ("Tax Benefits") or that increases income, gain, or recapture
of credits against Taxes or decreases deductions, losses or credits against
Taxes ("Tax Detriments") for any taxable year and that will permit Sellers
or the Company (or any entity that is included in a Tax Return that
includes Purchaser or the Company) to increase the Tax Benefits or decrease
the Tax Detriments to which they would otherwise have been entitled for any
taxable year beginning on or after the Closing Date, Sellers will notify
Purchaser of such adjustment and provide Purchaser with such information as
may be necessary for Purchaser to take account of such increases or
decreases through the filing of a claim of refund or otherwise. Purchaser
shall take any reasonable actions necessary to secure the benefit of such
increases or decreases. In any taxable year in which the net effect of such
adjustments is a Tax Benefit to the Company, Purchaser shall indemnify
Sellers for such benefit (plus any interest actually received by Purchaser
from the relevant Tax authority, less Purchaser's reasonable net expenses
incurred in securing such benefit) within thirty (30) Business Days after
the Tax Return reflecting those net Tax Benefits is filed; if the net
effect is a Tax Detriment to the Company, Sellers shall indemnify Purchaser
for such detriment (plus any reasonable expenses of Purchaser incurred in
attempting to mitigate such detriment) to the extent that such detriment is
not indemnified pursuant to this Section 10.6, within thirty (30) Business
Days after the Tax Return reflecting those net Tax Detriments is filed. If,
after Purchaser or Sellers have made a payment to the other in respect of a
Tax Benefit or Tax Detriment, there is a subsequent adjustment in the
amount of such Tax Benefit or Tax Detriment as a result of an examination
by federal, state, or local Tax authorities, Purchaser or Sellers, as the
case may be, shall make an appropriate payment for the amount of such
adjustment in such Tax Benefit or Tax Detriment, promptly after the Tax
Return reflecting such adjustment is filed. Each party agrees to use
commercially reasonable efforts to defend against any such adjustment that
is a decrease in Tax Benefits or an increase in Tax Detriments.
Notwithstanding any other provision contained herein, this Section 10.6
shall be subject to the limitations set forth in Section 9.10 and shall
apply only so long as Sellers and Purchaser are obligated hereunder to
indemnify Purchaser Indemnified Parties or Seller Indemnified Parties,
respectively, with respect to such audit and no payment shall be made under
this Section 10.6 to the extent that the related Tax Benefits or Tax
Detriments have been accrued on the Closing Balance Sheet and resulted in
an adjustment to the Purchase Price under Section 2.3 hereof.
(b) In calculating any amount to be indemnified pursuant to this
Section 10.6, each party shall be deemed to be subject to Tax at the
combined effective Tax rate for the Taxable Period in question, taking into
account the appropriate state apportionment factors of the Company for the
Taxable Period in question. Any payment pursuant to this Section 10.6 shall
constitute an adjustment to the Purchase Price under this Agreement.
10.7 Tax Withholding. Sellers and Purchaser agree that for the purposes of
FICA Tax withholding and any comparable state or local Tax withholding (to the
extent permitted under applicable state and local Laws), Purchaser shall treat
all wages paid by the Company in 2005 to each current Company Employee, if any,
who becomes employed by Purchaser immediately after the Closing as paid by
Purchaser pursuant to Section 3121 of the Code and any comparable provisions of
applicable state and local Laws, and Sellers agree to provide Purchaser with all
related documentation, including, without limitation, a completed W-4 form for
each such Company Employee. Sellers and Purchaser agree to follow the "Alternate
Procedure for Predecessors and Successors" as set forth in IRS Revenue Procedure
2004-53. Sellers and Purchaser agree, in accordance with such procedure, to each
file with the Internal Revenue Service a Schedule D (Form 941) with the Form 941
for the first quarter of 2006. Sellers agree to provide Purchaser with all
information necessary for Purchaser to assume the Company's 2006 W-2 obligations
with respect to each current Company Employee, if any, who becomes employed by
Purchaser immediately after the Closing.
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10.8 Tax Sharing Agreements. All tax sharing agreements or similar
arrangements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
ARTICLE 11.
MISCELLANEOUS
11.1 Expenses. Except as provided below or as otherwise provided in this
Agreement, each party hereto shall bear its own expenses with respect to this
transaction. Purchaser and Parent shall each pay one-half of any HSR Act or
similar filing or reporting fee, and any fees in connection with obtaining State
PUC Consents or FCC Consents. All fees (including notarial fees) or transfer,
conveyance, sales, use or similar Taxes on or with respect to the sale and
transfer of the Purchased Interests (including any Taxes with respect to the
transfer or deemed transfer of the assets of the Company) shall be paid by the
party legally obligated to pay (but not withhold) such amounts. Parent shall pay
any transfer, conveyance, sales, use or similar Taxes with respect to the
transfer of the Retained Assets prior to the Closing.
11.2 Amendment. This Agreement may be amended, modified or supplemented
only in writing signed by each of the parties hereto.
11.3 Notices. Any written notice to be given hereunder shall be given in
writing and shall be deemed given: (a) when received if given in person, (b) on
the date of transmission if sent by facsimile, e-mail or other wire transmission
(receipt confirmed), (c) three days after being deposited in the U.S. mail,
certified or registered mail, postage prepaid, and (d) if sent by an
internationally recognized overnight delivery service, the second day following
the date given to such overnight delivery service (specified for overnight
delivery). All notices shall be addressed as follows:
If to either Seller to:
Citizens Communications Company
▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:........▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: .........Executive Vice President, Chief Operating Officer
Telephone:........(▇▇▇)-▇▇▇-▇▇▇▇
Fax: .........(▇▇▇)-▇▇▇-▇▇▇▇
with a copy to:
Citizens Communications Company
▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:........▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Title: .........Senior Vice President, General Counsel and Secretary
Telephone:........(▇▇▇) ▇▇▇-▇▇▇▇
Fax: .........(▇▇▇) ▇▇▇-▇▇▇▇
57
and
▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Purchaser, addressed as follows:
Integra Telecom Holdings, Inc.
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Vice President and General Counsel
Telephone:(▇▇▇)-▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ Coie LLC
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇)-▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)-▇▇▇-▇▇▇▇
11.4 Waivers. Subject to the limitations contained in this Agreement
(including, without limitation, those set forth in Section 9.1), the failure of
a party to require performance of any provision hereof shall not affect its
right at a later time to enforce the same. No waiver by a party of any term,
covenant, representation or warranty contained herein shall be effective unless
in writing. No such waiver in any one instance shall be deemed a further or
continuing waiver of any such term, covenant, representation or warranty in any
other instance.
11.5 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11.6 Headings. The headings preceding the text of Articles and Sections of
this Agreement and the Schedules and Exhibits thereto are for convenience only
and shall not be deemed part of this Agreement.
11.7 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal Laws, and not the laws of conflicts, of
the State of Delaware. THE PARTIES EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION OR CAUSE OF ACTION BASED ON, OR ARISING OUT OF, UNDER OR IN
CONJUNCTION IN ANY MANNER WITH TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
58
11.8 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns; provided,
that no assignment of either party's rights or obligations may be made without
the written consent of the other party and any such assignment shall provide
that the assigning party will continue to be bound by all obligations hereunder
as if such assignment had not occurred and perform such obligations to the
extent that its assignee fails to do so. Notwithstanding the foregoing, this
Agreement may be assigned by a party (the "Assigning Party") after Closing
without the consent of the other party (the "Non-assigning Party") to an
Affiliate of the Assigning Party, provided that advance notice of the assignment
is given to the Non-assigning Party, such Affiliate enters into a written
agreement with the Non-assigning Party to be bound by the provisions of this
Agreement in all respects and to the same extent as the Assigning Party is bound
and that the Assigning Party will continue to be bound by all obligations
hereunder as if such assignment had not occurred and perform such obligations to
the extent that such Affiliate fails to do so.
11.9 No Third Party Beneficiaries. This Agreement is solely for the benefit
of the parties hereto; provided that in addition to Sellers and Purchaser,
Seller Indemnified Parties and Purchaser Indemnified Parties, as the case may
be, shall also enjoy the benefits of indemnities made herein which are expressly
stated to be in their favor; provided, however, that no Person other than the
parties hereto shall have the right to enforce the provisions of Section 5.5. In
this regard, the parties agree that such Persons shall have the right to enforce
those provisions directly against the applicable Indemnifying Party.
11.10 Schedules. Neither the specification of any dollar amount in any
representation or warranty contained in this Agreement nor the inclusion of any
specific item in any Schedule hereto is intended to imply that such amount, or
higher or lower amounts, or the item so included or other items, are or are not
material, and no party shall use the fact of the setting forth of any such
amount or the inclusion of any such item in any dispute or controversy between
the parties as to whether any obligation, item or matter not described herein or
included in any Schedule is or is not material for purposes of this Agreement.
Unless this Agreement specifically provides otherwise, neither the specification
of any item or matter in any representation or warranty contained in this
Agreement nor the inclusion of any specific item in any Schedule hereto is
intended to imply that such item or matter, or other items or matters, are or
are not in the ordinary course of business, and no party shall use the fact of
the setting forth or the inclusion of any such item or matter in any dispute or
controversy between the parties as to whether any obligation, item or matter not
described herein or included in any Schedule is or is not in the ordinary course
of business for purposes of this Agreement.
11.11 Incorporation. The respective Schedules, Exhibits and Appendices
attached hereto and referred to herein are incorporated into and form a part of
this Agreement.
11.12 Complete Agreement. The Transaction Documents and the Confidentiality
Agreement constitute the complete agreement of the parties with respect to the
subject matter hereof and supersede all prior discussions, negotiations and
understandings.
11.13 Public Announcements. Sellers and Purchaser each agree that they and
their Affiliates shall not issue any press release or otherwise make any public
statement or respond to any media inquiry with respect to this Agreement or the
transactions contemplated hereby without the prior approval of the other
parties, which shall not be unreasonably withheld or delayed, except as may be
required by Law or by any stock exchanges having jurisdiction over Sellers,
Purchaser or their respective Affiliates.
11.14 Severability. In the event that any provision of this Agreement, or
the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties thereto. The parties further agree to
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replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first set forth above.
SELLERS:
CITIZENS COMMUNICATIONS COMPANY
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
CU CAPITAL LLC
By Citizens Communications Company, its sole member
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
INTEGRA TELECOM HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer