Exhibit 2.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
PINNACLE ONE PARTNERS, L.P.
(AS "SELLER")
AND
HOMEBASE ACQUISITION TEXAS CORP.
(AS "PURCHASER")
DATED AS OF
JANUARY 15, 2004
TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS.................................................................................... 1
1.1 Defined Terms...................................................................................... 1
1.2 Other Definitional Provisions...................................................................... 14
ARTICLE II THE TRANSACTION....................................................................................... 14
2.1 Purchase of Shares................................................................................. 14
2.2 Purchase Price; Purchase Price Adjustments......................................................... 14
2.3 Closing............................................................................................ 17
2.4 Deliveries and Proceedings at Closing.............................................................. 18
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................................................... 20
3.1 Representations and Warranties of Seller........................................................... 20
3.1.1 Seller's Existence.................................................................... 20
3.1.2 Existence and Qualification of the Company and the Subsidiaries....................... 20
3.1.3 Compliance with Law; Authorizations................................................... 21
3.1.4 Litigation............................................................................ 22
3.1.5 Material Contracts.................................................................... 22
3.1.6 Validity of Contemplated Transactions................................................. 23
3.1.7 Taxes................................................................................. 23
3.1.8 Environmental Matters................................................................. 25
3.1.9 Real Property......................................................................... 26
3.1.10 Material Changes...................................................................... 27
3.1.11 Intellectual Property Matters......................................................... 27
3.1.12 Books of Account; Financial Statements................................................ 28
3.1.13 Brokers or Finders.................................................................... 28
3.1.14 Labor Relations....................................................................... 28
3.1.15 Employee Benefit Plans................................................................ 29
3.1.16 Capitalization; Ownership............................................................. 30
3.1.17 Insurance............................................................................. 31
3.1.18 No Undisclosed Liabilities............................................................ 32
3.1.19 Transactions with Affiliates.......................................................... 32
3.1.20 Title to Personal Property............................................................ 32
3.1.21 Sufficiency of Assets................................................................. 32
3.1.22 No Representations or Warranties Implied.............................................. 32
3.2 Representations and Warranties of Purchaser........................................................ 33
3.2.1 Purchaser Existence................................................................... 33
3.2.2 Validity of Contemplated Transactions................................................. 33
3.2.3 Communications Act.................................................................... 33
3.2.4 Financing............................................................................. 34
3.2.5 Brokers or Finders.................................................................... 34
3.2.6 Litigation............................................................................ 34
3.3 Purchase for Own Account........................................................................... 34
3.4 Investigation and Evaluation....................................................................... 35
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ARTICLE IV COVENANTS AND AGREEMENTS.............................................................................. 35
4.1 Agreements of Seller Pending Closing............................................................... 35
4.1.1 Conduct of the Business in the Ordinary Course........................................ 35
4.1.2 Access................................................................................ 38
4.1.3 Regarding Seller Consents............................................................. 39
4.1.4 ONCOR ROW License Rights.............................................................. 40
4.2 Agreements of Purchaser Pending Closing............................................................ 40
4.2.1 Communications Act.................................................................... 40
4.2.2 Regarding Purchaser Consents.......................................................... 40
4.2.3 Financing............................................................................. 40
4.3 Covenants of Seller and Purchaser Pending Closing.................................................. 41
4.3.1 FCC and PUC Authorizations............................................................ 41
4.3.2 HSR Act............................................................................... 41
4.3.3 Copies of Regulatory Filings.......................................................... 41
4.3.4 Cooperation........................................................................... 42
4.3.5 Employee Matters...................................................................... 42
4.3.6 Repayment of Pinnacle Notes and Indebtedness, Contribution of Indebtedness and
Intercompany Accounts................................................................. 44
4.3.7 Affiliate Arrangements................................................................ 44
4.3.8 Title Commitments and Surveys......................................................... 44
4.3.9 Regulatory Review..................................................................... 45
4.3.10 No Solicitation....................................................................... 45
4.3.11 Termination of Administrative Services Agreement...................................... 45
4.3.12 Audited Financials.................................................................... 45
4.3.13 Accountants' Assistance............................................................... 45
4.3.14 Certain Agreements.................................................................... 45
4.3.15 Excess Loss Accounts.................................................................. 45
4.3.16 No Further Action Letter.............................................................. 46
4.4 Post-Closing Covenants............................................................................. 46
4.4.1 General............................................................................... 46
4.4.2 Litigation/Regulatory................................................................. 46
4.4.3 Retention of Records.................................................................. 46
4.4.4 Mail; Payments........................................................................ 47
4.4.5 Removal of TXU Marks.................................................................. 47
ARTICLE V TAX MATTERS............................................................................................ 47
5.1 Liability for Taxes and Tax Benefits............................................................... 47
5.1.1 Seller's Responsibility for Taxes..................................................... 47
5.1.2 Purchaser's Responsibility for Taxes.................................................. 48
5.1.3 Tax Benefits.......................................................................... 48
5.1.4 Tax Deductible........................................................................ 49
5.2 Proration of Taxes for Straddle Period............................................................. 49
5.3 Adjustment to Purchase Price....................................................................... 49
5.4 Preparation and Filing of Tax Returns.............................................................. 49
5.5 Contest Provisions................................................................................. 49
5.5.1 Notice of Audits and Assessments...................................................... 50
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5.5.2 Participation in Contests............................................................. 50
5.5.3 Settlements........................................................................... 50
5.6 Assistance and Cooperation......................................................................... 50
5.7 Transfer Taxes..................................................................................... 50
5.8 FIRPTA Certificate................................................................................. 51
5.9 Termination of Tax Sharing Agreements.............................................................. 51
5.10 Tax Elections and Filings.......................................................................... 51
5.11 Survival of Obligations............................................................................ 51
ARTICLE VI CONDITIONS PRECEDENT TO CLOSING....................................................................... 51
6.1 Conditions Precedent to Obligations of Purchaser................................................... 51
6.1.1 Representations and Warranties True as of Closing..................................... 51
6.1.2 Compliance with this Agreement........................................................ 52
6.1.3 Closing Certificate................................................................... 52
6.1.4 Pinnacle Transaction and Other Indebtedness........................................... 52
6.1.5 Satisfaction of TXU Corp. Loan........................................................ 52
6.1.6 Seller's Deliverables................................................................. 52
6.1.7 Financing Contingency................................................................. 52
6.1.8 Material Adverse Effect............................................................... 52
6.1.9 Required Seller Consents.............................................................. 52
6.2 Conditions Precedent to Obligations of Seller...................................................... 53
6.2.1 Representations and Warranties True as of Closing..................................... 53
6.2.2 Compliance with this Agreement........................................................ 53
6.2.3 Closing Certificate................................................................... 53
6.2.4 Purchaser's Deliverables.............................................................. 53
6.3 Conditions Precedent to the Obligations of Purchaser and Seller.................................... 53
6.3.1 Regulatory Consents................................................................................ 53
6.3.2 HSR Act............................................................................... 54
6.3.3 No Pending Governmental Litigation.................................................... 54
ARTICLE VII INDEMNIFICATION...................................................................................... 54
7.1 General Indemnification Obligation of Seller....................................................... 54
7.2 General Indemnification Obligation of Purchaser.................................................... 55
7.3 Limitations on Representations and Warranties and Claims for Losses................................ 55
7.3.1 Survival Limitation................................................................... 55
7.3.2 Deductible and Cap.................................................................... 56
7.3.3 Waiver of Certain Remedies............................................................ 56
7.3.4 Duty to Mitigate...................................................................... 56
7.4 Indemnification Procedure as to Third-Party Claims................................................. 56
7.5 Direct Claims...................................................................................... 58
7.6 Adjustment For Insurance........................................................................... 58
7.7 Payment............................................................................................ 58
7.8 Other Rights and Remedies.......................................................................... 59
7.9 No Right of Contribution........................................................................... 59
ARTICLE VIII MISCELLANEOUS....................................................................................... 59
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8.1 Termination; Remedies for Failure to Close......................................................... 59
8.2 Expenses........................................................................................... 61
8.3 Further Assurances................................................................................. 61
8.4 Contents of Agreement.............................................................................. 61
8.5 Disclosures in Schedules........................................................................... 62
8.6 Assignment and Binding Effect...................................................................... 62
8.7 Waiver; Amendment.................................................................................. 62
8.8 Notices............................................................................................ 62
8.9 Remedies........................................................................................... 63
8.10 Knowledge.......................................................................................... 63
8.11 Applicable Law; Consent to Jurisdiction............................................................ 63
8.12 No Benefit to Others............................................................................... 64
8.13 Headings........................................................................................... 64
8.14 Severability....................................................................................... 64
8.15 Counterparts....................................................................................... 64
8.16 Rules of Construction.............................................................................. 64
8.17 Press Releases and Public Announcements............................................................ 64
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INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A - Description of the Business
Exhibit B - Calculation of Signing Working Capital
Exhibit C - Form of Guaranty of TXU Corp.
Exhibit D - Domain Name Transition License Agreement
Exhibit E - Form of Certificate of Officer of TXU Communications Ventures
Company
Exhibit F - Form of Monthly Statement
SCHEDULES
Company Assets
Schedule 1.1(b) - Owned Real Property
Schedule 1.1(c) - Real Property Leases
Schedule 1.1(d) - Contracts
Schedule 1.1(e) - Personal Property
Schedule 1.1(f) - Intellectual Property
Seller's Disclosure Schedule
Schedule 3.1.2 - Existence and Qualification of the Company and the Subsidiaries
Schedule 3.1.3 - Material Business Authorizations; Compliance with Law; Business
Authorizations; Connection Requests
Schedule 3.1.4 - Litigation
Schedule 3.1.5 - Material Contracts
Schedule 3.1.6 - Validity of Contemplated Transactions (Seller Consents)
Schedule 3.1.7 - Taxes
Schedule 3.1.8 - Environmental Matters
Schedule 3.1.9 - Real Property
Schedule 3.1.10 - Material Changes
Schedule 3.1.11 - Intellectual Property Matters
Schedule 3.1.12 - Books of Account; Financial Statements
Schedule 3.1.13 - Brokers or Finders (Seller)
Schedule 3.1.14 - Labor Relations
Schedule 3.1.15 - Employee Benefit Plans
Schedule 3.1.16 - Capitalization; Ownership
Schedule 3.1.17 - Insurance
Schedule 3.1.18 - Undisclosed Liabilities
Schedule 3.1.19 - Transactions with Affiliates
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Schedule 3.1.21 - Sufficiency of Assets
Purchaser's Disclosure Schedule
Schedule 3.2.2 - Validity of Contemplated Transactions (Purchaser Consents)
Schedule 3.2.5 - Brokers or Finders (Purchaser)
Other Schedules
Schedule 2.4 - Director Resignation List
Schedule 4.1.1 - Conduct of Business in the Ordinary Course
Schedule 4.1.4 - ONCOR ROW License Rights
Schedule 4.3.7 - Continuing Affiliate Arrangements
Schedule 4.3.9 - Regulatory Review
Schedule 6.1.9 - Required Seller Consents
Schedule 6.3.1 - Regulatory Consents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of January 15, 2004, is entered
into by and among PINNACLE ONE PARTNERS, L.P., a Delaware limited partnership
("Seller"), and HOMEBASE ACQUISITION TEXAS CORP., a Delaware corporation
("Purchaser").
R E C I T A L S
WHEREAS, Seller owns all of the Shares (as hereinafter defined) of TXU
Communications Ventures Company (d/b/a TXU Communications), a Delaware
corporation (the "Company");
WHEREAS, the Company and the Subsidiaries (as hereinafter defined) are the
owners and operators of an integrated telecommunications platform, and in
connection therewith, are engaged in the business of operating, marketing,
selling and providing telecommunications services in the State of Texas; and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, on the terms and conditions set forth herein, the Shares.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements and conditions herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement (including the Exhibits
and Schedules hereto), the terms defined in this Agreement have the respective
meanings specified herein, and, in addition, the following terms have the
following meanings:
"2003 Year End Financial Statements" means the audited consolidated
balance sheet of the Company as of December 31, 2003, and the audited
consolidated statements of operations and comprehensive loss, shareholders'
equity and cash flows of the Company for the 12-month period ending December 31,
2003.
"Acquisition Proposal" is defined in Section 4.3.10.
"Adjustment Funds" is defined in Section 2.2(c).
"Affiliate" or "affiliate" means, as to any Person, any other Person
which, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. The term "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as applied to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or other
ownership interest, by contract or otherwise.
"Agreed Rate" means a rate of interest equal to the prime commercial
lending rate of JPMorgan Chase Bank, as of one day immediately preceding the
date of the relevant payment, plus two percent (2%).
"Agreement" means this Stock Purchase Agreement, and all Schedules and
Exhibits hereto, as amended, modified or supplemented from time to time in
accordance with the terms hereof.
"Authorizations" means, as to any Person, all licenses, permits,
franchises, orders, approvals (including approvals of tariffs and rate
schedules), waivers, concessions, registrations, qualifications, certificates
and other authorizations with or under all federal, state, local or foreign laws
and Governmental Authorities (other than Environmental Permits) and all industry
or other nongovernmental self-regulatory organizations.
"Business" means the business conducted by the Company and the
Subsidiaries, including the telecommunications services business operated by the
Company and the Subsidiaries, as more particularly described on Exhibit A.
"Business Authorizations" means all Authorizations issued to the Company
or any of the Subsidiaries and all Authorizations issued to Seller or any of its
other Affiliates relating to the Business or the Company Assets, including the
FCC Authorizations and the PUC Authorizations.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banks in the city of Dallas, Texas are authorized or required to close.
"Cap" is defined in Section 7.3.2.
"Cellular Partnerships" means, collectively, GTE Mobilnet of South Texas
Limited Partnership, a Delaware limited partnership, and GTE Mobilnet of Texas
RSA #17 Limited Partnership, a Delaware limited partnership.
"Cellular Partnership Interests" is defined in Section 3.1.16(c).
"Closing" and "Closing Date" are defined in Section 2.3.
"Closing Adjustment Assets" means, without duplication, accounts
receivable and all other current assets (other than Closing Net Cash and
Excluded Assets) of the Company and the wholly-owned Subsidiaries as of 5:01
p.m. central time on the date immediately preceding the Closing Date, determined
in accordance with GAAP consistently applied (except as expressly modified by
this Agreement) on a consolidated basis, subject to the following: (i)
intercompany receivables associated with intercompany agreements that Purchaser
and Seller agree will not continue post-Closing pursuant to Section 3.1.19 and
Section 4.3.7 shall not be treated as Closing Adjustment Assets; (ii) current
deferred tax assets of the Company and the Subsidiaries shall not be included in
Closing Adjustment Assets; and (iii) in calculating Closing Adjustment Assets,
the reserve account for uncollectible receivables and the reserve account for
inventory reserves shall be calculated consistent with the Company's and its
Subsidiaries' past practices.
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"Closing Adjustment Liabilities" means, without duplication, all current
Liabilities of the Company and the wholly-owned Subsidiaries as of 5:01 p.m.
central time on the date immediately preceding the Closing Date, determined in
accordance with GAAP consistently applied (except as expressly modified by this
Agreement) on a consolidated basis, subject to the following: (i) intercompany
payables associated with intercompany agreements that Purchaser and Seller agree
will not continue post-Closing pursuant to Section 3.1.19 and Section 4.3.7
shall not be treated as Closing Adjustment Liabilities; (ii) to the extent not
otherwise included as Closing Adjustment Liabilities, any commissions and
bonuses earned but unpaid (whether or not due) or to be earned by any of the
employees based on sales or other services performed by such employees prior to
the Closing and any accrued but unpaid vacation or sick leave shall be included
as Closing Adjustment Liabilities; (iii) to the extent not otherwise included as
a Closing Adjustment Liability, any accrual for bonuses or other payments in the
nature of "deal" or "completion" payments related to the transactions
contemplated by this Agreement (including amounts payable under the Long Term
Incentive Plan) shall be included as Closing Adjustment Liabilities; (iv)
current deferred tax liabilities of the Company and the Subsidiaries shall not
be included in Closing Adjustment Liabilities; (v) Terminated Employee
Obligations in excess of the amount paid or to be paid by Seller pursuant to
Section 4.3.5 shall not be a Closing Adjustment Liability; (vi) no Liability of
the Company or any Subsidiary paid or to be paid by Seller pursuant to Section
4.3.6 shall be included in Closing Adjustment Liabilities; (vii) the remaining
unpaid principal and accrued interest amounts calculated in accordance with GAAP
with respect to all capital lease arrangements (including the GE Capital Lease
Indebtedness) shall not be included as Closing Adjustment Liabilities; (viii)
any accrued obligations related to "take or pay" or other minimum commitments
shall be included as Closing Adjustment Liabilities; (ix) accrued CLEC
restructuring costs shall be excluded from Closing Adjustment Liabilities; (x)
accrued Liabilities (if any) relating to any ONCOR ROW License Right Defect
listed in Section (c)(ii) of Schedule 3.1.9 or Schedule 4.1.4 shall be excluded
from Closing Adjustment Liabilities; and (xi) any accrued interest amounts
associated with the Lufkin-Conroe Communications Company and its Subsidiaries
Directors' Deferred Fee Plan and Management Security Plan as described on
Schedule 3.1.15 shall be excluded from Closing Adjustment Liabilities.
"Closing Net Cash" means the aggregate amount of any cash and cash
equivalents (including the amount of any uncashed checks payable to the Company
or any Subsidiary, and including restricted cash) on hand or in bank accounts or
lock boxes of the Company or any Subsidiary, less (a) any cash overdraft amounts
and the amount of any checks written against such accounts, and which have not
cleared such accounts, (b) any cash generated by asset sales or insurance
proceeds to the extent the asset sale or insurable loss occurred after September
30, 2003, but excluding: (i) with respect to insurance proceeds, any amounts the
Company or any Subsidiary has expended with respect to such loss (e.g., for
mitigation, replacement or remedy of such loss), and (ii) with respect to asset
sales, the sale of an average of three vehicles of the Company and any
Subsidiary per month; in each case as of 5:01 p.m. central time on the date
immediately preceding the Closing Date.
"Closing Net Debt" means: (i) the remaining unpaid principal amounts
calculated in accordance with GAAP, as of the Closing Date, with respect to all
capital lease arrangements (including the GE Capital Lease Indebtedness),
adjusted by (ii) (A) subtracting the amount by
3
which Closing Net Cash exceeds $4.6 million U.S. Dollars ($4,600,000), or (B)
adding the amount by which Closing Net Cash is less than $4,600,000.
"Closing Working Capital" means the Closing Adjustment Assets less Closing
Adjustment Liabilities, less the amount (if any) by which the Company's actual
capital expenditures for the period from January 1, 2004 through the Closing
Date are less than the product of (i) $1.8 million, and (ii) the number of
calendar months between January 1, 2004 and the Closing Date (or allocable
portion thereof).
"Closing Payment Statement" is defined in Section 2.2(c).
"CoBank Loan" means all indebtedness and obligations related to the Master
Loan Agreement, dated November 11, ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ Telephone Company and
CoBank, ACB, including any amendments, supplements and agreements ancillary
thereto, and the Loan Agreement, dated as of September 30, 1992, by and between
National Bank for Cooperatives and Fort Bend Telephone Company, including any
amendments, supplements and agreements ancillary thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment Letter" is defined in Section 3.2.4.
"Communications Act" means the Communications Act of 1934, as amended and
supplemented by the Telecommunications Act of 1996.
"Company" is defined in the recitals of this Agreement.
"Company Assets" means, except for the Excluded Assets, all rights, title
and interest of the Company and the Subsidiaries in and to the businesses,
properties, goodwill and other assets of the Company and each of the
Subsidiaries, of whatever kind and nature, real or personal, tangible or
intangible, owned, held or used by the Company or any Subsidiary or owned or
held by any shareholder or other Affiliate of the Company and any Subsidiary for
the sole use by the Company or any Subsidiary or solely relating to the
Business, and any assets related or derived from such assets that are acquired
or accrue between the date hereof and the Closing Date, including the following:
(a) all Easements of the Company or any of the Subsidiaries, including
those currently owned or held for, or used in, the operation of the Business or
the Company Assets;
(b) all Owned Real Property of the Company or any of the Subsidiaries,
including those currently owned or held for, or used in, the operation of the
Business or the Company Assets, including those described on Schedule 1.1(b);
(c) all Real Property Leases of the Company or any of the Subsidiaries,
including those currently held for or in connection with the operation of the
Business or the Company Assets, including those described on Schedule 1.1(c);
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(d) except for the agreements and arrangements to be terminated in
accordance with Section 3.1.19 and Section 4.3.7, all Contracts to which the
Company or any Subsidiary is a party or bound, including those relating to or
used in connection with the operation of the Business or the Company Assets,
including the Contracts listed on Schedule 1.1(d);
(e) all items of Personal Property of the Company or any of the
Subsidiaries, including those currently owned or held for, or used in, the
operation of the Business or the Company Assets, including those described on
Schedule 1.1(e);
(f) all Intellectual Property of the Company or any of the Subsidiaries,
including those currently owned or licensed for, or used in, the operation of
the Business or the Company Assets, including those described on Schedule
1.1(f);
(g) to the extent related to the Business or the Company Assets, all
Records in Seller's possession or control, and all Records in the Company's or
any Subsidiary's possession or control; provided, however, that Seller shall be
entitled to retain copies of any of such Records as Seller reasonably deems
necessary, subject to a confidentiality agreement reasonably acceptable to
Purchaser, so long as retention of such Records would not breach an agreement of
confidentiality with a third party or result in the waiver of any
attorney-client privilege, work product or similar privilege;
(h) to the extent legally assignable or transferable, all Business
Authorizations and Environmental Permits of the Company and the Subsidiaries,
including those currently held for, or used in, the Business or the Company
Assets;
(i) all goodwill associated with the Business and the Company Assets;
(j) all of the Subsidiary Shares and ETFLI Shares; and
(k) all of the Partnership Interests.
"Compensation Arrangements" is defined in Section 3.1.15(g).
"Confidentiality Agreement" is defined in Section 8.4.
"Continuation Coverage Requirements" is defined in Section 4.3.5(b).
"Contracts" means all contracts, agreements, commitments and orders for
the sale or purchase of materials, supplies, goods or services, operating
leases, leases of Personal Property, including leases of towers, leases of fiber
optic systems, customer leases for capacity over fiber optic lines, pole
attachment agreements, license agreements for joint use of poles, dark fiber
license agreements, interconnection agreements and any other contracts,
commitments, agreements and arrangements, including any amendments or
modifications thereto, to which the Company or any of the Subsidiaries is a
party or that are binding on the Company or any of the Subsidiaries or the
Company Assets.
"Deductible" is defined in Section 7.3.2.
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"Direct Claim" is defined in Section 7.5.
"Due Date" is defined in Section 7.7.
"Easements" means easements, rights of way, privileges, permits, grants,
franchises and consents for the construction, laying, maintenance, use,
ownership or operation of assets in, on, under and over streets, alleys,
highways, roads, railroads, canals, rivers, waterways, public grounds or
structures, privately owned land or elsewhere.
"Employees" is defined in Section 3.1.15(a).
"Environmental Laws" means all applicable federal, state and local laws,
statutes, ordinances, codes, rules and regulations related to the protection of
the environment and/or the handling, presence, use, generation, treatment,
storage, transportation, release, discharge, emission or disposal of Hazardous
Materials in effect on or before the Closing Date.
"Environmental Permits" means all permits, licenses, approvals,
authorizations, registrations, certificates or consents required by any
Governmental Authority under any applicable Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity that would be deemed to be a "single
employer" with the Company or the Subsidiaries under Section 414(b), (c), (m) or
(o) of the Code or Section 4001 of ERISA.
"Escrow Agent" means the escrow agent named in the Escrow Agreement.
"Escrow Agreement" is defined in Section 2.2(f).
"ETFLI" is defined in Section 3.1.16(b).
"ETFLI Shares" is defined in Section 3.1.16(b).
"Excess Loss Account" is defined in Treasury Regulations Section
1.1502-19(a).
"Excluded Assets" means (i) the TXU Marks, and (ii) prepaid insurance
policies covering Seller, the Company, the Subsidiaries, the Company Assets or
the Business.
"FAA" means the United States Federal Aviation Administration.
"FCC" means the United States Federal Communications Commission.
"FCC Authorizations" means all Business Authorizations issued by the FCC
to the Company or the Subsidiaries and all Business Authorizations issued by the
FCC to Seller or any of its other Affiliates relating to the Business, the
Company Assets or facilities in support thereof.
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"Final Closing Payment Statement" is defined in Section 2.2(c).
"Financial Statements" is defined in Section 3.1.12.
"Fort Bend FiberNet" means Fort Bend FiberNet, a Texas general
partnership.
"Fort Bend FiberNet Partnership Interest" is defined in Section 3.1.16(c).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time and consistently applied.
"GE Capital Lease Indebtedness" means all indebtedness and obligations
related to the Master Lease Agreements, dated as of February 25, 2002, each
between General Electric Capital Corporation and the Company, including any
amendments, and agreements ancillary thereto.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof or any entity (including a court) exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including the FCC and the PUC, or any
quasi-governmental authority, instrumentality or court.
"Hazardous Material" means any matter, material or substance that (i)
constitutes petroleum, petroleum waste or other toxic, dangerous or hazardous
waste or substance under, or is regulated by, any Environmental Law, (ii)
constitutes a "hazardous substance" under the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Sections 9601 et seq., or
the regulations promulgated thereunder, (iii) constitutes a "hazardous waste"
under the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et
seq., or the regulations promulgated thereunder, or (iv) constitutes any of
those extremely hazardous substances listed under Section 302 of the Emergency
Planning and Community Right-to-Know Act ("EPCRA"), 42 U.S.C. Sections 11001 et
seq., which are present in threshold planning or reportable quantities as
defined under EPCRA.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended.
"Indebtedness" means the following pre-Closing Date indebtedness: (i) all
obligations of the Company and the Subsidiaries with respect to borrowed money,
notes payable, reimbursement obligations due and owing with respect to letters
of credit or similar facilities, deferred purchase price of property or
services, attributable indebtedness with respect to sale leaseback transactions,
long-term vendor financing for goods and services, including all principal and
interest in respect thereof, including any monetary obligations secured by a
Lien on the Shares or the Company Assets and all reimbursement obligations due
and owing with respect to guaranty obligations in respect of indebtedness or
obligations of the kind referred to above, any intercompany Indebtedness
(including the TXU Loans, but excluding any intercompany accounts payable
relating to arrangements or agreements that, in accordance with Section 4.3.7,
will remain in effect after Closing and are included in the calculation of
Closing Working Capital) and the CoBank Loan (but specifically excluding,
however, any capital lease obligations (including the GE Capital Lease
Indebtedness) included in the calculation of Closing Net Debt
7
together with any guaranty obligations in respect thereof); and (ii) all amounts
in the nature of prepayment penalties, premiums or make-whole amounts resulting
from the closing of the transactions contemplated in this Agreement, including
the discharge of any obligation described in clause (i) above.
"Indemnified Party" is defined in Section 7.3.1.
"Indemnifying Party" is defined in Section 7.3.1.
"Indenture" means that certain Indenture, dated as of August 11, 2000,
among Seller, as Issuer, Pinnacle One, Inc., as Co-Issuer and The Bank of New
York, as Indenture Trustee and Securities Intermediary, for Seller's 8.83%
Senior Secured Notes due 2004 (the "Pinnacle Notes"), including any amendments
and agreements ancillary thereto.
"Initial Purchase Price" is defined in Section 2.2(a).
"Initial Termination Date" is defined in Section 8.1(a)(iv).
"Intellectual Property" means all copyrights, patents, trademarks, trade
names, service marks, URLs and applications for the foregoing and all software,
firmware, trade secrets, and proprietary technologies, know-how, inventions,
discoveries, improvements, processes and formulas (secret or otherwise) and
other forms of intellectual property, including all registrations, applications
and licenses for the foregoing.
"Knowledge" or "knowledge" is defined in Section 8.10.
"Laws" means any constitution, statute, code, regulation, rule,
injunction, judgment, order, decree, ordinance, or ruling of any Governmental
Authority.
"Lender Releases" is defined in Section 2.4(a)(viii).
"Liabilities" means any and all liabilities and obligations, whether
vested, absolute or contingent, known or unknown, asserted or unasserted,
accrued or unaccrued, liquidated or unliquidated, due or to become due, and
whether contractual or otherwise, and whether arising before, on or after the
Closing Date.
"Lien" means (a) any lien, guarantee, mortgage, security interest,
attachment, levy, charge, claim, restriction, imposition, pledge, encumbrance,
conditional sale or title retention arrangement, or (b) any other interest in
property or assets (or the income or profits therefrom) that secures the
repayment of Indebtedness or made in connection with a capital lease (including
the GE Capital Lease Indebtedness), in either case of (a) or (b) whether
consensual or nonconsensual, and whether arising by agreement or under any Law
or otherwise.
"Losses" is defined in Section 7.1.
"Material Adverse Effect" means any change, effect or circumstance that,
either individually or in the aggregate, has had or is reasonably expected to
have a material adverse effect on the Business, the Company Assets (taking into
account the Company's direct and
8
indirect interest held in the Subsidiaries and the Cellular Partnerships),
liabilities, properties, financial condition or results of operations of the
Company and the Subsidiaries, taken as a whole, or the ability of Seller to
close the transactions contemplated under this Agreement, including any such
change, effect or circumstance resulting from a catastrophic occurrence or an
act of God, but shall not include any change, effect or circumstance (i) arising
from the execution, delivery, announcement or performance of this Agreement,
(ii) that are generally applicable to (A) the telecommunications industry
generally, including the adoption or implementation of regulatory changes
affecting the telecommunications industry generally or the requirement of the
issuance of additional licenses for the provision of telecommunications services
in the United States, (B) the United States economy or the economy generally
prevailing in the localities in which the Business is conducted, or (C) the
United States securities markets.
"Material Business Authorizations" is defined in Section 3.1.3(b).
"Material Business Real Property" means the Material Owned Real Property
and the real property covered by the Material Real Property Leases of the
Company and the Subsidiaries.
"Material Contracts" is defined in Section 3.1.5(a).
"Material Owned Real Property" is defined in Section 3.1.9(a).
"Material Real Property Leases" is defined in Section 3.1.9(b).
"ONCOR Agreement" means that certain Transmission Facilities License
Agreement, by and between Lufkin-Conroe Telecommunications Corporation, doing
business as TXU Communications Transport Company, and Texas Utilities Electric
Company, doing business as TXU Electric Company, dated June 10, 1999, as amended
by that certain Amendment No. #01, dated August 31, 2001, to Transmission
Facilities License Agreement, by and between TXU Communications Transport
Company (formerly Lufkin-Conroe Telecommunications Corporation) and TXU Electric
Company (formerly Texas Utilities Electric Company), now ONCOR Electric Delivery
Company, and as further amended by that certain Amendment No. #02, dated January
12, 2004, to Transmission Facilities License Agreement, by and between TXU
Communications Transport Company and ONCOR Electric Delivery Company.
"ONCOR ROW License Rights" means any Easement rights required for the
Company or a Subsidiary, as applicable, to utilize the route covered by the
ONCOR Agreement for the operation of its portion of the Business as currently
conducted.
"ONCOR ROW License Right Defect" means the failure of any ONCOR ROW
License Rights to allow the use by the Company or Subsidiaries of such Easement
for the operation of its portion of the Business as currently conducted
(including the absence of any Easement covering any part of the route covered by
the ONCOR Agreement).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
9
"Organizational Documents" means (i) the articles or certificate of
incorporation and the bylaws of a corporation; (ii) the partnership agreement
and any statement of partnership of a general partnership; (iii) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (iv) the limited liability company agreement, operating agreement
or regulations and the certificate or articles of organization or formation of a
limited liability company; (v) any charter or similar document adopted or filed
in connection with the creation, formation, or organization of a Person; and
(vi) any amendment to the foregoing.
"Owned Real Property" means all real property and interests in real
property owned in fee by a Person (except Easements), together with structures,
improvements and fixtures located thereon or attached or appurtenant thereto.
"Partnership Interests" means, collectively, the Cellular Partnership
Interests and the Fort Bend FiberNet Partnership Interest.
"Permitted Liens" means any of the following: (i) any liens for taxes and
assessments not yet delinquent or, if delinquent, that are being contested in
good faith in the Ordinary Course of Business and for which any reserves
required in accordance with GAAP shall have been made; (ii) any obligations or
duties reserved to or vested in any municipality or other Governmental Authority
to regulate the Business or any Company Asset in any manner including all
applicable Laws (including restrictions imposed by federal and state securities
Laws); (iii) inchoate mechanic's, materialmen's, and similar liens incurred in
the Ordinary Course of Business for sums not yet payable; (iv) liens required by
Law or governmental regulations as a condition to exercising privilege or
license rights which Governmental Authorities may have by virtue of franchises,
grants, licenses, permits or by Law, or to regulate the Business or the Company
Assets; (v) zoning restrictions, easements, licenses, reservations, defects or
irregularities of title which do not, individually or in the aggregate,
materially impair the use by the Company or the Subsidiaries of the applicable
Company Assets as the Business is currently conducted; (vi) any reservations or
exceptions of minerals; (vii) prior to the Closing only, the Pinnacle Lien and
any and all liens associated with the Indebtedness; or (viii) liens associated
with the GE Capital Lease Indebtedness.
"Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity or enterprise of whatever
nature.
"Personal Property" means poles, posts, conduits, ducts, lines (whether
overhead or underground), crossarms, station equipment, frames, racks, motors,
machinery, computers, and other equipment, tools, office furniture and
equipment, operating supplies, spare parts, vehicles, trailers and other
personal property.
"Pinnacle Lien" means any and all Liens on the Shares created under the
Indenture.
"Pinnacle Notes" is defined in the definition of "Indenture" set forth in
this Section 1.1.
"Plan" means each bonus, deferred compensation, incentive compensation,
supplemental retirement, vacation, sick pay, severance or termination pay,
change of control, retention,
10
enhanced severance, project completion bonus, employment, health, life
insurance, disability, flexible benefit, cafeteria, educational assistance,
supplemental unemployment benefits, fringe benefit, profit-sharing, pension,
savings, stock bonus or retirement agreement, plan, program, or arrangement, and
each other employee benefit plan, program, agreement or arrangement providing
compensation and/or benefits (whether formal or informal, written or unwritten
and whether or not covered by ERISA): (i) sponsored, maintained or contributed
to, by the Company, or (ii) which covers any current or former employee,
officer, director or independent contractor of the Company or a Subsidiary (or a
beneficiary or alternate payee of any such individual) by virtue of such
person's relationship with such entity.
"Post-Closing Tax Period" means any tax period beginning after the Closing
Date and the portion of any Straddle Period beginning after the Closing Date.
"Pre-Closing Tax Period" means any tax period ending on or before the
Closing Date and the portion of any Straddle Period ending on the Closing Date.
"Prime Rate" means the annual interest rate set forth as the Prime Rate in
the "Money Rates" table of The Wall Street Journal.
"PUC" means the Public Utility Commission of Texas.
"PUC Authorizations" means all Business Authorizations issued by the PUC
to the Company or the Subsidiaries and all Business Authorizations issued by the
PUC to Seller or any of its other Affiliates relating to the Business, the
Company Assets or facilities in support thereof.
"Purchase Price" is defined in Section 2.2(a).
"Purchaser" is defined in the recitals of this Agreement.
"Purchaser Consents" is defined in Section 3.2.2.
"Purchaser Contract" is defined in Section 3.2.2.
"Purchaser Indemnitee" and "Purchaser Indemnitees" are each defined in
Section 7.1.
"Purchaser's Objection Notice" is defined in Section 2.2(c).
"Real Property Leases" means any lease, sublease, license or occupancy
agreement, including amendments thereto, under which a Person is the lessee,
sublessee, licensee or occupant of real property.
"Records" means all books, land and contract files, maps, surveys, plats,
records and reports of the Company or any of the Subsidiaries and all books,
land and contract files, maps, surveys, plats, records and reports of Seller
relating to the Shares, the Business or the Company Assets, including: (i)
accounting, Tax and financial records (including Tax Returns); (ii) engineering
design plans, operation and maintenance manuals and records; (iii) records
pertaining or relating to Environmental Laws, including records pertaining to
compliance with
11
such Environmental Laws and records pertaining to the investigation or
remediation of Hazardous Substances; (iv) all correspondence, reports,
applications, and other filings with Governmental Authorities, including the FCC
and the PUC, and other state and federal regulatory agencies; (v) Organizational
Documents, stock certificates and ledgers, corporate minutes, corporate minute
books and other corporate records of the Company and the Subsidiaries; and (vi)
all other types of books, records and files.
"Referral Firm" is defined in Section 2.2(c).
"Regulatory Consents" is defined in Section 6.3.1.
"Requirement of Law" means, as to any Person, any permit, license,
judgment, injunction, order, decree, statute, Law, ordinance, rule, regulation
or arbitration award of an arbitrator, a court or other Governmental Authority
or any other Person, in each case, applicable to or binding upon such Person or
any of its property or assets or to which such Person or any of its property or
assets is subject, but excluding Environmental Laws and Environmental Permits.
"SEC" means the United States Securities and Exchange Commission.
"Seller" is defined in the recitals of this Agreement.
"Seller Consents" is defined in Section 3.1.6.
"Seller Indemnitee" and "Seller Indemnitees" are each defined in Section
7.2.
"Seller's Objection Notice" is defined in Section 2.2(c).
"Shares" means 1,000 shares of common stock of the Company, $0.01 par
value per share.
"Signing Adjustment Assets" means $21,159,057, which has been calculated
in accordance with the definition of Closing Adjustment Assets, except that such
calculation has been made based on the Company's unaudited consolidated balance
sheet as of September 30, 2003.
"Signing Adjustment Liabilities" means $23,978,501, which has been
calculated in accordance with the definition of Closing Adjustment Liabilities,
except that such calculation has been made based on the Company's unaudited
consolidated balance sheet as of September 30, 2003, and excludes (i) all
expenses of the Company and the Subsidiaries relating to the consummation of the
transactions contemplated by this Agreement and the Transaction Documents,
including all fees and expenses of attorneys, accountants, financial advisors
and broker fees, (ii) any accruals for bonuses or other payments in the nature
of "deal" or "completion" payments related to the transactions contemplated by
this Agreement (including amounts payable under the Long Term Incentive Plan),
(iii) any accruals made for Terminated Employee Obligations, (iv) any accruals
for severance obligations to past employees or any Employee that would
constitute Terminated Employee Obligations if such Person was a Terminated
Employee, and (v) any tax gross-up payments associated with the Terminated
Employees or associated with the severance of any current Employee or past
employee. In
12
addition, for purposes of calculating the Signing Adjustment Liabilities, the
amount of accrued taxes included in the line item for "Accrued Taxes Other" on
the unaudited consolidated balance sheet as of September 30, 2003 has been
reduced by $1.5 million.
"Signing Working Capital" means ($2,819,444), which is Signing Adjustment
Assets less Signing Adjustment Liabilities.
"Straddle Period" means any tax period that begins on or before the
Closing Date and ends after the Closing Date.
"Subsidiaries" means collectively, and "Subsidiary" means any one of, the
following: (a) TXU Communications Services Company, a Texas corporation; (b) TXU
Communications Telephone Company, a Texas corporation; (c) TXU Communications
Transport Company, a Texas corporation; (d) TXU Communications Telecom Services
Company, a Texas corporation; (e) Fort Bend Telephone Company, a Texas
corporation; (f) Fort Bend Long Distance Company, a Texas corporation; (g) Fort
Bend Wireless Company, a Texas corporation; (h) Telcon, Inc., a Minnesota
corporation; (i) FBCIP, Inc., a Texas corporation; (j) Fort Bend Cellular, Inc.,
a Texas corporation; (k) ETFLI; and (l) Fort Bend FiberNet.
"Subsidiary Shares" is defined in Section 3.1.16(b).
"Taxes" or "Tax" means any and all taxes, fees, levies, duties, tariffs,
imposts and other assessments, including, without limitation, federal, state,
local, and foreign income, gross receipts, franchise, earned surplus, windfall
profits, severance, excise, real or personal property, sales, use, withholding,
social security, occupation, service, service use, value added, license,
capital, net worth, payroll, employment or similar taxes, imposed by any
Governmental Authority, together with any interest, penalties or additions to
tax and any additional amounts imposed with respect thereto.
"Tax Benefit" means any refund of Tax or any reduction in otherwise
required Tax payments (including any refund or reduction in estimated tax
payments).
"Tax Return" means any return, declaration, report, claim for refund or
information return or statement filed or required to be filed with any
Governmental Authority relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
"Terminated Employee Obligations" is defined in Section 4.3.5(b).
"Terminated Employee Obligations Threshold" is defined in Section
4.3.5(b).
"Terminated Employees" is defined in Section 4.3.5(a).
"Third Party Claim" is defined in Section 7.4.1.
"Transaction Documents" means all agreements, documents and instruments
required to be executed by Seller, the Company, a Subsidiary or Purchaser in
accordance with the provisions of this Agreement.
13
"TXU Corp. Loan Agreement" means the Revolving Credit Facility Agreement,
by and between TXU Corp. and the Company, dated August 11, 2000, including any
amendments and agreements ancillary thereto.
"TXU Loans" means the outstanding revolving credit loans made by TXU Corp.
to the Company pursuant to the TXU Corp. Loan Agreement.
"TXU Marks" means the corporate names "TXU Corp.," "TXU Communications,"
"TXU," the TXU starburst logo and any and all variations or derivations thereof,
or related or similar trade names, trademarks, service marks or logos to which
TXU Corp. or any of its Affiliates hold rights.
"TXUC Transport" is defined in Section 3.1.16(b).
1.2 Other Definitional Provisions.
(a) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section, Schedule
and Exhibit references are to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(c) The word "including" when used in this Agreement shall mean
"including without limitation" unless the context expressly provides otherwise.
ARTICLE II
THE TRANSACTION
2.1 Purchase of Shares. Subject to the terms and conditions herein set
forth and on the basis of and in reliance upon the representations, warranties,
obligations and agreements set forth herein, at the Closing, Seller shall, in
exchange for the consideration set forth herein, grant, sell, convey, assign,
transfer and deliver to Purchaser, and Purchaser shall receive, all right, title
and interest in and to the Shares, free and clear of all Liens, other than any
restrictions on transfer of such Shares by Purchaser imposed by federal and
state securities Laws.
2.2 Purchase Price; Purchase Price Adjustments.
(a) In consideration for the sale, assignment, conveyance, transfer
and delivery of the Shares, and subject to the provisions herein, Purchaser
agrees to pay to Seller, at the Closing, cash consideration of Five Hundred
Twenty Seven Million U.S. Dollars ($527,000,000) (the "Initial Purchase Price"),
as adjusted as of the time of Closing pursuant to Section 2.2(b) (and as finally
determined pursuant to Section 2.2 (c), the "Purchase Price"), payable by wire
transfer of immediately available funds to an account designated by Seller at
least three (3) Business Days prior to the Closing. PURCHASER AND SELLER
ACKNOWLEDGE AND AGREE THAT THE LIMITATIONS ON, AND DISCLAIMERS OF,
14
WARRANTIES AND REPRESENTATIONS OF SELLER CONTAINED IN THIS AGREEMENT, INCLUDING
THE PROVISIONS OF SECTION 3.1.22, ARE A BARGAINED FOR AND MATERIAL PART OF THE
CONSIDERATION FOR THE SHARES.
(b) At Closing, the Initial Purchase Price shall be: (i) decreased
by the amount of Closing Net Debt if positive, or (ii) increased by the amount
of Closing Net Debt if negative. At Closing, the Initial Purchase Price shall be
(i) increased by the amount (if any) by which the Closing Working Capital, as
determined by the Closing Payment Statement, as revised, exceeds the Signing
Working Capital or (ii) decreased by the amount (if any) by which the Closing
Working Capital, as determined by the Closing Payment Statement, as revised, is
less than the Signing Working Capital.
(c) At least 5 Business Days prior to the Closing Date, Seller shall
prepare in good faith, and deliver to Purchaser, a statement (the "Closing
Payment Statement") estimating the amount of the Closing Net Cash, the Closing
Net Debt, the Closing Adjustment Assets, the Closing Adjustment Liabilities and
the Closing Working Capital (together with supporting documentation used by
Seller in calculating each such amount and otherwise in preparing the Closing
Payment Statement and such other documentation as Purchaser shall reasonably
request). In the event Purchaser objects in good faith to Seller's calculation
of the amount of the Closing Net Cash, the Closing Net Debt, the Closing
Adjustment Assets, the Closing Adjustment Liabilities or the Closing Working
Capital as set forth in the Closing Payment Statement, Purchaser shall deliver
to Seller at least two Business Days prior to the Closing a written statement in
reasonable detail describing Purchaser's good faith objections to the Closing
Payment Statement ("Purchaser's Objection Notice"). Purchaser and Seller shall
use their commercially reasonable efforts to resolve any of Purchaser's
objections to the Closing Payment Statement as described in Purchaser's
Objection Notice, and Seller shall make such revisions to the Closing Payment
Statement as mutually agreed between Seller and Purchaser, and, if any changes
are made, shall deliver a copy of such revised Closing Payment Statement to
Purchaser. In the case of any amount as to which Seller and Purchaser do not
agree prior to the Closing, at the Closing the difference (if any) between the
Purchase Price that would be determined using the estimates set forth in the
Closing Payment Statement, as revised, and the Purchase Price that would be
determined using the estimates of Purchaser that remain in dispute will be
transferred by Purchaser to the Escrow Agent, to be held and disbursed by the
Escrow Agent in accordance with the provisions of this Section 2.2 and the
Escrow Agreement (such amount and any interest or other earnings in respect of
such amount held by the Escrow Agent from time to time, the "Adjustment Funds").
Within 90 days after the Closing Date, Purchaser shall cause to be prepared in
good faith and delivered to Seller a statement (the "Final Closing Payment
Statement") setting forth the amount of the Closing Net Cash, the Closing Net
Debt, the Closing Adjustment Assets, the Closing Adjustment Liabilities and the
Closing Working Capital (together with supporting documentation used by
Purchaser in calculating each such amount and otherwise in preparing the Final
Closing Payment Statement and such other documentation as Seller shall
reasonably request). Seller shall cooperate with Purchaser in the preparation of
the Final Closing Payment Statement. Within 30 days after the date that all
supporting documentation and other documentation as Seller reasonably requests
is delivered by Purchaser to Seller, Seller shall complete its examination
thereof and may deliver to Purchaser a written report setting forth any proposed
adjustments to the Final Closing Payment Statement (the
15
"Seller's Objection Notice"). Purchaser and Seller shall use their commercially
reasonable efforts to resolve any of Seller's objections to the Final Closing
Payment Statement as described in Seller's Objection Notice. If final resolution
of such objections is not obtained within thirty (30) days following the
delivery of Seller's Objection Notice, Seller and Purchaser shall select a
nationally-recognized accounting firm, that is mutually acceptable to Seller and
Purchaser, to resolve any remaining objections (the "Referral Firm"). Seller and
Purchaser shall share equally the fees and expenses of the Referral Firm.
(d) In the event that it is finally resolved pursuant to Section
2.2(c) (whether by agreement of Seller and Purchaser, or as determined by the
Referral Firm) that the amount of the Purchase Price, as adjusted in accordance
with Section 2.2(b), is less than the amount set forth in the Closing Payment
Statement, as revised prior to the Closing, Seller shall pay to Purchaser the
amount of any such difference with interest thereon calculated at the Agreed
Rate from the Closing Date to the date of payment as follows: (i) if the
Adjustment Funds exceed the amount of such payment, then Seller and Purchaser
shall deliver to the Escrow Agent written instructions signed by a duly
authorized officer of Seller and Purchaser instructing the Escrow Agent to
release and pay over to Purchaser a portion of the Adjustment Funds equal to
such amount, and to release and pay over to Seller any remaining Adjustment
Funds, and (ii) if the Adjustment Funds are less than the amount of such
payment, then Seller and Purchaser shall deliver to the Escrow Agent written
instructions signed by a duly authorized officer of Seller and Purchaser
instructing the Escrow Agent to release and pay over to Purchaser all Adjustment
Funds, and Seller shall pay to Purchaser an amount equal to the deficiency. In
the event that it is finally resolved pursuant to Section 2.2(c) (whether by
agreement of Seller and Purchaser, or as determined by the Referral Firm) that
the amount of the Purchase Price, as adjusted in accordance with Section 2.2(b),
is more than the amount set forth in the Closing Payment Statement, as revised
prior to the Closing, Purchaser shall pay to Seller the amount of any such
difference with interest thereon calculated at the Agreed Rate from the Closing
Date to the date of payment as follows: (i) if the Adjustment Funds exceed the
amount of such payment, then Seller and Purchaser shall deliver to the Escrow
Agent written instructions signed by a duly authorized officer of Seller and
Purchaser instructing the Escrow Agent to release and pay over to Seller a
portion of the Adjustment Funds equal to such amount, and to release and pay
over to Purchaser the remaining Adjustment Funds, and (ii) if the Adjustment
Funds are less than the amount of such payment, Seller and Purchaser shall
deliver to the Escrow Agent written instructions signed by a duly authorized
officer of Seller and Purchaser instructing the Escrow Agent to release and pay
over to Seller all Adjustment Funds and Purchaser shall pay to Seller an amount
equal to the deficiency. Any payment required to be made by Seller or Purchaser
hereunder shall be made within five (5) days of final resolution of the amount
owed (whether by agreement of Seller and Purchaser, or as determined by the
Referral Firm) by wire transfer of immediately available funds to an account
designated in writing by the party owed such amount.
(e) Seller represents that attached hereto as Exhibit B is the
calculation of the amount of Signing Adjustment Assets, Signing Adjustment
Liabilities and Signing Working Capital prepared on a basis consistent with
Section 2.2 and with GAAP (except as modified by this Agreement) and an example
calculation of Closing Net Cash and Closing Net Debt. The parties agree that the
Closing Payment Statement and the Final Closing Payment Statement shall be
prepared on a basis consistent with Section 2.2 and GAAP (except as modified by
this
16
Agreement) and on a basis consistent with the calculations as set forth in
Exhibit B, except that such calculations shall be made as of 5:01 p.m. central
time on the date immediately preceding the Closing Date. Seller covenants and
agrees not to take any actions after 5:01 p.m. central time on the date
immediately preceding the Closing (other than in the Ordinary Course of
Business) that would affect working capital, and in no event will the Company or
Subsidiaries take any action that affects Closing Net Cash, following 5:01 p.m.
central time on the date immediately preceding the Closing.
(f) If Closing occurs, Purchaser and Seller agree that the
Adjustment Funds will not be included in the Initial Purchase Price paid at
Closing, but will be paid into escrow, subject to terms and conditions of an
escrow agreement to be mutually agreed upon by Seller and Purchaser and
containing the following terms and conditions (the "Escrow Agreement"):
(i) The Escrow Agent will be a mutually agreed Person.
(ii) The Adjustment Funds will be placed into interest-bearing
account(s) or other mutually agreeable, liquid investments.
(iii) The Escrow Agent will release and pay out the Adjustment
Funds as mutually directed by the Purchaser and Seller, or as
directed by the Referral Firm, or by a court order issued by a court
purporting to properly exercise jurisdiction. Purchaser and Seller
agree to promptly direct the Escrow Agent to pay any amounts due
under the Agreement when mutually agreed by Purchaser and Seller or
when otherwise determined in accordance with this Agreement.
(iv) The Escrow Agreement will be for an initial term of six
(6) months from the Closing Date. If, at the end of the initial
term, the Escrow Agent has not received instructions to release and
payout the Adjustment Funds in accordance with clause (iii), then
the Escrow Agreement shall automatically be extended until the
Escrow Agent receives instructions to release and payout the
Adjustment Funds as provided above in clause (iii).
(v) Payment of any fees to the Escrow Agent for the
performance by Escrow Agent of the Escrow Agreement will be made
equally by Seller and Purchaser.
(vi) The Escrow Agreement will contain other typical terms
required by escrow agents.
2.3 Closing. Unless this Agreement shall have been earlier terminated in
accordance with Section 8.1, the closing of the transaction contemplated hereby
(the "Closing") shall take place (a) at the New York, New York offices of King &
Spalding, LLP, at 10:00 a.m. local time, on a date mutually agreed by Seller and
Purchaser but not later than five Business Days after the Business Day on which
Seller or Purchaser provides written notice to the other party after all of the
conditions precedent set forth in Article VI hereof have been satisfied or
waived (other than the conditions precedent that are not capable of being
satisfied until the Closing, but subject to the satisfaction or waiver of those
conditions at the Closing), or (b) at such place or on such other
17
date as may be mutually agreed upon in writing by the parties. The date of the
Closing is referred to herein as the "Closing Date."
2.4 Deliveries and Proceedings at Closing. At the Closing and subject to
the terms and conditions herein contained:
(a) Deliveries by Seller. Seller shall deliver (or cause to be
delivered) to Purchaser:
(i) a stock certificate or certificates representing the
Shares (duly endorsed in blank by Seller);
(ii) the Certificate of Limited Partnership of Seller, and the
Articles or Certificate of Incorporation of the Company and each
Subsidiary (other than Fort Bend FiberNet), certified as of a recent date
by the Secretary of State of the applicable state of formation or
incorporation;
(iii) a certificate of good standing of the Company and each
Subsidiary, (other than Fort Bend FiberNet) issued as of a recent date by
the Secretary of State (or other applicable governmental office) of the
applicable state of incorporation, and a certificate of good standing of
the Company issued as of a recent date by the Texas Comptroller of Public
Accounts;
(iv) a certificate of the secretary or other appropriate
officer of each of Seller, the Company, and the Subsidiaries, dated as of
the Closing Date, in form and substance reasonably satisfactory to
Purchaser: (A) certifying that there have been no amendments to the
Articles of Incorporation, Certificate of Incorporation or Certificate of
Limited Partnership, as applicable, of such entity since the date
certified under clause (a)(ii) above; (B) attaching a true and complete
copy of such entity's Bylaws or Limited Partnership Agreement, as
applicable; (C) with respect to Seller, attaching resolutions of the board
of directors and partners, as applicable, of Seller, authorizing the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby, and certifying that they have not been rescinded or
amended; and (D) certifying as to the incumbency of the officers of Seller
executing this Agreement or any of the Transaction Documents, and
including specimen signatures;
(v) subject to Section 4.1.3 and Section 6.1.9 hereof, the
Seller Consents, which, to the extent obtained, shall be in full force and
effect;
(vi) letters of resignation from those directors of the
Company and the Subsidiaries listed on Schedule 2.4 (to be delivered by
Purchaser to Seller at least fifteen (15) Business Days prior to Closing);
(vii) the Escrow Agreement duly executed by Seller and the
Escrow Agent;
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(viii) releases and other agreements from Seller's, the
Company's and the Subsidiaries' lenders, in form and substance reasonably
satisfactory to Purchaser: (A) evidencing the repayment in full of the
Pinnacle Notes and the Indebtedness referred to in Section 4.3.6; and (B)
terminating and releasing the Pinnacle Lien, any security interests,
mortgages or other Liens on the Shares or the Company Assets securing the
Pinnacle Notes and such Indebtedness (collectively, the "Lender
Releases");
(ix) a Guaranty substantially in the form of Exhibit C, duly
executed by TXU Corp.;
(x) a customary opinion of Seller's counsel, dated as of the
Closing Date, as to such matters as Purchaser may reasonably request in
connection with Purchaser's financing;
(xi) the delivery of the Internal Domain Name Transition
License Agreement (substantially in the form attached hereto as Exhibit D)
executed by the Company and TXU Corp.; and
(xii) a certificate of the principal financial officer of the
Company, dated as of the Closing Date, in the form attached hereto as
Exhibit E.
(b) Deliveries by Purchaser. Purchaser shall deliver (or cause to be
delivered) to Seller:
(i) the Initial Purchase Price (by wire transfer), as adjusted
in accordance with Section 2.2(b), as estimated in accordance with Section
2.2(c); less the amount of any Adjustment Funds to be deposited pursuant
to Section 2.2(c), which will be paid to the Escrow Agent;
(ii) the certificate of incorporation of Purchaser, certified
as of a recent date by the Secretary of State of the State of Delaware;
(iii) a certificate of good standing of Purchaser, issued as
of a recent date by the Secretary of State (or other applicable
governmental office) of the State of Delaware, and a certificate of good
standing of Purchaser issued as of a recent date by the Texas Comptroller
of Public Accounts;
(iv) a certificate of the secretary or other appropriate
officer of Purchaser, dated as of the Closing Date, in form and substance
reasonably satisfactory to Seller: (A) certifying that there have been no
amendments to the certificate of incorporation of Purchaser since the date
certified under clause (ii); (B) attaching a true and complete copy of
Purchaser's bylaws; (C) attaching resolutions of the board of directors of
Purchaser authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and certifying that
they have not been rescinded or amended; and (D) certifying as to the
incumbency of the officers of Purchaser executing this Agreement or any of
the Transaction Documents, and including specimen signatures;
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(v) evidence that all the Purchaser Consents have been
obtained; and
(vi) the Escrow Agreement, duly executed by Purchaser and the
Escrow Agent.
(c) Other Deliveries. The parties hereto shall also deliver to each
other the agreements, closing certificates and documents and instruments
required to be delivered pursuant to this Agreement, and any such other
agreements, documents or instruments as necessary to carry out the parties'
obligations under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. Seller represents and
warrants to Purchaser as follows:
3.1.1 Seller's Existence. Seller is a limited partnership duly
formed and validly existing under the Laws of the State of Delaware. Seller has
the requisite limited partnership power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by Seller of this Agreement and all other
Transaction Documents to which it is a party have been duly authorized by all
necessary limited partnership action on the part of Seller. This Agreement has
been, and the other Transaction Documents to which Seller is a party have been,
or when executed will be, duly executed and delivered by Seller, and this
Agreement constitutes, and the other Transaction Documents to which Seller is a
party do or will when executed and delivered constitute, the legal, valid and
binding obligations of Seller, enforceable against it in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy
Laws and other Laws affecting creditors' rights generally, and except that the
remedy of specific performance and injunctive relief and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
3.1.2 Existence and Qualification of the Company and the
Subsidiaries. The Company and each Subsidiary (other than Fort Bend FiberNet) is
duly incorporated, validly existing, and in good standing under the Laws of its
state of incorporation and has all corporate power and authority to carry on its
respective portion of the Business as now conducted and to own and operate its
Company Assets as currently owned and operated. Fort Bend FiberNet is duly
formed and validly existing under the Laws of the State of Texas and has all
general partnership power and authority to carry on its respective portion of
the Business as now conducted and to own and operate its Company Assets as
currently owned and operated. The Company and each Subsidiary is duly qualified
to do business as a foreign company in all states in which such qualification is
required except where the absence to be so qualified would not result in a
Material Adverse Effect. Schedule 3.1.2 sets forth a list of all jurisdictions
in which the Company and the Subsidiaries are currently qualified to do
business. The Transaction Documents to which the Company or any Subsidiary is a
party have been, or when executed will be, duly executed and delivered by the
Company or such Subsidiary, as applicable, and the Transaction Documents to
which the Company or such Subsidiary is a party do or will when
20
executed and delivered constitute, the legal, valid and binding obligations of
the Company or such Subsidiary, as applicable, enforceable against it in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy Laws and other Laws affecting creditors' rights generally,
and except that the remedy of specific performance and injunctive relief and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Seller has delivered to Purchaser complete and correct copies of the
Organizational Documents of the Company, the Subsidiaries and the Cellular
Partnerships, as currently in effect.
3.1.3 Compliance with Law; Authorizations.
(a) To Seller's Knowledge, Seller, the Company and each Subsidiary
has complied with in all material respects, and neither Seller, the Company nor
any of the Subsidiaries is in material violation of, any Requirement of Law to
which the Shares, the Business or any of the Company Assets is subject
(including rules, regulations or orders of the FCC and the PUC), and, except as
set forth on Schedule 3.1.3, the Company has received no written notice that it
is under investigation with respect to, and to the Knowledge of Seller, the
Company is not otherwise now under investigation with respect to, any material
violation of applicable Requirements of Law (including rules, regulations, or
orders of the FCC and the PUC).
(b) The Business Authorizations identified on Schedule 3.1.3 (the
"Material Business Authorizations") are all of the FCC Authorizations and the
PUC Authorizations and all of the other material Business Authorizations which
are necessary for the Company and each of the Subsidiaries to own, operate or
conduct its respective portion of the Business and the Company Assets in a
lawful manner as currently owned and operated. Each of the Material Business
Authorizations is, and has been at all relevant times, in full force and effect,
is validly held by the Company or a Subsidiary, as applicable, and, subject to
the parties hereto obtaining the Regulatory Consents and Purchaser obtaining the
Purchaser Consents, will be validly held by the Company or such Subsidiary as of
the Closing Date, and is free and clear of all Liens other than the Permitted
Liens. Neither the Company nor any Subsidiary is in material default, nor has
Seller, the Company or any Subsidiary received any notice of any claim of
material default, with respect to any of such Material Business Authorizations,
and, to Seller's Knowledge, no event has occurred with respect to any of such
Material Business Authorizations which permits, or after notice or lapse of time
or both would permit, revocation or termination thereof or would result in any
impairment of the rights of the holder of any such Material Business
Authorizations.
(c) Except as disclosed in Schedule 3.1.3, there are no
interconnection requests by third parties relating to the Business or its
operations.
(d) Except as disclosed in Schedule 3.1.3, there are no applications
by Seller, the Company or any Subsidiary or formal complaints or petitions by
others pending, or to Seller's Knowledge, threatened before the FCC or the PUC
relating to the Business, the FCC Authorizations or the PUC Authorizations, as
applicable.
(e) The antenna supporting structures owned by the Company or any of
the Subsidiaries, which are identified on Schedule 3.1.3, are subject to valid
"no hazard"
21
determinations by the FAA, to the extent such a determination is required under
the rules and regulations of the FAA.
(f) The Company is subject to the provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act as is applicable for a subsidiary of TXU Corp. The Company is not a
Securities and Exchange Commission registrant but its policies, procedures and
practices have been implemented in accordance with, and to Seller's Knowledge
comply with, effective sections of the Act.
3.1.4 Litigation. Except as set forth in Schedule 3.1.4, there is no
litigation, arbitration, investigation or other proceeding of or before any
Governmental Authority pending or, to Seller's Knowledge, threatened against
Seller, the Company, the Subsidiaries, the Business or the Company Assets. None
of Seller, the Company or any Subsidiary is subject to any injunction, order,
judgment, decree, ruling or charge of any Governmental Authority (other than
those affecting the telecommunications industry generally and that are not
specific to the Seller or the Company or any Subsidiary) that does or would
materially interfere with the Company's or any Subsidiary's operation of its
portion of the Business, as currently conducted.
3.1.5 Material Contracts.
(a) Schedule 3.1.5 sets forth a complete list of the following
Contracts (the "Material Contracts"), to which the Business, the Company or any
Subsidiary is a party or by which any of their properties or assets may be
bound:
(i) except for Contracts related to Indebtedness being
satisfied by Seller in Section 4.3.6, all Contracts with a counterparty
(including license agreements or distributor, dealer, sales
representative, sales agency, advertising, property management or
brokerage Contracts, Contracts for the future purchase or lease of
materials, supplies, services, merchandise, equipment or other assets,
interconnection agreements and fiber leases) under which the Company or a
Subsidiary, as applicable, estimates that it will expend an amount in
excess of $500,000 in 2003, or with respect to equipment purchase
obligations in excess of $500,000 in 2004 or has a minimum remaining
aggregate purchase obligation in excess of $500,000;
(ii) each Contract that contains a restriction on the
Company's or a Subsidiary's ability to engage in any line of business or
similar covenant;
(iii) each Contract concerning a partnership or joint venture
or other Contract involving the sharing of revenues or profits;
(iv) each Contract creating a Lien securing payment of an
amount in excess of $250,000 per year in any one case or $500,000 in the
aggregate for all such Contracts;
(v) each Contract for the sale of any material assets or the
grant of any preferential rights to purchase any material assets or
rights, other than in the Ordinary Course of Business;
22
(vi) each Contract with any customer of the Company or any
Subsidiary that was billed an aggregate of at least $500,000 during 2003;
(vii) each Contract relating to the CLEC Business with respect
to which the Company or any Subsidiary has any remaining obligations; and
(viii) each pole attachment Contract.
(b) Seller has delivered to Purchaser true and complete copies of
such written Material Contracts and summaries of such oral Material Contracts,
or standard forms thereof. Each of the Material Contracts is in full force and
effect, and is valid and enforceable against the Company or a Subsidiary, as
applicable, in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other Laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law). Except as set forth in Schedule 3.1.5, neither
the Company nor any of the Subsidiaries, nor to Seller's Knowledge, any other
party thereto, is in material default in the performance, observance or
fulfillment of any material obligation, covenant or condition contained in the
Material Contracts to which it is a party or bound, and to Seller's Knowledge no
event caused by, relating to or affecting the Company or any of the Subsidiaries
has occurred which (with or without the giving of notice or lapse of time, or
both) would constitute such a material default by the Company or any Subsidiary
or other party thereto, as applicable, thereunder. Neither Seller, the Company
or any Subsidiary has been notified in writing that any contract party has
terminated any Material Contract or repudiated any material provision of any
Material Contract.
3.1.6 Validity of Contemplated Transactions. Except for the
Regulatory Consents, the Purchaser Consents and the notices, consents and
approvals set forth on Schedule 3.1.6 (those identified on Schedule 3.1.6 being
referred to herein as the "Seller Consents"), the execution, delivery and
performance of this Agreement and the other Transaction Documents by Seller, the
Company and the Subsidiaries, as applicable, and the consummation of the
transactions contemplated hereunder and thereunder, do not and will not: (a)
violate, conflict with or result in the breach of any term, condition or
provision of, or require the consent or approval of, or require any filing or
registration with or notification to (either before or after the Closing), any
other Person or Governmental Authority under, (i) the Organizational Documents
of Seller, the Company, the Subsidiaries, or the Cellular Partnerships, (ii) any
existing Requirement of Law to which Seller, the Company, any of the
Subsidiaries, the Shares the Subsidiary Shares, the Partnership Interests, the
Business or any Company Asset is subject, (iii) any Material Contract or
Material Business Authorization, or (iv) any Material Real Property Leases or
(b) give any party with rights under (i) through (iii) of clause (a) above the
right to terminate, modify, accelerate or otherwise change the existing rights
or obligations of Seller, the Company or any of the Subsidiaries, as applicable,
thereunder.
3.1.7 Taxes. Except as set forth on Schedule 3.1.7,
(a) other than Permitted Liens, there are no Liens with respect to
Taxes upon the Shares or any of the Company Assets;
23
(b) all material Tax Returns required to be filed by or with respect
to Seller, the Company, the Subsidiaries, the Shares, the Business or the
Company Assets have been filed in accordance with applicable Law;
(c) Seller, the Company, and the Subsidiaries have timely paid or
caused to be paid all material Taxes with respect to Seller, the Company, the
Subsidiaries, the Shares, the Business, or the Company Assets (whether or not
shown on any Tax Return) to the extent such Taxes are due and payable;
(d) there is no currently pending, or to Seller's Knowledge,
threatened, audit or administrative or judicial proceeding with respect to Taxes
of Seller, the Company, or any of the Subsidiaries;
(e) there are no outstanding agreements or consents to extend the
statutory period of limitations applicable to the assessment of any Taxes
against Seller, the Company or any of the Subsidiaries;
(f) each of the Company and the Subsidiaries (other than ETFLI and
Fort Bend FiberNet) is a member of the affiliated group of corporations that
files a consolidated federal income Tax Return pursuant to Section 1501 of the
Code of which the Company is the common parent, and neither the Company nor any
Subsidiary has been a member of any other affiliated group filing a consolidated
federal income Tax Return (except, for the period from November 1997 through
August 11, 2000, the affiliated group of which TXU Corp. was the common parent);
(g) none of the Company, any Subsidiary or any Cellular Partnership
has: (i) any income or gain reportable for a Post-Closing Tax Period but
attributable to a transaction (e.g. an installment sale) occurring in, or a
change in accounting method made for, a Pre-Closing Tax Period which resulted in
a deferred reporting of income or gain from such transaction or from such change
in accounting method, (ii) any income or gain that has been deferred as a result
of any "intercompany transaction," within the meaning of Treasury Regulations
Section 1.1502-13(b) or (iii) any Excess Loss Account in the stock of any
Subsidiary;
(h) neither the Company nor any Subsidiary currently is the
beneficiary of any extension of time within which to file any material Tax
Return;
(i) neither the Company nor any Subsidiary is a party to or bound by
any tax allocation or sharing agreement;
(j) no closing agreement, private letter rulings, technical advice
memoranda or similar agreement or rulings with respect to Taxes have been
entered into by or with respect to the Company or any of its Subsidiaries that
may have any material effect in any Post-Closing Tax Period;
(k) the Company and each of its Subsidiaries have duly and timely
withheld and paid over to the appropriate taxing authorities all Taxes required
to have been withheld and
24
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party under all applicable
Laws;
(l) the Company's consolidated net operating loss for Federal Income
Tax purposes is not less than $29,000,000 on the Closing Date;
(m) neither the Company nor any Subsidiary is a party to any
agreement, contract, arrangement, or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute payment"
within the meaning of Code Section 280G (or any similar provision of state,
local or foreign Tax law);
(n) neither the Company nor any Subsidiary has entered into, or
otherwise participated (directly or indirectly) in (i) any "listed transaction"
within the meaning of Treasury Regulations Section 1.6011-4(b)(2) or (ii) to
Seller's knowledge, any other "reportable transaction" within the meaning of
Treasury Regulations Section 1.6011-4(b); and
(o) neither the Company nor any Subsidiary recognized any income or
gain in connection with the formation of Seller.
3.1.8 Environmental Matters. Except as set forth in Schedule 3.1.8:
(a) To Seller's Knowledge, the Company or a Subsidiary, as
applicable, has obtained and is in material compliance with all Environmental
Permits which are required under applicable Environmental Laws and material to
the operation of the Business or the ownership of Company Assets, all of which
are listed on Schedule 3.1.8. All Environmental Permits listed on Schedule 3.1.8
are in full force and effect. Neither Seller, the Company nor any of the
Subsidiaries has been notified by any relevant Governmental Authority that any
existing material Environmental Permit relating to the Business or the Company
Assets will be suspended, canceled or revoked, or cannot be renewed.
(b) To Seller's Knowledge, the Company and each of the Subsidiaries
is in material compliance with all applicable Environmental Laws and, to
Seller's Knowledge, neither the Company Assets, nor other locations for which
the Company or Subsidiary is responsible, have been affected by a release or
disposal of Hazardous Materials that will or could reasonably be expected to
give rise to a Material Adverse Effect.
(c) There is no civil, criminal or administrative action, suit,
hearing, notice or demand letter, notice of violation or investigation, or
proceeding pending against Seller, the Company or any of the Subsidiaries, or,
to Seller's Knowledge, threatened against Seller, the Company or any of the
Subsidiaries relating in any way to any Environmental Permit or any applicable
Environmental Law which will, or is reasonably expected to, give rise to any
material liability or any material obligation for corrective or remedial action.
To Seller's Knowledge, neither the Company nor any of the Subsidiaries has any
material Liability for failure to comply with applicable Environmental Laws,
including in connection with any release of any Hazardous Material into the
environment, and no release which could require corrective or remedial action
has occurred.
25
3.1.9 Real Property.
(a) Schedule 3.1.9 contains a complete and accurate list of all
Owned Real Property of the Company or any Subsidiary that is currently occupied
by Employees or houses equipment that is material to the operation of the
telecommunications network and billing structure of the Company and the
Subsidiaries, such as switching and transmission gear (the "Material Owned Real
Property"). Except as set forth on Schedule 3.1.9, as of the date hereof and at
Closing, the Company and each of the Subsidiaries, as applicable, will hold
good, valid and marketable fee simple title to its Material Owned Real Property,
and to Seller's Knowledge, to all of its other Owned Real Property, in each
case, free and clear of all Liens other than Permitted Liens. There are no
pending, nor has Seller or the Company or any Subsidiary received written notice
of or, with respect to Seller, otherwise have Knowledge of, any threatened,
condemnation or appropriation or similar proceedings against any of the Material
Owned Real Property or improvements thereon.
(b) Schedule 3.1.9 contains a complete and accurate list of all Real
Property Leases of the Company or any of the Subsidiaries which require annual
rental or similar payments of $250,000 or more (collectively, the "Material Real
Property Leases"). Except as set forth on Schedule 3.1.9, the Company or a
Subsidiary, as applicable, holds a valid leasehold interest in each Material
Real Property Lease, and each Material Real Property Lease is enforceable
against the Company or the applicable Subsidiary or, to Seller's Knowledge, the
applicable lessor(s) in accordance with its terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar Laws affecting creditors' rights
generally and by general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law). Neither the
Company nor any of the Subsidiaries or, to Seller's Knowledge, the applicable
lessor is in material default in the performance, observance or fulfillment of
any material obligation, covenant or condition contained in any Material Real
Property Lease to which it is a party or bound, and, to Seller's Knowledge, no
event caused by, relating to or affecting the Company or any of the Subsidiaries
has occurred which (with or without the giving of notice or lapse of time, or
both) would constitute such a material default by the Company or any Subsidiary,
as applicable, thereunder. Each such Material Real Property Lease leasehold
interest (i) is valid, subsisting and in full force and effect; (ii) is free and
clear of all Liens, other than Permitted Liens; and (iii) will, at Closing,
include enforceable rights to nondisturbance and peaceful and quiet enjoyment in
accordance with the provisions of the Material Real Property Lease.
(c)
(i) To Seller's Knowledge, except as set forth on Schedule
3.1.9, the Company and each of the Subsidiaries, as applicable, has
defensible title to all its Easements (other than the ONCOR ROW
License Rights), free and clear of all Liens other than Permitted
Liens.
(ii) As of the date of this Agreement, to Seller's Knowledge,
except as set forth on Schedule 3.1.9, the Company and each of the
Subsidiaries, as applicable, has defensible title to all ONCOR ROW
License Rights free and clear of all Liens other than Permitted
Liens.
26
(d) Except as set forth on Schedule 3.1.9: (i) no Material Owned
Real Property of the Company or any Subsidiary is subject to any outstanding
options or rights of first refusal to purchase such Material Owned Real Property
or any portion thereof or interest therein; (ii) neither the Company nor any of
the Subsidiaries has any option or right of first refusal to purchase any
Material Business Real Property leased by the Company or any of the
Subsidiaries; and (iii) there are no parties (other than the Company or any
Subsidiary) in possession of any of the Material Business Real Property, other
than tenants under any subleases or sublicenses disclosed on Schedule 3.1.9.
3.1.10 Material Changes. Except as disclosed on Schedule 3.1.10,
since the date of the most recent Financial Statements as of the date hereof:
(a) there has been no Material Adverse Effect on the Business or the
Company Assets;
(b) neither Seller, the Company nor any of the Subsidiaries, as
applicable, has (i) sold, assigned, transferred or otherwise disposed of the
Shares, any Subsidiary Shares or any Partnership Interest or (ii) sold, leased,
licensed, assigned, transferred or otherwise disposed of any Company Assets,
except in the Ordinary Course of Business;
(c) neither Seller, the Company nor any of the Subsidiaries has
subjected the Shares or any of the Company Assets, as applicable, to any Lien,
except for Permitted Liens;
(d) the Company and each of the Subsidiaries has operated its
portion of the Business and the Company Assets in the Ordinary Course of
Business;
(e) there has not been any material damage, destruction or loss
(whether or not covered by insurance) to any material Company Assets;
(f) neither Seller, the Company nor any Subsidiary has taken any
actions which would, if taken after the date hereof and prior to the Closing,
violate Section 4.1.1(g), (h), (l) (other than increases of not more than five
percent (5%) in the Ordinary Course of Business), (o) or (t); and
(g) neither the Company nor any Subsidiary has agreed, whether
orally or in writing, to take any actions prohibited by the foregoing.
3.1.11 Intellectual Property Matters. Schedule 3.1.11 contains a
list and description of all material Intellectual Property of the Company and
each of the Subsidiaries used in or necessary for the conduct of the Business as
presently conducted, other than the TXU Marks. Except as disclosed on Schedule
3.1.11, (a) to Seller's Knowledge, neither the Company nor the Subsidiaries
infringe any patent, copyright or trade secret or any other intellectual
property right of any third party; (b) there are no claims or suits pending or,
to the Knowledge of Seller, threatened, alleging that the activities of Seller,
the Company or any of the Subsidiaries or the conduct of the Business or the
operation of the Company Assets infringes upon the Intellectual Property of a
third party, or challenging the ownership, validity or enforceability of any
Intellectual Property necessary for the operation of the Business as currently
conducted or
27
the Company Assets; and (c) to the Knowledge of Seller, no Person is infringing
upon any Intellectual Property of the Company or any of the Subsidiaries.
3.1.12 Books of Account; Financial Statements.
(a) Seller has delivered to Purchaser the following financial
statements (collectively, the "Financial Statements"): (a) the Company's audited
consolidated statements of operations and comprehensive loss for calendar years
2000, 2001 and 2002, and the unaudited consolidated statements of operations and
comprehensive loss for the nine months ended September 30, 2002, and September
30, 2003; (b) the Company's audited consolidated statements of cash flows for
calendar years 2000, 2001 and 2002, and unaudited consolidated statements of
cash flows for the nine months ended September 30, 2002, and September 30, 2003;
and (c) the Company's audited consolidated balance sheets for the calendar years
2001 and 2002, and unaudited consolidated balance sheets as of September 30,
2003. The Financial Statements are true, correct and complete in all material
respects, have been prepared in accordance with GAAP consistently followed
throughout the periods covered thereby (except as noted therein) and fairly
present the consolidated results of operations of the Company and the
Subsidiaries for the periods covered thereby and the consolidated financial
position of the Company and the Subsidiaries at the respective dates thereof.
The accounts receivable of the Company and the Subsidiaries shown on the
Financial Statements arose in the Ordinary Course of Business and represent
amounts owed by an account debtor for goods sold or services rendered by the
Company or any Subsidiary, as applicable, and the allowance for doubtful
accounts shown on such Financial Statements was established in the Ordinary
Course of Business.
(b) Except as set forth on Schedule 3.1.12, neither the Company nor
any of the Subsidiaries is the borrower, obligor or guarantor under any
obligation that would constitute Indebtedness or that would constitute a capital
lease (including the GE Capital Lease Indebtedness). The Company and the
Subsidiaries have not, since July 30, 2002, extended or maintained credit,
arranged for the extension of credit, or renewed an extension of credit, in the
form of a personal loan, to or for any director or executive officer (or
equivalent thereof) of the Company or any Subsidiary. Schedule 3.1.12 identifies
any loan or extension of credit currently maintained by the Company or any
Subsidiary to any director or executive officer (or equivalent thereof).
3.1.13 Brokers or Finders. Except as set forth on Schedule 3.1.13
for which obligations Seller shall be responsible, neither Seller, the Company
nor any of the Subsidiaries has incurred any obligation or liability, contingent
or otherwise, for brokers' or finders' fees or agents' commissions or other
similar payments in connection with this Agreement or the transactions
contemplated hereby.
3.1.14 Labor Relations. Except as set forth on Schedule 3.1.14: (a)
no Employee is represented by any labor union or other labor organization; (b)
the Company and the Subsidiaries are not signatories to a collective bargaining
agreement with any labor union or labor organization; (c) there is no unfair
practice complaint against the Company or any Subsidiary pending or, to Seller's
Knowledge, threatened before the National Labor Relations Board; (d) there is no
labor strike, dispute, slowdown, hand billing, picketing, stoppage, or other
28
"concerted activity" involving the Employees actually pending or, to the
Knowledge of Seller, threatened against or involving the Company or any
Subsidiary; (e) there is no grievance or arbitration pending or, to the
Knowledge of Seller, threatened against the Company or any Subsidiary regarding
unfair labor practices or collective bargaining; (f) to Seller's Knowledge,
there are no organizational efforts presently being made or threatened by or on
behalf of any labor union with respect to the Employees and no labor union
claims to represent any Employee for purposes of collective bargaining; (g) to
Seller's Knowledge, Seller, the Company and the Subsidiaries are complying with,
in all material respects, the terms and conditions set forth in any collective
bargaining agreement with any labor union or other labor organization; and (h)
except for the effect of any terminations made at the request of Purchaser
pursuant to Section 4.3.5, the Company and the Subsidiaries have not taken any
action that would constitute a "mass layoff," "mass termination" or "plant
closing" within the meaning of the United States Worker Adjustment and
Retraining Notification Act ("WARN") or otherwise trigger notice requirements or
liability under any federal, local, state, or foreign plant closing notice or
collective dismissal law in violation of WARN or such other federal, state or
foreign plant closing Law.
3.1.15 Employee Benefit Plans.
(a) Schedule 3.1.15 contains a complete and accurate list of each
employee of the Company or a Subsidiary (the "Employees"), and accurately sets
forth, for each Employee, the Employee's employer, job title, location, length
of service for which the Employee is credited, current total monthly and annual
rate of base compensation and current annual incentive target, a reference to
any severance or change of control arrangements with such Employee, and whether
or not the employee is subject to an employment agreement, a collective
bargaining agreement or is represented by a labor organization.
(b) Schedule 3.1.15 contains a true and complete list of all
material Plans, including each Plan that is an "employee benefit plan," as
defined in Section 3(3) of ERISA. Except as set forth on Schedule 3.1.15, the
Company has no obligation to create any additional Plan or to modify any Plan
other than as may be required to comply with any changes in applicable Law. The
Company is in compliance with, and each of the Plans is and has been operated in
compliance with, all applicable Laws governing such Plans in all material
respects.
(c) With respect to each Plan, the Company has provided to Purchaser
a true and complete copy of each of the following documents to the extent they
exist: (i) current Plan documents and Summary Plan Descriptions; (ii) Summary of
Material Modifications; (iii) annual reports (IRS Form 5500 series), including
financial statements for the last three (3) years; (iv) each related trust
agreement, insurance contract, service provider contract or investment
arrangement agreement; and (v) actuarial reports or valuations for the last
three (3) years.
(d) Except as set forth on Schedule 3.1.15: (i) no Plan is subject
to the minimum funding standards of Section 302 of ERISA or Section 412 of the
Code; and (ii) all contributions required to be made to any Plan have been made
in a timely manner.
(e) (i) No Plan is a "multiemployer plan" within the meaning of
Section 3(37) or 4001(a)(13) of ERISA; (ii) neither the Company nor any ERISA
Affiliate has ever contributed to, been required to contribute to, or otherwise
had any obligation or liability during the last six
29
(6) years with respect to any "multiemployer plan," within the meaning of
Section 3(37) of ERISA; (iii) no liability under Title IV of ERISA has been or,
to Seller's Knowledge, is reasonably expected to be incurred by the Company or
any ERISA Affiliate in connection with any Plan.
(f) Except as set forth on Schedule 3.1.15: (i) with respect to each
of the Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code, a timely application has been made to the IRS for a favorable
determination letter; (ii) as of the Closing, each tax-qualified Plan satisfies
all minimum coverage and minimum participation requirements, if any, imposed on
such Plans by the applicable terms of the Code and ERISA; (iii) there are no
pending or, to the Knowledge of Seller, threatened investigations or audits by
any Governmental Authority, or any claims, suits or other proceedings by present
or former Plan participants or beneficiaries involving any Plan, or any rights
or benefits thereunder, other than ordinary and usual claims for benefits which
are being processed in the normal course; (iv) the Company has complied in all
material respects with all requirements regarding continuation coverage under
Section 4980B of the Code and Part 6 of Title I of ERISA; and (v) no employee
will be entitled to any additional benefits or any acceleration of the time of
payments or vesting of any benefits under any Plan as a result of the
transaction contemplated by this Agreement.
(g) Except as set forth on Schedule 3.1.15, no Employees are
entitled to cash payments or other forms of compensation in connection with any
equity-based compensation arrangements, retention agreements, change-in-control
arrangements, severance arrangements and/or any similar arrangements sponsored
by Seller, the Company or the Subsidiaries and effected by or entered into in
connection with this Agreement or that may otherwise become payable or vest in
whole or in part as a result of the transactions contemplated hereby, including
upon passage of time or upon satisfaction of additional conditions (the
"Compensation Arrangements"). The assets of each Plan that is an employee
pension benefit plan within the meaning of Section 3(2) of ERISA may be
liquidated without incurring any material termination fees, costs or penalties.
(h) Schedule 3.1.15 contains a complete and accurate list of all
Employees currently on a medical leave of absence due to a short-term or
long-term medical disability, and of those former employees of the Company or
any of its Subsidiaries receiving post-employment medical and/or life insurance
benefits pursuant to a Plan or arrangement sponsored by the Company or any of
its Subsidiaries.
(i) (x) No Plan is part of a "multiple employer welfare
arrangement," within the meaning of Section 3(40) of ERISA and (y) except as set
forth on Schedule 3.1.15, no Plan provides for post-retirement health or welfare
benefits except for benefits which satisfy the minimum requirements of Section
4980B of the Code and Part 6 of Title 1 of ERISA.
3.1.16 Capitalization; Ownership.
(a) The Shares are duly authorized, validly issued, fully paid and
nonassessable, and are owned of record and beneficially by Seller. The Shares
constitute 100% of the issued and outstanding capital stock of the Company.
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(b) The Company owns, either directly or indirectly, all of the
issued and outstanding shares of capital stock of each of the Subsidiaries (the
"Subsidiary Shares") (other than ETFLI and Fort Bend FiberNet). TXU
Communications Transport Company ("TXUC Transport"), a Subsidiary, owns
sixty-three percent (63%) of the issued and outstanding capital stock of East
Texas Fiber Line Incorporated, a Texas corporation ("ETFLI"). The shares of
capital stock of ETFLI that are owned by TXU Communications Transport Company
are referred to in this Agreement as the "ETFLI Shares." The number and class of
the Subsidiary Shares and the ETFLI Shares, and the name of the owner thereof,
are set forth on Schedule 3.1.16. The Subsidiary Shares and the ETFLI Shares are
duly authorized, validly issued, fully paid and nonassessable, and are owned of
record and beneficially by the Company or a Subsidiary, as described on Schedule
3.1.16.
(c) TXUC Transport owns a 2.34% limited partnership interest in GTE
Mobilnet of South Texas Limited Partnership, a Delaware limited partnership and
a 17.02% limited partnership interest in GTE Mobilnet of Texas RSA #17 Limited
Partnership, a Delaware limited partnership. The limited partnership interests
of TXUC Transport in each of the Cellular Partnerships, as described in this
Section 3.1.16, are referred to in this Agreement as the "Cellular Partnership
Interests." In addition, TXUC Transport owns a 39.06% general partnership
interest in Fort Bend FiberNet, a Texas general partnership (such general
partnership interest being referred to herein as the "Fort Bend FiberNet
Partnership Interest"). The Partnership Interests are duly authorized, validly
issued, fully paid and nonassessable, and are owned of record and beneficially
by TXUC Transport, as set forth above.
(d) Except as set forth on Schedule 3.1.16, and other than the
Pinnacle Lien (which shall be discharged on or before Closing): (i) the Shares,
the Subsidiary Shares, the ETFLI Shares and the Partnership Interests are owned
by Seller, the Company or a wholly-owned Subsidiary, as applicable, free and
clear of any Liens (other than restrictions on transfer imposed by federal and
state securities Laws), including any outstanding or authorized options,
warrants, calls, rights (including preemptive rights), commitments or any other
agreements of any character to which Seller, the Company or any of the
Subsidiaries is a party, or by which they may be bound, requiring Seller, the
Company or any of the Subsidiaries to issue, transfer, sell, purchase, redeem or
acquire any equity interest or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for any equity interest
of the Company, the Subsidiaries, ETFLI, Fort Bend FiberNet or either of the
Cellular Partnerships; and (ii) none of Seller, the Company or any Subsidiary is
a party to any voting trust, proxy or other agreement or understanding with
respect to the voting of any capital stock of the Company or any Subsidiary or
any other agreement or understanding relating to the Company or any Subsidiary
or the capital stock of the Company or any Subsidiary.
(e) Other than as described in this Section 3.1.16 and the
corresponding Schedules, neither Seller, the Company nor any Subsidiary owns any
joint venture interest, partnership interest, membership interest, capital stock
or other equity interest or security interest in any Person.
3.1.17 Insurance. Schedule 3.1.17 sets forth a list of all material
insurance policies presently in effect with respect to Seller, the Company, the
Subsidiaries, the Company Assets or the Business. All material insurance
policies covering Seller, the Company, the
31
Subsidiaries, the Company Assets or the Business are in full force and effect in
accordance with their terms, all premiums due and payable have been paid and no
notice of cancellation of such polices has been received. All such insurance
policies will terminate with respect to the Company, the Subsidiaries, the
Company Assets and the Business at Closing.
3.1.18 No Undisclosed Liabilities. Except for Liabilities: (a)
disclosed, reflected or reserved against on the face of the balance sheet for
the quarter ended September 30, 2003 that are included in the Financial
Statements; (b) incurred in the Ordinary Course of Business after September 30,
2003; (c) arising from the execution, delivery or performance of this Agreement
or any other Transaction Document; or (d) disclosed on Schedule 3.1.18, to
Seller's Knowledge, none of the Company or any of the Subsidiaries has any
material Liabilities. Except for Liabilities disclosed, reflected or reserved
against on the face of the balance sheet for the quarter ended September 30,
2003 that are included in the Financial Statements, to Seller's Knowledge none
of the dormant Subsidiaries has any Liabilities and neither the Company nor any
of the other Subsidiaries has any Liabilities associated with the dormant
Subsidiaries or the dissolution thereof. There are no pending capital calls with
respect to any of the Cellular Partnerships or Fort Bend FiberNet.
3.1.19 Transactions with Affiliates. Except for the intercompany
arrangements being terminated at Closing, each of which is set forth in Schedule
3.1.19, and except as provided in Section 4.3.7, the Company and the
Subsidiaries do not have any transactions, agreements, arrangements or
understandings with any officer, director, shareholder or other Affiliate of
Seller (including TXU Corp. and its Subsidiaries other than the Company and its
Subsidiaries), and no officer, director, shareholder of the Company or any
Subsidiary or other Affiliate of the Company or any Subsidiary (including TXU
Corp. and its Subsidiaries other than the Company and its Subsidiaries) has any
interest in any of the Company Assets.
3.1.20 Title to Personal Property. The Company and each of the
Subsidiaries has good and valid title to or, in the case of leased properties
and assets, good and valid leasehold interests in, all of the Personal Property
owned or used by it, and has good title to, or valid leasehold interests or
licenses in, all of its intangible assets used for the conduct of Business, in
each case free and clear of all Liens, except for Permitted Liens.
3.1.21 Sufficiency of Assets. Except as set forth in Schedule
3.1.21, the Company Assets owned, leased or licensed by the Company and the
Subsidiaries include all of the assets, properties and other rights (including
items of the types discussed in the definition of Company Assets) that are
required for the continued conduct by Purchaser of the Business substantially as
now being conducted.
3.1.22 No Representations or Warranties Implied. EXCEPT AS EXPRESSLY
SET FORTH IN THIS SECTION 3.1, OR ELSEWHERE IN THIS AGREEMENT OR IN ANY OTHER
TRANSACTION DOCUMENT, PURCHASER ACKNOWLEDGES AND AGREES THAT SELLER HAS NOT
MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE VALUE, NATURE, QUALITY,
32
ADEQUACY OR CONDITION OF THE SHARES, THE BUSINESS OR THE COMPANY ASSETS, (B) THE
INCOME TO BE DERIVED FROM THE SHARES, THE BUSINESS OR THE COMPANY ASSETS, (C)
THE SUITABILITY OF THE COMPANY ASSETS FOR ANY AND ALL ACTIVITIES AND USES WHICH
PURCHASER MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE SHARES, THE
BUSINESS OR THE COMPANY ASSETS OR THEIR OPERATION WITH ANY LAWS, RULES,
ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (E)
THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A
PARTICULAR USE OR PURPOSE OF THE SHARES, THE BUSINESS OR THE COMPANY ASSETS, OR
(F) ANY OTHER MATTER WITH RESPECT TO THE SHARES, THE BUSINESS OR THE COMPANY
ASSETS. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY
OTHER TRANSACTION DOCUMENT, PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT IT IS
ACQUIRING THE SHARES AND ACCEPTING THE COMPANY ASSETS ON AN "AS IS, WHERE IS"
CONDITION AND BASIS "WITH ALL FAULTS."
3.2 Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller as follows:
3.2.1 Purchaser Existence. Purchaser is a duly incorporated, validly
existing corporation, and is in good standing under the Laws of the State of
Delaware. Purchaser has the requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Purchaser of this Agreement
and all other Transaction Documents have been duly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been, and the
other Transaction Documents have been or will be, duly executed and delivered by
Purchaser, and this Agreement constitutes, and the other Transaction Documents
do or will when executed and delivered constitute, the legal, valid and binding
obligations of Purchaser enforceable against it in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy
Laws and other Laws affecting creditors' rights generally, and except that the
remedy of specific performance and injunctive relief and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
3.2.2 Validity of Contemplated Transactions. Except for the
Regulatory Consents, the Seller Consents and the notices, consents and approvals
set forth on Schedule 3.2.2 (those identified on Schedule 3.2.2 being referred
to herein as "Purchaser Consents"), the execution, delivery and performance of
this Agreement and the other Transaction Documents by Purchaser, and the
consummation of the transactions contemplated hereunder and thereunder, do not
and will not violate, conflict with or result in the breach of or default under
any term, condition or provision of, or require the consent or approval of any
other Person under, (a) the charter and other organizational documents of
Purchaser, (b) any existing Requirement of Law or Authorization to which
Purchaser is subject, (c) any Contract or other agreement (each, a "Purchaser
Contract") to which Purchaser is a party or is subject.
3.2.3 Communications Act. At Closing, Purchaser will be qualified
under the Communications Act, and all applicable rules, regulations and policies
promulgated thereunder
33
as in effect on the date hereof to be a transferee of control of the FCC
Authorizations and the PUC Authorizations. As of the date hereof, Purchaser has
no knowledge of any facts, conditions or events relating to Purchaser or any of
its Affiliates that would reasonably be expected to cause the FCC or the PUC to
delay action on or deny the transfer of control of the FCC Authorizations or the
PUC Authorizations, as applicable, to Purchaser as a result of the transactions
contemplated by this Agreement.
3.2.4 Financing. Purchaser has delivered to Seller a true and
complete executed copy of (i) a letter of commitment obtained by Purchaser from
Credit Suisse First Boston, Citicorp North America, Inc., Citigroup Global
Markets Inc., Deutche Bank Trust Company Americas, Deutche Bank AG Cayman
Islands Branch, and Deutche Bank Securities, Inc. to provide financing for the
transactions contemplated hereunder (the "Commitment Letter"); and (ii) the
equity commitment letter dated as of the date hereof between Seller, Purchaser
and the Equity Sponsors (as defined therein). Purchaser is not in material
default in the performance, observance or fulfillment of any material
obligation, covenant or condition contained in the Commitment Letter or any
financing arrangement to which it is a party, and no event caused by or relating
to Purchaser has occurred, which (with or without the giving of notice or lapse
of time, or both) would constitute such a material default by Purchaser
thereunder. Assuming that the financing contemplated by the Commitment Letter is
consummated in the amount and otherwise in accordance with the terms thereof,
the funds to be borrowed and/or provided thereunder to Purchaser, together with
additional funds available to Purchaser, will provide sufficient funds to pay
the Purchase Price, as adjusted pursuant to Section 2.2(b), plus the amount of
any Adjustment Funds owed by Purchaser in accordance with Section 2.2 hereof,
and all related fees and expenses.
3.2.5 Brokers or Finders. Except as set forth on Schedule 3.2.5, for
which obligation Purchaser shall be responsible, neither Purchaser nor any of
its Affiliates has incurred any obligation or liability, contingent or
otherwise, for brokers' or finders' fees or agents commissions or other similar
payments in connection with this Agreement or the transactions contemplated
hereby.
3.2.6 Litigation. There is no litigation, arbitration, investigation
or other proceeding, or injunction or final judgment relating thereto, pending
or, to the Knowledge of Purchaser, threatened against Purchaser before any
Governmental Authority, including the FCC and the PUC, in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated hereby, and,
to the Knowledge of Purchaser, no investigation that might result in any such
suit, action or proceeding is pending or threatened.
3.3 Purchase for Own Account. The Shares to be acquired by Purchaser
pursuant to the terms of this Agreement are being and will be acquired for
Purchaser's own account and with no intention of distributing or reselling such
Shares or any part thereof in any transaction that would be in violation of the
securities laws of the United States of America, or any state therein. If
Purchaser should in the future decide to dispose of any part of the Shares,
Purchaser understands and agrees that it may do so only in compliance with the
applicable federal and state securities laws, as then in effect. Purchaser,
together with its directors and executive officers and advisors, is familiar
with investments of the nature of the Shares, understands that this investment
involves
34
substantial risks, has adequately investigated the Shares, and has substantial
knowledge and experience in financial and business matters such that it is
capable of evaluating, and has evaluated, the merits and risks inherent in
purchasing the Shares, and is able to bear the economic risks of such
investment.
3.4 Investigation and Evaluation. Purchaser acknowledges that (a)
Purchaser is experienced in the operation and/or evaluation of the type of
business conducted by the Company and the Subsidiaries, (b) Purchaser and its
directors, officers, attorneys, accountants and advisors, have been given the
opportunity to examine to the full extent deemed necessary and desirable to
Purchaser all Records and other information with respect to the Company, the
Subsidiaries, the Shares, the Business and the Company Assets, (c) Purchaser has
taken, and hereby takes, full responsibility for determining the scope of its
investigations of the Company, the Subsidiaries, the Shares, the Business and
the Company Assets and the manner in which such investigations have been
conducted, and has examined the Company, the Subsidiaries, the Shares, the
Business and the Company Assets to its full satisfaction, (d) Purchaser is fully
capable of evaluating the adequacy and accuracy of the information obtained by
Purchaser in the course of such investigations, and (e) Purchaser has not
relied, and will not rely, on Seller, the Company, the Subsidiaries, or any of
their respective officers, directors, employees, agents and advisors, with
respect to any matter in connection with the Purchaser's evaluation of the
Company, the Subsidiaries, the Shares, the Business and the Company Assets,
including the information in the Confidential Memorandum provided to Purchaser
in July 2003, other than the representations and warranties of Seller
specifically set forth in this Agreement.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Agreements of Seller Pending Closing. Seller covenants and agrees that
from the date of this Agreement until the Closing and except as otherwise
consented to by Purchaser:
4.1.1 Conduct of the Business in the Ordinary Course. Subject to the
applicable Requirements of Law, and provided that the Company and the
Subsidiaries may comply with their obligations under any Business Authorization
or any Contract to which the Company or any Subsidiary is a party, or except as
otherwise expressly provided by this Article IV or as disclosed in Schedule
4.1.1, Seller shall cause the Company and the Subsidiaries to conduct the
Business in the Ordinary Course of Business except as may be necessary in order
to implement and perform this Agreement and the other Transaction Documents.
Without limiting the generality of the foregoing, except as set forth on
Schedule 4.1.1 or except with the consent of Purchaser (which consent shall not
be unreasonably withheld, delayed or conditioned), Seller shall, and shall cause
the Company and the Subsidiaries, to:
(a) not (i) sell, assign, transfer or otherwise dispose of the
Shares, the Subsidiary Shares or Partnership Interests or (ii) sell, lease,
assign, transfer or otherwise dispose of any of the Company Assets (other than
the sale of inventory or the disposition of used or excess equipment or obsolete
inventory in the Ordinary Course of Business, including the sale of an average
of three vehicles per month);
35
(b) use commercially reasonable efforts to maintain relations and
goodwill generally with suppliers, customers, distributors and others having
business relations with the Company or the Subsidiaries;
(c) comply in all material respects with all Requirements of Law and
Environmental Laws applicable to Seller, the Company, the Subsidiaries, the
Shares, the Business or the Company Assets and with all Contracts and Business
Authorizations and Environmental Permits;
(d) keep in full force and effect the material insurance policies
(comparable in amount and scope) covering the Company, the Subsidiaries, the
Company Assets and the Business as of the date hereof;
(e) except as provided in subsection (p) of this Section 4.1.1, not
enter into or amend in any material respect any Material Contract, or terminate
any such Material Contract before the expiration of the term thereof, or waive,
release or assign any rights or claims under any Material Contract;
(f) not amend or otherwise change its Organizational Documents;
(g) not (i) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, or grant, of any shares of
capital stock or partnership interests of any class of the Company or any
Subsidiary; (ii) split, combine or reclassify any shares of the capital stock of
the Company or any Subsidiary; (iii) issue or sell any additional shares of, or
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of the
Company or any Subsidiary; or (iv) redeem, purchase or otherwise acquire
directly or indirectly any capital stock of the Company or any Subsidiary;
(h) other than dividends payable by a Subsidiary to the Company or
another Subsidiary, not declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock or partnership interests, as applicable;
(i) not (i) acquire (including by merger, consolidation or
acquisition of stock or assets) any corporation, partnership, or other business
organization or any division thereof or any material amount of assets except for
acquisitions of inventory and the purchase of raw materials, supplies and
equipment in the Ordinary Course of Business; or (ii) incur any Indebtedness
that will not be satisfied at or prior to the Closing or enter into any capital
lease arrangements or issue any debt securities or assume, guarantee, endorse,
or otherwise as an accommodation become responsible for, the obligations of any
Person, or make any loans or advances;
(j) use commercially reasonable efforts to maintain the assets of
the Company and the Subsidiaries in good operating condition (ordinary wear and
tear excepted), with inventories of spare parts and expendable supplies being
maintained at levels consistent with past practices;
36
(k) deliver to Purchaser, (i) promptly after completion thereof, all
financial statements (which financial statements shall comply with the
representations and warranties made in Section 3.1.12), financial reports,
financial audits, financial presentations and other related information that are
prepared in the Ordinary Course of Business for regular review by executive
management with respect to the Company or any Subsidiary, and without limiting
the generality of the foregoing, Seller shall deliver to Purchaser (A) unaudited
monthly statements of profits and loss within thirty days after the end of each
month; and (B) unaudited quarterly consolidated financial statements of the
Company within forty-five days after the end of each quarter; and (ii) within
thirty (30) days after the end of each month (beginning with the month ending
December, 2003) a monthly statement in the form attached hereto as Exhibit F;
(l) not (i) grant any increase in the compensation of employees of
the Company and the Subsidiaries, except for increases in the compensation of
employees required by the terms of any employment agreement or Plan (including
any collective bargaining agreement) as in effect on the date hereof, (ii) hire
new employees other than in the Ordinary Course of Business, provided any such
employee may be terminated at will without penalty, (iii) except as contemplated
by Section 4.3.5, terminate any employees other than in the Ordinary Course of
Business, (iv) enter into any new employment, severance, consulting or other
compensation agreement with any director, officer or employee of the Company or
the Subsidiaries, (v) commit to any additional Plans or amend in any material
respect or commit itself to amend in any material respect any such existing Plan
or arrangement, (vi) enter into or modify any contract relating to any Plan or
modify any compensation arrangement, (vii) change in any material respect the
investment options offered under any Plans or any investments held under any
such Plans except as may otherwise be required by Law or as may be necessary to
reflect additional contributions, distributions or investment returns, (viii)
create any new cash incentive compensation program or awards without notifying
the employees that the terms of such program or awards are subject to review and
approval of Purchaser following the Closing Date or (ix) voluntarily recognize
any bargaining representative for any employees or establish, adopt, enter into
or amend any collective bargaining agreement;
(m) not mortgage, pledge or otherwise subject to any Lien any of the
Company Assets other than Permitted Liens incurred in the Ordinary Course of
Business or that will otherwise terminate prior to the Closing;
(n) not adopt a plan of liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or reorganization relating to the
Company or any Subsidiary;
(o) not make any change in any method of accounting or accounting
practice or policy other than those required by GAAP;
(p) not enter into any Contract, except for (i) any Contract entered
into in the Ordinary Course of Business under which the consideration payable or
receivable by the Company or any Subsidiary does not exceed $500,000 per year
per Contract, or (ii) any Contract entered into in the Ordinary Course of
Business relating to the provision of services to customers;
37
(q) not make or agree to make capital expenditures in excess of
$3,000,000 per month;
(r) except as otherwise contemplated in this Agreement or in the
Ordinary Course of Business, not submit or file with, or otherwise voluntarily
participate as a party to any stipulation, pleading, filing, or other proceeding
with the FCC or the PUC, or fail to notify Purchaser promptly of any involuntary
participation in any of the foregoing;
(s) not enter into any non-compete Contracts under which the Company
or the Subsidiaries is obligor, or modify or waive any of the Company's or the
Subsidiaries' rights under any existing material confidentiality or non-compete
Contract under which it is the beneficiary;
(t) except as otherwise required to perform the obligations under
this Agreement, not manage its working capital, including cash, receivables,
other current assets, trade payables and other current liabilities, in a fashion
other than consistent with past practice and in the Ordinary Course of Business;
(u) not pay, discharge or satisfy any material claim, liability or
obligation (absolute, contingent or otherwise) other than (i) payment, discharge
or satisfaction in the Ordinary Course of Business, or (ii) reserved against in
the Financial Statements or (iii) as otherwise provided in Sections 4.3.6,
4.3.7, 4.3.11 and 5.9; and
(v) not agree or commit to do any action prohibited by this Section
4.1.1.
Subject to the terms of this Agreement, prior to the Closing Date, Purchaser
shall not, directly or indirectly, control, supervise or direct, or attempt to
control, supervise or direct the operation of the Business in any manner that is
prohibited by FCC or PUC rules or policies.
4.1.2 Access. Until the Closing (or earlier termination of this
Agreement), Seller grants Purchaser and its authorized representatives,
including its officers, directors, members, Affiliates, employees, accountants,
consultants, legal counsel, financial advisors, investment bankers, agents,
lenders and investors, access to the Records, the Company Assets and other
facilities and properties of the Company and the Subsidiaries, in accordance
with the following terms and conditions:
(a) Purchaser shall notify Seller of its desire to access the
Records, the Company Assets and other facilities and properties of the Company
or any of the Subsidiaries, and the intended purpose of such access, at least 48
hours prior to such desired access;
(b) Upon receipt of such notice from Purchaser, Seller shall, and
shall cause the Company and the Subsidiaries to (i) give Purchaser and its
authorized representatives reasonable access during all reasonable times and in
a manner so as not to interfere with the normal business operations of Seller,
the Company or any of the Subsidiaries, as applicable, to the Records,
personnel, Company Assets and other facilities and properties of the Company and
the Subsidiaries, (ii) consent to access to their accountants and accountants'
work papers, and (iii) furnish promptly to Purchaser such information concerning
the Business, the Company
38
Assets, financial condition, operations and personnel of the Company and the
Subsidiaries, in each case, as reasonably requested by Purchaser. Seller will
make available, at reasonable locations and for reasonable times, the officers,
employees, and agents of Seller, the Company and the Subsidiaries in order to
assist Purchaser in its inspection of such Records, Company Assets and other
facilities and properties.
(c) At any time while Purchaser has access to the personnel,
Records, Company Assets and other facilities and properties of the Company and
the Subsidiaries, Seller may have one or more representatives present and
Purchaser shall conduct its activities in accordance with all applicable Laws,
including Environmental Laws, and commonly accepted standards for conducting
such activities. Upon completion of its activities, Purchaser shall restore the
Records, the Company Assets and other facilities and properties of the Company
and the Subsidiaries substantially to their condition existing at the time of
Purchaser's access thereto, and Purchaser shall remove any and all equipment and
materials that were brought on to the property of the Company or the
Subsidiaries by Purchaser or its representatives.
(d) Any information obtained by Purchaser or its authorized
representatives under this Section 4.1.2 shall be subject to Section 3.1.22 and
Section 3.4, and shall be further subject to the confidentiality and use
restrictions contained in the Confidentiality Agreement. Seller shall not have
the right to control, and shall not exercise any responsibility with respect to,
the activities of Purchaser under this Section 4.1.2, except that Seller shall
have the right (but not the obligation) to prevent any business disruption or
damage to its, the Company's or any Subsidiary's property. In addition to all
rights of indemnification otherwise set forth herein, Purchaser shall reimburse,
indemnify and hold harmless each Seller Indemnitee from, against and in respect
of any and all Losses incurred or suffered by any Seller Indemnitee that result
from, relate to or arise out of Purchaser's negligence or willful misconduct
during the investigation of the Company Assets and the Business, and such
indemnification shall survive the termination of this Agreement and shall
survive the Closing.
4.1.3 Regarding Seller Consents. Seller shall, and shall cause the
Company and the Subsidiaries to, use commercially reasonable efforts to obtain
any governmental and third party authorizations, approvals, consents or waivers
required in order to consummate the transactions contemplated by this Agreement
as promptly as possible following the execution of this Agreement (provided that
neither Seller, the Company nor any Subsidiary shall be obligated to pay any
money for such consents, approvals or waivers other than customary fees and
expenses and as necessary to remedy any breach or default). If any consent,
approval or waiver required for assignment of control to Purchaser of a Contract
to which the Company or any Subsidiary is a party, or for assignment of control
to Purchaser of a Business Authorization, shall not be obtained prior to Closing
so that Purchaser would not acquire the benefit of the rights thereunder upon
the Closing, and Purchaser waives its closing conditions with regard thereto, if
applicable, Seller, to the maximum extent permitted by Law and the applicable
Contract or Business Authorization, shall act, or cause the Company or the
applicable Subsidiary to act, after the Closing, as Purchaser's agent in order
to preserve and obtain for Purchaser the benefits thereunder and shall
cooperate, to the maximum extent permitted by Law and the applicable asset, with
Purchaser in any other reasonable arrangement designed to provide such benefits
to Purchaser. Further, Purchaser and Seller shall cooperate after the Closing in
using all
39
commercially reasonable efforts to obtain any such consent, approval or waiver.
The provisions of this Section 4.1.3 shall survive for one year following the
Closing Date. If, notwithstanding its commercially reasonable efforts, Seller is
unable to obtain or cause the Company or the Subsidiaries to obtain one or more
consent, approval or waiver prior to the Closing Date and Purchaser nevertheless
waives in writing such condition to the Closing and consummates the transactions
contemplated thereby, Seller's sole obligation in respect thereof shall be as
provided in this Section 4.1.3.
4.1.4 ONCOR ROW License Rights. After the execution of this
Agreement, Seller shall cause a review of all ONCOR ROW License Rights. Prior
to, or at Closing, Seller will deliver to Purchaser a schedule ("Schedule
4.1.4") listing any ONCOR ROW License Right Defect discovered in such review.
Purchaser shall have a right to participate in the review of all ONCOR ROW
License Rights, which right to participation shall include access to all
information and access to the persons conducting the review. Seller shall have
the sole right, but not the obligation, for twelve months after Closing to
obtain, free and clear of all Liens (other than Permitted Liens), any and all
Easements listed on Schedule 4.1.4 or to otherwise cure (to the standard set
forth in Section 3.1.9(c)(i)) any defects with respect to those Easements listed
on Schedule 4.1.4. Subject to Seller's right to cure set forth in the preceding
sentence, with respect to the matters listed in Schedule 4.1.4, Seller will
indemnify Purchaser as set forth in Article VII.
4.2 Agreements of Purchaser Pending Closing.
4.2.1 Communications Act. Purchaser covenants and agrees that, from
the date of this Agreement until the Closing (or earlier termination of this
Agreement), except as otherwise consented to in writing by Seller, Purchaser has
not taken and will not take prior to the Closing any action to disqualify itself
under the Communications Act or other applicable Laws, rules and regulations
from acquiring control of the FCC Authorizations or the PUC Authorizations and
shall not take or omit to take any action that would cause it to be in breach of
its representation and warranty set forth in Section 3.2.3.
4.2.2 Regarding Purchaser Consents. Purchaser shall use commercially
reasonable efforts to obtain the Purchaser Consents as promptly as possible
following the execution of this Agreement (provided, that, Purchaser shall not
be obligated to pay money for any such Purchaser's Consents, other than
customary fees and expenses and as necessary to remedy any breach or default).
4.2.3 Financing. Purchaser shall, and shall cause its Affiliates and
its and their officers, directors, employees and representatives to, use their
commercially reasonable efforts to (a) satisfy all covenants and conditions
precedent to the funding of the financings contemplated by the Commitment Letter
and to cause all representations and warranties of Purchaser and its Affiliates
contained in the Commitment Letter and in the definitive documents for the
financings contemplated thereby to be true at such time(s) as are required under
the terms of the Commitment Letter and such definitive documentation, and (b)
arrange as promptly as practicable and, subject to the simultaneous consummation
of the Closing on the terms and conditions set forth herein and subject to the
conditions set forth in the Commitment Letter, consummate the financing
contemplated by the Commitment Letter by the Closing Date on terms and
conditions in all material respects consistent with the terms of the Commitment
Letter.
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Purchaser shall notify Seller if Purchaser becomes aware of any fact, occurrence
or event that it believes would be reasonably likely to prevent Purchaser or its
Affiliates from consummating financing arrangements for the transactions
contemplated hereby. Purchaser agrees with Seller that it will not, and will
cause its Affiliates not to, voluntarily waive, release, modify, rescind,
terminate or otherwise amend any of the material terms or conditions contained
in the Commitment Letter, other than changes that do not adversely affect the
rights and obligations of Seller under this Agreement or the ability of
Purchaser to satisfy the condition to Closing described in Section 6.1.7,
without prior written consent of Seller (such consent not to be unreasonably
conditioned, withheld or delayed). Subject to the third sentence of Section
4.3.5, Purchaser covenants that it shall identify a sufficient number of
Employees for termination pursuant to the first sentence of Section 4.3.5 such
that the Terminated Employee Obligations are at least equal to the Terminated
Employee Obligation Threshold.
4.3 Covenants of Seller and Purchaser Pending Closing. Seller and
Purchaser further covenant and agree that, except as otherwise agreed to in
writing by Seller and Purchaser:
4.3.1 FCC and PUC Authorizations. Within fifteen (15) days after the
date hereof, Purchaser shall prepare and file applications with the FCC for
consent to the transfer by Seller to Purchaser of control of, and of all of
Seller's rights and interests in and to, the FCC Authorizations; provided that,
Seller will review the application prior to filing and will provide its comments
and revisions to Purchaser within five (5) days of its receipt. Within fifteen
(15) days after the date hereof, if required, Purchaser shall file such other
applications for all consents and approvals of the PUC and other regulatory
consents and approvals necessary for the consummation of the transactions
contemplated hereby, if any. Seller and Purchaser shall diligently and jointly
prosecute all such applications and take all such actions and give all such
notices as may be required by the FCC or the PUC, or any other regulatory
agency, or as may be requested by the FCC or the PUC, or any other regulatory
agency (to the extent that the parties hereto mutually agree that any such
request is reasonable), or as may be appropriate in an effort to expedite the
grant of such consent by the FCC or the PUC, or such other regulatory agency;
provided that, in obtaining any such consents, authorizations, approvals or
waivers, neither party shall be required to pay any consideration (other than
customary filing fees and the like), divest or otherwise rearrange the
composition of any asset or businesses or agree to any conditions, restrictions,
requirements or other obligations which are or are reasonably likely to be
materially adverse or materially burdensome to it.
4.3.2 HSR Act. Seller and Purchaser shall cooperate with one another
in the preparing and filing within 15 days of the date hereof any required
notification and report forms under the HSR Act and furnishing information
required in connection therewith. Each of Seller and Purchaser will be
responsible for paying all their respective costs and expenses incurred by it in
connection with such preparation and filing, except that Purchaser shall be
solely responsible for paying the filing fees under the HSR Act.
4.3.3 Copies of Regulatory Filings. Except to the extent prohibited
by Requirements of Law and except for any Section 4(c) documents filed with the
HSR notification and report form, each of the parties hereto shall promptly, but
in any event within three (3) Business Days, provide to the other party copies
of all filings and material correspondence with
41
and from all Governmental Authorities with respect to the filings and consents
described in this Section 4.3.
4.3.4 Cooperation. Subject to the other provisions of this
Agreement, including any limitations on the parties' obligations hereunder,
Seller and Purchaser shall cooperate in good faith with each other and use
commercially reasonable efforts to cause all of the conditions to the
obligations of Purchaser and Seller under this Agreement to be satisfied on or
prior to the Closing Date and to consummate and make effective the transactions.
Without limiting the foregoing, Seller will, or will cause the Company and the
Subsidiaries to, use commercially reasonable efforts to cooperate with Purchaser
in seeking to assist the Company and the Subsidiaries in effecting the renewal,
transfer, or continued benefit of the Environmental Permits. Each party shall
give prompt notice to the other party of the occurrence of any Material Adverse
Effect or the occurrence of any fact or event that is reasonably expected to
cause any representation or warranty of either party to be untrue in any
material respect, and each party shall give prompt notice to the other party of
any circumstances that would reasonably be expected to hinder, impair or delay
its ability to consummate the transactions contemplated by this Agreement. Each
of Seller and Purchaser shall give prompt notice to the other of the occurrence
or failure to occur of an event that would, or, with the lapse of time would,
cause any condition to the consummation of the transactions contemplated hereby
not to be satisfied.
4.3.5 Employee Matters.
(a) Purchaser shall, within forty-five days following the date of
this Agreement, conduct interviews of the Employees, and provide Seller a list
of such Employees who Purchaser does not wish to employ as of the Closing.
Seller shall cause the Company to make its personnel available at reasonable
times, upon reasonable advance notice, to allow Purchaser to conduct interviews
and gather information reasonably required to provide Seller with its list of
Employees that Purchaser does not wish to employ as of the Closing. Such
Employees so designated by Purchaser ("Terminated Employees") shall be
terminated by Seller on the Closing Date, but immediately prior to Closing;
provided that, with the prior consent of Purchaser (which will not be
unreasonably withheld, delayed or conditioned), Seller may terminate any
Terminated Employee prior to the Closing Date; provided, further, however, that
it shall not be considered unreasonable for Purchaser to withhold its consent if
Purchaser reasonably believes that the termination of such Terminated Employee
before the Closing Date may adversely affect Purchasers' financing of the
transactions contemplated by this Agreement or otherwise adversely affect the
conditions to the funding of the financings contemplated by the Financing
Commitment. If Seller in good faith believes that it may not legally terminate
any Employee designated by Purchaser as a "Terminated Employee," Seller shall
promptly (and in any event at least five Business Days prior to Closing) notify
Purchaser of such legal restriction and the parties shall in good faith discuss
revisions to the list of Terminated Employees. Subject to Purchaser's right to
terminate any Employee after Closing, Purchaser shall continue to employ all
Employees, other than the Terminated Employees, consistent with the provisions
of this Section 4.3.5.
(b) With respect to the Terminated Employees, Seller shall cause the
Company to satisfy any and all obligations (excluding any associated tax
gross-up payments) owed to the Terminated Employees pursuant to the terms and
conditions of any Plan (including
42
any Continuation Coverage Requirements (as defined below)), as well as wages,
salaries, sick pay, accrued and unused vacation, and severance benefits
(collectively, the "Terminated Employee Obligations") which may become due to
the Terminated Employees as a result of their termination upon or prior to the
Closing; provided that the aggregate amount of such obligations shall not exceed
$5,100,000 (the "Terminated Employee Obligations Threshold"). In addition to the
Terminated Employee Obligations, Seller shall pay any tax gross-up payments
associated with the Terminated Employee Obligations (to the extent not included
in Closing Adjustment Liabilities). Purchaser shall be solely responsible for
and shall discharge in full any and all Terminated Employee Obligations in
excess of the terminated Employee Obligations Threshold, and any and all
obligations to Employees who are not Terminated Employees resulting from their
employment with, or cessation of employment with, the Company or a Subsidiary,
including without limitation, any obligation under any Plan, and any plan,
program, policy, agreement or arrangement which Purchaser may put into place
with or for the Employees from time to time. Purchaser shall honor the terms of
each employment agreement, retention and change of control agreement, agreement
concerning special payments upon a change of control, retention agreement, and
any special severance arrangement which has been entered into, or is maintained,
by the Company or any Subsidiary with, or for, any Employee (other than the
aggregate amount to be paid by Seller with respect to Terminated Employee
Obligations as provided in the first two sentences of this Section 4.3.5(b)), or
shall enter into an alternative arrangement with such Employee on mutually
agreeable terms. Seller shall satisfy, or shall cause the Company to satisfy,
all obligations to qualified beneficiaries under any Company or any Subsidiary
group health plan under Section 4980B of the Code and Sections 601 through 608
of ERISA ("Continuation Coverage Requirements") which are required to be
performed prior to the Closing Date, and Purchaser shall satisfy, or shall cause
the Company to satisfy, all such Continuation Coverage Requirements which are
required to be performed on or after the Closing Date other than any
Continuation Coverage Requirements relating to the Terminated Employee
Obligations up to the amount for which Seller is responsible in accordance with
the first two sentences of this Section 4.3.5(b). Seller and Purchaser shall
cooperate to help ensure that all such Continuation Coverage Requirements are
fully satisfied.
(c) With respect to Employees Purchaser retains as of the Closing
Date, Purchaser shall, for at least a period of one year following the Closing
Date, maintain compensation and benefit programs for such Employees, taken as a
whole, having an aggregate value at least equal to that for which such Employees
are eligible as of the Closing Date. Without in any way limiting Purchaser's
obligation in the preceding sentence, Purchaser specifically agrees that, during
such one-year period, it shall maintain a severance benefit package for such
Employees, taken as a whole, providing severance benefits at least equal to the
severance benefit package offered to such Employees by the Company immediately
prior to the Closing. For purposes of all employee benefit plans, programs and
policies of Purchaser, or Purchaser's subsidiaries, for which any Employee may
become eligible, Purchaser shall give credit (for purposes or eligibility and
vesting only and not for any other purpose, including benefit accrual) for all
service for which such Employee has been credited by the Company or any
Subsidiary. Purchaser agrees further that, if not paid by the Company prior to
the Closing Date, Purchaser will pay, or will cause the Company or its
Subsidiaries to pay, to all Employees (whether or not retained by Purchaser),
the annual incentive award for 2003 at the time and in the amount it would
otherwise have been paid pursuant to the Company's annual incentive program.
43
(d) Seller shall be obligated to contribute to the TXU
Communications Retirement Plan $2,900,000 to apply against the funding
obligations relating to such plan for the year ending December 31, 2003, and
such contribution shall be made no later than September 15, 2004.
4.3.6 Repayment of Pinnacle Notes and Indebtedness, Contribution of
Indebtedness and Intercompany Accounts. Subject to the satisfaction or waiver of
the conditions contained in Sections 6.2 and 6.3, Seller shall pay, redeem or
otherwise discharge in whole the Pinnacle Notes prior to or concurrently with
the Closing. Seller shall cause the Company and the Subsidiaries, as applicable,
to pay, redeem or otherwise discharge in whole all Indebtedness of the Company
and the Subsidiaries to the appropriate lenders prior to or concurrently with
the Closing, including the TXU Loans and any other intercompany Indebtedness,
except as provided in Section 4.3.7. Notwithstanding the foregoing, prior to
Closing, the Company shall contribute (directly or, if owned through one or more
Subsidiaries, through contributions through such Subsidiaries) (i) any
Indebtedness or intercompany accounts owed to the Company by any Subsidiary
listed on Section 3.1.7(g)(iii) of Schedule 3.1.7 to such Subsidiary; or (ii)
upon the request of Purchaser, less than all of the Indebtedness or intercompany
accounts owed to the Company by a Subsidiary listed on Section 3.1.7(g)(iii) of
Schedule 3.1.7 to such Subsidiary. In each case, for U.S. federal income tax
purposes, Seller shall treat such contributions as additional capital
contributions for stock of any Subsidiary to which such Indebtedness or
intercompany accounts are contributed, as applicable.
4.3.7 Affiliate Arrangements. Except for the agreements and
arrangements listed on Schedule 4.3.7, which shall continue after the Closing in
accordance with their terms as in effect on the date hereof, all agreements and
arrangements between and among the Company or any Subsidiary, on the one hand,
and TXU Corp., Seller and their Affiliates (other than the Company and the
Subsidiaries), on the other hand, and all liabilities and obligations of the
Company and the Subsidiaries, on the one hand, to TXU Corp., Seller and their
Affiliates (other than the Company and the Subsidiaries), on the other hand,
shall automatically terminate in their entirety effective as of the Closing
without any further actions by the parties and thereby be deemed voided,
cancelled and discharged in their entirety. Without limiting the generality of
the foregoing, except with respect to the agreements and arrangements set forth
on Schedule 4.3.7, effective upon the Closing, all intercompany accounts among
the Company or any Subsidiary, on the one hand, and TXU Corp., Seller and their
Affiliates (other than the Company and the Subsidiaries), on the other hand,
that then remain outstanding shall be terminated, voided, cancelled and
discharged in a manner reasonably satisfactory to Seller and Purchaser.
4.3.8 Title Commitments and Surveys. Purchaser may order at its own
expense (i) commitments for owner's or lender's or leasehold title insurance
policies on any parcel of real property owned or leased by the Company and the
Subsidiaries, and (ii) an ALTA survey on any parcel of Owned Real Property of
the Company or any Subsidiary and the real property covered by any Real Property
Leases of the Company or any Subsidiary for which a title insurance policy is to
be obtained. Seller shall cooperate and shall cause the Company and the
Subsidiaries to cooperate in all commercially reasonable respects with
Purchaser, at Purchaser's sole expense, in obtaining such title commitments and
surveys.
44
4.3.9 Regulatory Review. Seller and Purchaser will fully and
completely cooperate with the FCC and the PUC in the review of the transactions
contemplated in this Agreement and in accordance with the schedules and terms
set forth in Schedule 4.3.9.
4.3.10 No Solicitation. Seller will immediately cease any and all
existing activities, discussions or negotiations with any parties with respect
to any Acquisition Proposal. From and after the date of this Agreement until 30
days prior to the Initial Termination Date or the earlier termination of this
Agreement in accordance with its terms, Seller will not, and will not permit the
Company or any of the Subsidiaries or its or their respective directors,
officers, investment bankers, Affiliates, representatives and agents to, (i)
solicit, initiate, or knowingly encourage (including by way of furnishing
unsolicited information), any inquiries or proposals that constitute, or could
reasonably be expected to lead to, an Acquisition Proposal or (ii) engage in, or
enter into, any negotiations or discussions concerning, or provide any
confidential information to facilitate any Acquisition Proposal. For purposes of
this Agreement, the term "Acquisition Proposal" shall mean any proposal or offer
from a third Person or Persons relating to any sale of all or a substantial
portion of the assets of Seller, the Company or the Subsidiaries, taken as a
whole, or 25% or more of the capital stock of Seller or any portion of the
capital stock of the Company, in a single transaction or series of related
transactions; provided, however, that the term "Acquisition Proposal" shall not
include the transactions contemplated by this Agreement.
4.3.11 Termination of Administrative Services Agreement. Seller
shall, prior to the effective time of Closing, terminate the Administrative
Services Agreement, by and among TXU Business Services Company, Seller and the
Company, dated as of August 11, 2000.
4.3.12 Audited Financials. As promptly as practicable following the
date hereof, Seller will cause the Company to deliver to the Purchaser the 2003
Year End Financial Statements. Seller warrants that the 2003 Year End Financial
Statements shall have been prepared in accordance with GAAP consistently
followed throughout the periods covered thereby (except as noted therein) and
fairly present the consolidated results of operations of the Company and the
Subsidiaries for the periods covered thereby and the consolidated financial
position of the Company and the Subsidiaries at the respective dates thereof.
4.3.13 Accountants' Assistance. Seller shall request that Deloitte &
Touche consent to the inclusion of the Financial Statements and the 2003 Year
End Financial Statements in Purchaser's offering memorandum relating to the
financing contemplated by the Commitment Letter (and any related registration
statement) and that Deloitte & Touche provide customary comfort letters in
connection with such financings.
4.3.14 Certain Agreements. Seller hereby further covenants and
agrees that it will keep Purchaser apprised of the status of matters relating to
the agreements listed on Schedule 4.1.1.
4.3.15 Excess Loss Accounts. If any Excess Loss Account of the
Company or any Subsidiary in the stock of any Subsidiary will exist after the
capital contributions described in Section 4.3.6 hereof, Seller shall cooperate
with Purchaser and shall use reasonable best efforts to eliminate such Excess
Loss Accounts prior to Closing.
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4.3.16 No Further Action Letter. Seller will commence and use
commercially reasonable efforts to obtain prior to Closing, a no further action
required letter from the Texas Commission on Environmental Quality with respect
to the matter identified as item "UST Contamination Closure Letter" on Schedule
3.1.8 and shall pay any fines associated therewith.
4.4 Post-Closing Covenants. The parties hereto agree as follows:
4.4.1 General. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
parties hereto will take such further action (including the execution and
delivery of such further instruments and documents) as the other party
reasonably may request, all at the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under
Article V or Article VII of this Agreement).
4.4.2 Litigation/Regulatory. In the event and for so long as either
party hereto is required to make filings with any Governmental Authority or
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand, or in connection
with (a) any transaction contemplated under this Agreement or (b) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or before
the Closing Date involving Seller, the Company, a Subsidiary or any Company
Asset, the other party hereto shall reasonably cooperate with the filing,
contesting or defending party and its counsel in such filing, defense or
contest, and shall make reasonably available its personnel, and provide such
testimony and access to its books and records (other than books and records
which are subject to privilege or to confidentiality restrictions) as shall be
reasonably necessary in connection with the filing, defense or contest, all at
the sole cost and expense of the filing, contesting or defending party (unless
the filing, contesting or defending party is entitled to indemnification
therefor under Article V or Article VII of this Agreement ).
4.4.3 Retention of Records. Purchaser agrees (i) to hold the Records
relating to periods prior to the Closing Date and not to destroy or dispose of
any thereof for a period of six (6) years from the Closing Date, or such longer
time as may be required by applicable Law; provided that, if it desires to
destroy or dispose of such Records during such period, it will first offer in
writing at least sixty (60) days before such destruction or disposition to
surrender them to Seller, and if Seller does not accept such offer in writing
within thirty (30) days after receipt of such offer, Purchaser may take such
action and (ii) following the Closing Date, to afford Seller, its accountants,
and counsel, during normal business hours, upon reasonable request, reasonable
access to the Records and to Purchaser's employees (at and for reasonable
locations and times) to the extent that such access may be requested for any
legitimate business purpose at no cost to Seller (other than for reasonable
out-of-pocket expenses); provided, however, that such access will not be
construed to require the disclosure of Records that would cause the waiver of
any attorney-client, work product or like privilege; provided, further, that in
the event of any litigation nothing herein shall limit either party's rights of
discovery under applicable Law. In addition to all rights of indemnification
otherwise set forth herein, Seller shall reimburse, indemnify and hold harmless
each Purchaser Indemnitee from, against and in respect of any and all damage to
the Company's and any Subsidiary's or Purchaser's property that results from,
relates to or arises out of Seller's access to the Records. Upon completion of
its activities, Seller
46
shall restore the Records substantially to their condition existing at the time
of Seller's access thereto.
4.4.4 Mail; Payments. If, following the Closing, Purchaser receives
any communication that does not relate exclusively to the rights and obligations
of Purchaser with respect to the Company, a Subsidiary, the Business or the
Company Assets, Purchaser shall forward the original or a copy of the relevant
portions of such communication promptly to Seller. Seller shall promptly deliver
to Purchaser the original or a copy of any mail or other communication received
by it after the Closing pertaining to the Company, a Subsidiary, the Business or
the Company Assets.
4.4.5 Removal of TXU Marks. The Company's and the Subsidiaries'
license to use the TXU Marks will terminate at the Closing. Within 15 Business
Days after the Closing, Purchaser shall have filed with all necessary and
appropriate Governmental Authorities, at the state, local and county levels, all
documents, certificates and other instruments necessary to change the corporate
or assumed names of the Company and the Subsidiaries so as not to include the
TXU Marks. Within 90 days after the Closing, Purchaser shall have removed or
covered, or caused to have been removed or covered, from the Company Assets any
and all names, marks and logos constituting the TXU Marks. Notwithstanding the
foregoing, Purchaser will not be required to remove any TXU ▇▇▇▇ that is affixed
to items in or to be used in customer homes or properties, or as are used in
similar fashion making such removal impracticable for Purchaser.
ARTICLE V
TAX MATTERS
5.1 Liability for Taxes and Tax Benefits.
5.1.1 Seller's Responsibility for Taxes. Subject to the tax
deductible in Section 5.1.4, but without regard to the Deductible in Section
7.3.2, Seller shall be liable for and indemnify Purchaser for:
(a) all Taxes imposed on or with respect to the Company or any
Subsidiary for Pre-Closing Tax Periods;
(b) any Taxes imposed with respect to the unpaid Taxes of any Person
(other than the Company and its Subsidiaries) for any Pre-Closing Tax Period
pursuant to Treasury Regulation Section 1.1502-6(a) or any analogous or similar
state, local or foreign law or regulation; and
(c) any Taxes of any Person (other than the Company and its
Subsidiaries) imposed on the Company or any of its Subsidiaries as a transferee
or successor, by contract or pursuant to any law, rule or regulation, which
Taxes relate to an event or transaction occurring on or before the Closing.
Seller shall not be liable under this Section 5.1.1 for Taxes to the extent such
Taxes are taken into account in determining Closing Adjustment Liabilities.
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5.1.2 Purchaser's Responsibility for Taxes. Purchaser shall be
liable for and indemnify Seller and its Affiliates for Taxes imposed on or with
respect to the Company or any Subsidiary for Post-Closing Tax Periods, including
any Taxes attributable to any transactions that are properly allocable to the
portion of the Closing Date after the Closing.
5.1.3 Tax Benefits.
(a) General Rule. Any Tax Benefit relating to any adjustment to Tax
of the Company or any Subsidiary for any Pre-Closing Tax Period shall be for the
account of Seller. Any Tax Benefit relating to any adjustment to Tax of the
Company or any Subsidiary attributable to any Post-Closing Tax Period shall be
for the account of Purchaser. Any adjustment to Tax relating to the Company or
any Subsidiary for any Straddle Period shall be prorated between Seller and
Purchaser in accordance with the principles of Section 5.2. For the avoidance of
doubt, any Tax Benefit described in Section 5.1.3(b) or Section 5.1.3(d) hereof
shall be for the account of Purchaser.
(b) Carryback Claims. Any Tax Benefit of Seller or any Affiliate of
Seller (other than the Company or any Subsidiary) attributable to any tax items
arising in any Post-Closing Tax Period and carried back to any Pre-Closing Tax
Period shall be for the account of Purchaser and shall be promptly paid to
Purchaser, it being understood for this purpose that if the taxpayer to which
the tax items are carried back has other losses, deductions, credits, or other
items available in such Pre-Closing Tax Period, such losses, deductions, credits
and other items will be taken into account prior to any such adjustment in
determining whether and to what extent a Tax Benefit results from such
adjustment. In the event that Seller makes any payment to Purchaser in
connection with the realization of a Tax Benefit as contemplated by this Section
5.1.3(b), Purchaser shall, and hereby does, indemnify and hold Seller harmless
from the subsequent loss of such Tax Benefit, on audit or otherwise, provided
that the item carried back that gave rise to such lost Tax Benefit is returned
to the account of Purchaser.
(c) Inter-Period Adjustments. In accordance with paragraph (a) of
this Section 5.1.3, if there is any adjustment to Tax relating to the Company or
any Subsidiary for any Pre-Closing Tax Period, and any corresponding Tax Benefit
is allowable for any Post-Closing Tax Period, such Tax Benefit shall be for the
account of Seller, it being understood for this purpose that if the Company or
any Subsidiary has other losses, deductions, credits or other items available to
it in such Post-Closing Tax Period, such losses, deductions, credits and other
items will be taken into account prior to any such adjustment in determining
whether and to what extent a Tax Benefit results from such adjustment. For
example, if an item deducted by the Company or any Subsidiary in a Pre-Closing
Tax Period is required to be capitalized or amortized over a period extending
beyond the Closing Date, any Tax Benefit to Purchaser, the Company or any
Subsidiary from the basis or amortization deductions in any Post-Closing Tax
Period shall be for the account of Seller. Purchaser and Seller shall cooperate
with each other in taking all reasonable actions necessary to realize any such
Tax Benefits. In the event that Purchaser makes any payment to Seller in
connection with the realization of a Tax Benefit as contemplated by this Section
5.1.3(c), Seller shall, and hereby does, indemnify and hold Purchaser harmless
from the subsequent loss of such Tax Benefit, or audit or otherwise.
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(d) Utilization of Net Operating Losses for Pre-Closing Tax Periods
in a Pre-Closing Tax Period. Any Tax Benefit attributable to the utilization of
net operating losses arising in Pre-Closing Tax Periods is for the account of
Purchaser and shall be promptly paid to Purchaser to the extent such utilization
causes the net operating loss carryforward available in Post-Closing Tax Periods
to be less than the $29,000,000 represented in 3.1.7(l).
5.1.4 Tax Deductible.
(a) Per Occurrence Deductible. Seller shall not be liable for or
indemnify Purchaser for any amount under Section 5.1.1 to the extent such amount
is attributable to any individual Tax assessment that does not exceed $10,000
until such individual assessments in the aggregate total $50,000 after which
Seller shall be liable for and shall indemnify Purchaser (subject to Section
5.1.4(b)) for all amounts for which it is liable under Section 5.1.1.
(b) Aggregate Deductible. Purchaser shall be responsible for, and
Seller shall not be liable for or indemnify Purchaser for, 50% of the first
$200,000 payable by Seller under Section 5.1.1 (as limited by Section 5.1.4(a)).
5.2 Proration of Taxes for Straddle Period. For purposes of Section 5.1,
the Taxes for the portion of any Straddle Period ending on the Closing Date, and
for the portion of such Straddle Period beginning after the Closing Date, shall
be determined by assuming that the Company and its Subsidiaries had a tax period
which ended at the close of the Closing Date, except that exemptions, allowances
or deductions that are calculated on an annual basis, such as the deduction for
depreciation, shall be apportioned on a time basis. For this purpose, any
transactions that are properly allocable to the portion of the Closing Date
after the Closing shall be treated as occurring after the Closing Date. For this
purpose, any actual sale of assets on the Closing Date after the Closing, or any
deemed sale of assets under Section 338 of the Code, shall be deemed to occur
after the Closing and any related Taxes shall be for the account of Purchaser.
5.3 Adjustment to Purchase Price. The parties hereto agree to treat any
payment under this Article V as an adjustment to the Purchase Price for Tax
purposes, except as otherwise required by the Code or applicable Law. Subject to
the provisions of Section 5.5, if an indemnity payment under this Article V is
determined by any Governmental Authority to be taxable income of the recipient
and not an adjustment to the Purchase Price then the indemnifying party shall
indemnify the indemnified party for any Taxes actually payable by the
indemnified party as a result of such determination.
5.4 Preparation and Filing of Tax Returns. Purchaser shall prepare or
cause to be prepared and file or cause to be filed all Tax Returns of the
Company and the Subsidiaries for all Pre-Closing Tax Periods which are required
to be filed after the Closing Date. Purchaser shall allow Seller an opportunity
to review and comment upon any such Tax Return. Seller shall reimburse Purchaser
for the portion of any Taxes payable with respect to any such Tax Return for
which Seller has liability under Section 5.1 at the time of payment by
Purchaser, the Company or any of the Subsidiaries of such Taxes.
5.5 Contest Provisions
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5.5.1 Notice of Audits and Assessments. Purchaser shall promptly
notify Seller upon receipt by Purchaser, the Company or any Subsidiary of notice
of any pending or threatened Tax audits or assessments which may materially
affect any Tax liability for which Seller would be required to indemnify
Purchaser pursuant to Section 5.1 hereof, provided that failure to comply with
this provision shall not affect Purchaser's right to indemnification hereunder
except to the extent such failure has damaged Seller.
5.5.2 Participation in Contests. Seller shall have the right to
participate, at its expense and through representatives of its choice, in any
matter referred to in Section 5.5.1. Purchaser and its Affiliates shall provide
Seller and its representatives with such powers of attorney or other authorizing
documentation as is reasonably necessary to facilitate such participation.
5.5.3 Settlements. Seller shall not be entitled to settle, either
administratively or after the commencement of litigation, any claim for Taxes
which would adversely affect the liability for Taxes of Purchaser, the Company,
or any Subsidiary for any Post-Closing Tax Period to any extent (including the
imposition of income Tax deficiencies, the reduction of asset basis or cost
adjustments, the lengthening of any amortization or depreciation periods, the
denial of amortization or depreciation deductions, or the reduction of loss or
credit carryforwards) without the prior written consent of Purchaser, which
consent shall not be unreasonably withheld. Neither Purchaser nor the Company
nor any Subsidiary shall be entitled to settle, either administratively or after
the commencement of litigation, any claim for Taxes which may be the subject of
indemnification by Seller under Section 5.1 hereof without the prior written
consent of Seller, which consent shall not be unreasonably withheld.
5.6 Assistance and Cooperation. Seller and Purchaser shall cooperate (and
cause their respective Affiliates to cooperate) with each other and with each
other's representatives in connection with Tax matters relating to the Company
and the Subsidiaries, including preparation and filing of Tax Returns, and any
administrative or judicial proceeding in respect of Taxes. Such cooperation
shall include making all information and documents in their possession relating
to the Company and the Subsidiaries available to each other and their agents as
reasonably requested. Seller and Purchaser shall also reasonably make available
to each other and their representatives, as reasonably requested and available,
personnel (including officers, directors, employees, and agents) responsible for
preparing, maintaining, and interpreting information and documents relevant to
Taxes, and personnel reasonably required as witnesses or for purposes of
providing information or documents in connection with any administrative or
judicial proceedings relating to Taxes. Seller agrees to cooperate with
Purchaser and the Company in connection with any request by the Company for a
determination under Treasury Regulation Section 1.1502-75(b) that the
Subsidiaries joined in the making of consolidated returns filed by the Company
for periods beginning after August 11, 2000.
5.7 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes (including any penalties and interest)
incurred with respect to the transactions contemplated by this Agreement shall
be paid by Seller when due, and Seller will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by
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applicable Law, Purchaser will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
5.8 FIRPTA Certificate. At the Closing, Seller shall deliver to Purchaser
an affidavit of Seller, in a form reasonably satisfactory to Purchaser, stating
under penalties of perjury Seller's U.S. taxpayer identification number and that
Seller is not a foreign person within the meaning of Section 1445(b)(2) of the
Code or a disregarded entity for U.S. federal income tax purposes.
5.9 Termination of Tax Sharing Agreements. The tax sharing agreement
entered into effective as of September 1, 2003 by and between TXU Corp. and the
Company (on its own behalf and on behalf of each subsidiary corporation of the
Company) and any other tax allocation or sharing agreement or arrangement,
whether or not written, that may have been entered into by TXU Corp. or any of
its subsidiary corporations and the Company or any of its subsidiary
corporations shall be terminated as to the Company and its subsidiary
corporations as of the Closing Date, and no payments which are owed by or to the
Company or any of its subsidiary corporations pursuant thereto shall be made
thereunder.
5.10 Tax Elections and Filings. Except as provided in this Agreement or as
required by Law, without the written consent of Purchaser, none of Seller, the
Company, or any of the Subsidiaries shall: (a) make or change any Tax election,
(b) change any annual Tax accounting period, (c) change any method of Tax
accounting, (d) file any amended Tax Return, (e) enter into any closing
agreement relating to any Tax, (f) waive or extend the statute of limitations in
respect of any Tax, (g) settle any Tax claim or assessment or surrender any
right to claim for a Tax refund, or (h) carryback any losses, credits, or
similar items of the Company or any of the Subsidiaries, in each case, if such
action could reasonably be expected to materially increase the Tax liability of
the Company or any Subsidiary for Post-Closing Tax Period or materially decrease
any Tax attribute of the Company or any Subsidiary existing on the Closing Date.
5.11 Survival of Obligations. The obligations of the parties set forth in
this Article V shall be unconditional and absolute and shall remain in effect
until six months after the expiration of any applicable period of limitations on
assessments.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent to Obligations of Purchaser. All obligations of
Purchaser under this Agreement are subject to the fulfillment or satisfaction by
Seller, prior to or at the Closing, of each of the following conditions
precedent, which may be waived in writing in whole or in part by Purchaser:
6.1.1 Representations and Warranties True as of Closing. All of the
representations and warranties of Seller contained in this Agreement shall have
been true and correct as of the date hereof, and shall be true and correct as of
the Closing Date with the same effect as though all such representations and
warranties had been made on and as of the Closing Date, other than any such
representations and warranties made as of a specified date, which shall
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be true and correct as of such date, except to the extent that the failure to be
true and correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" or similar qualification set forth therein) shall not
have had a Material Adverse Effect as of the Closing Date; provided further that
the representations and warranties relating to the capitalization of the Company
and the Subsidiaries (other than with respect to the number and class of the
Shares, the Subsidiary Shares and the ETFLI Shares, but including any
representation regarding the percentage of such shares owned by Seller, the
Company or a Subsidiary, as applicable) and title to the Shares in Section
3.1.16 shall be true and correct in all respects as of the Closing Date.
6.1.2 Compliance with this Agreement. Seller, the Company and the
Subsidiaries shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or complied
with by them prior to or at the Closing.
6.1.3 Closing Certificate. Purchaser shall have received a
certificate from an authorized officer of Seller, dated as of the Closing Date,
certifying that the conditions specified in Sections 6.1.1 and 6.1.2 have been
fulfilled.
6.1.4 Pinnacle Transaction and Other Indebtedness. Seller shall have
delivered to Purchaser evidence reasonably satisfactory to Purchaser that the
Pinnacle Notes and other Indebtedness (other than the TXU Loans) to be paid
pursuant to Section 4.3.6 have been paid, redeemed or otherwise canceled in
whole by Seller and that the Liens related thereto have been fully and finally
released.
6.1.5 Satisfaction of TXU Corp. Loan. Seller shall have delivered to
Purchaser evidence reasonably satisfactory to Purchaser that all of the TXU
Loans have been paid in full or otherwise contributed to the capital of the
Company in a manner that does not generate any taxable gain, and that the TXU
Corp. Loan Agreement has been terminated. Other than the agreements and
arrangements and intercompany accounts listed on Schedule 4.3.7, all agreements
and arrangements and intercompany accounts referred to in Section 4.3.7 shall
have been terminated, voided, cancelled and discharged in accordance with
Section 4.3.7.
6.1.6 Seller's Deliverables. Seller shall have delivered to
Purchaser all of the agreements, documents, and instruments required to be
delivered under Section 2.4(a).
6.1.7 Financing Contingency. The conditions to the Commitment Letter
shall have been satisfied in full or waived, and immediately available funds in
the amount and on the terms contemplated by such Commitment Letter shall have
been provided or be available to Purchaser.
6.1.8 Material Adverse Effect. Since the date of this Agreement, no
Material Adverse Effect shall have occurred.
6.1.9 Required Seller Consents. Seller shall have received all of
the Seller's Consents listed on Schedule 6.1.9; provided that, if one or more
such Seller Consents are not obtained the condition to Closing shall be that the
Purchase Price is reduced by a mutually agreeable amount equal to the market
value of the contract or interest for which consent is not
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obtained; provided further that: (i) if the parties are unable to mutually agree
upon such value, the parties shall appoint a mutually agreeable independent
party to determine such value (and if the parties can not mutually agree on such
independent party, upon request by either party, the Referral Firm shall
designate such independent party to determine the value); and (ii) regardless of
anything to the contrary in this Agreement, the Initial Termination Date will be
automatically extended until such determination is made.
6.2 Conditions Precedent to Obligations of Seller. All obligations of
Seller under this Agreement are subject to the fulfillment or satisfaction by
Purchaser, prior to or at the Closing, of each of the following conditions
precedent, which may be waived in writing in whole or in part by Seller:
6.2.1 Representations and Warranties True as of Closing. All of the
representations and warranties of Purchaser shall have been true and correct as
of the date of this Agreement and shall be true and correct in all material
respects as of the Closing Date with the same effect as though all such
representations and warranties had been made on and as of the Closing Date other
than any such representations and warranties made as of a specified date, which
shall be true and correct as of such date, except to the extent that the failure
to be true and correct on the Closing Date (without giving effect to any
limitation as to "materiality" or "material adverse effect" or similar
qualification set forth therein) shall not materially hinder, impair or delay
Purchaser's ability to consummate the transactions contemplated by this
Agreement.
6.2.2 Compliance with this Agreement. Purchaser shall have performed
and complied in all material respects with all agreements and conditions
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
6.2.3 Closing Certificate. Seller shall have received a certificate
from an authorized officer of Purchaser, dated as of the Closing Date,
certifying that the conditions specified in Sections 6.2.1 and 6.2.2 have been
fulfilled.
6.2.4 Purchaser's Deliverables. Purchaser shall have delivered to
Seller all of the agreements, documents, and instruments required to be
delivered under Section 2.4(b).
6.3 Conditions Precedent to the Obligations of Purchaser and Seller. All
obligations of Purchaser and Seller under this Agreement are subject to the
fulfillment or satisfaction, prior to or at the Closing, of each of the
following conditions precedent:
6.3.1 Regulatory Consents. The parties shall have received all
authorizations, consents and approvals, without material restrictions,
conditions or limitations, and shall have complied with any notification
requirements, of Governmental Authorities, including without limitation all
authorizations, consents, approvals and notification requirements of the FCC and
the PUC and those identified on Schedule 6.3.1 (collectively, the "Regulatory
Consents") required to be obtained at or prior to the Closing to consummate the
transactions contemplated hereby in a lawful manner.
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6.3.2 HSR Act. Any required waiting period applicable to the
consummation of the transactions contemplated hereby under the HSR Act shall
have expired or been earlier terminated.
6.3.3 No Pending Governmental Litigation. On the Closing Date, no
suit, action or other proceeding brought by any Governmental Authority shall be
pending, and there shall not have been issued any writ, order, decree or
injunction by any Governmental Authority, in which it is sought to restrain,
prohibit or materially condition or restrict the consummation of the
transactions contemplated hereby, or which makes such transactions illegal.
ARTICLE VII
INDEMNIFICATION
7.1 General Indemnification Obligation of Seller. Subject to the terms set
forth herein, from and after the Closing, Seller shall reimburse, indemnify and
hold harmless Purchaser, its Affiliates (including the Company and each
Subsidiary), and their respective stockholders, direct or indirect controlling
persons, directors, managers, officers, agents, employees, members, successors
and assigns (each, a "Purchaser Indemnitee" and collectively, the "Purchaser
Indemnitees"), against and in respect of any and all damages, losses,
deficiencies, liabilities, costs and expenses, including those arising from any
and all actions, suits, claims, proceedings, investigations, demands,
assessments, audits, fines or judgments incident to any of the foregoing or to
the enforcement of this Article VII (collectively, "Losses"), incurred or
suffered by any Purchaser Indemnitee that result from, relate to or arise out of
any of the following: (a) any breach or inaccuracy of the representations or
warranties made by Seller in this Agreement or in any Transaction Document; (b)
any breach by Seller of a covenant or agreement contained in this Agreement or
in any Transaction Document; (c) expenses of Seller, and to the extent incurred
prior to Closing and not included as Closing Adjustment Liabilities, expenses of
the Company, the Subsidiaries and their Affiliates, relating to the consummation
of the transactions contemplated by this Agreement or any Transaction Document,
including fees and expenses of attorneys, accountants, financial advisors and
broker fees; (d) any and all adjustments to the Purchase Price required to be
made in accordance with this Agreement; (e) any obligations or Liabilities
related to an Excluded Asset or any Indebtedness to be paid off or cancelled
pursuant to Section 4.3.6, including the Pinnacle Notes, the TXU Loans or the
CoBank Loan; (f) any obligation or Liability arising under any arrangement or
agreement or account terminated pursuant to Section 4.3.7; (g) any claims by TXU
Corp., Seller and their Affiliates (other than the Company and the Subsidiaries
and by any Person who served as an officer or director of the Company or its
Subsidiaries prior to Closing) except for claims arising out of this Agreement
or the Transaction Documents, claims arising after the Closing Date, and claims
with respect to any intercompany agreements that will remain in effect after the
Closing in accordance with Section 4.3.7; (h) any Liability related to an ONCOR
ROW License Right Defect listed in Section (c)(ii) of Schedule 3.1.9 and
Schedule 4.1.4; (i) any Liability for FCC penalties, assessments or charges
incurred by the Company or a Subsidiary relating to the period prior to the
Closing Date as a result of the FCC's investigation in its file EB-03-IH-0342;
(j) any Liabilities payable as a result of the audit of the Lucent Agreement (as
disclosed in clause (b) of Schedule 3.1.5) to the extent attributable to the
period prior to the Closing Date; (k) any
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Liabilities payable in connection with the matter relating to the Service
Provider Certificate of Authority (as disclosed in Section 3.1.9(c)(i) of
Schedule 3.1.9 and Section 3.1.3(a) of Schedule 3.1.3) to the extent
attributable to the period prior to the Closing Date; and (l) any Liabilities
payable as a result of the allegations described on Schedule 3.1.4 as the "Orius
Matter" to the extent attributable to the period prior to the Closing Date.
7.2 General Indemnification Obligation of Purchaser. Subject to the terms
set forth herein, from and after the Closing, Purchaser shall reimburse,
indemnify and hold harmless Seller, its Affiliates, and their respective
directors, managers, partners, officers, agents, employees, successors and
assigns (each, a "Seller Indemnitee" and collectively, the "Seller
Indemnitees"), against and in respect of any and all Losses incurred or suffered
by any Seller Indemnitee that result from, relate to or arise out of any of the
following: (a) any breach or inaccuracy of the representations or warranties
made by Purchaser in this Agreement or in any Transaction Document; (b) any
breach by Purchaser of a covenant or agreement of Purchaser contained in this
Agreement or in any Transaction Document; (c) any and all adjustments to the
Purchase Price required to be made in accordance with this Agreement; (d) except
as otherwise contemplated herein (including Seller's indemnification
obligations), any and all Liabilities of the Company and the Subsidiaries
(except those relating to Excluded Assets); and (e) any claims by the Company or
any Subsidiary (except for claims arising out of this Agreement or the
Transaction Documents, claims arising after the Closing Date and claims with
respect to any intercompany agreements that will remain in effect after the
Closing in accordance with Section 4.3.7).
7.3 Limitations on Representations and Warranties and Claims for Losses.
7.3.1 Survival Limitation. All of the representations and warranties
shall survive the Closing until the later of one year following the Closing Date
and April 30, 2005, (a) except that the representations and warranties made in
Sections 3.1.1, 3.1.2, 3.1.6(a)(i) and (ii), 3.1.7, 3.1.13, 3.1.16, 3.2.1,
3.2.2(a) and (b) and 3.2.5 shall survive until 60 days after the expiration of
the applicable statute of limitations (including all periods of extensions
thereof) and (b) except that the representations and warranties made in Section
3.1.8 shall survive until two (2) years after the Closing Date. The covenants
and agreements of the parties contained in this Agreement shall survive the
Closing in accordance with their terms. Claims for Losses under Section 7.1 or
Section 7.2 of this Agreement may be made only pursuant to Article VII hereof
and only by written notice describing with specificity the facts giving rise to
the asserted claim. The expiration or termination of any representation,
warranty, covenant or agreement shall not affect the parties' obligations under
Article VII hereof if the party entitled to receive indemnification under this
Agreement (the "Indemnified Party") provided the party required to provide
indemnification under this Agreement (the "Indemnifying Party") with the
required written notice of the claim or event for which indemnification is
sought prior to such expiration or termination. Neither party hereto shall have
any liability to indemnify, defend or hold harmless the other party hereto for
breaches of representations, warranties, covenants or agreement made herein
unless it has received proper, timely notice of a claim for such indemnification
or defense prior to the expiration or termination of the applicable
representation, warranty, covenant or agreement.
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7.3.2 Deductible and Cap. Seller shall not be liable for any Losses
under Section 7.1(a) unless and until the total of all claims for indemnity or
damages with respect thereto exceeds Seven Million Five Hundred Thousand Dollars
($7,500,000) (the "Deductible"), and then Seller shall be liable only for all
such Losses in excess of the Deductible (provided that the Deductible shall not
apply to representations or warranties made in the first sentence of Section
2.2(e), Sections 3.1.1, 3.1.2, 3.1.6(a)(i) and (ii), 3.1.7, 3.1.13, 3.1.16, and
3.1.18). The aggregate liability of Seller for any Losses for inaccuracies or
breaches of representations or warranties under Section 7.1(a) hereof and for
the indemnity under Section 7.1(h) and Section 7.1(i) shall not exceed
twenty-five percent (25%) of the unadjusted Purchase Price (the "Cap") (provided
that the Cap shall not apply to representations or warranties made in Sections
3.1.1, 3.1.2, 3.1.7, and 3.13, the second sentence of Section 3.1.9(a), the last
sentence of Section 3.1.9(b), Section 3.1.9(c) and Sections 3.1.16 and 3.1.20).
Purchaser shall not be liable for any Losses with respect to any breach or
inaccuracy of any representations or warranty under Section 7.2(a) unless and
until the total of all claims for indemnity or damages with respect thereto
exceeds the Deductible, and then Purchaser shall be liable only for all such
Losses in excess of the Deductible (provided that the Deductible shall not apply
to representations or warranties made in Sections 3.2.1 and 3.2.2(a) and (b)).
The aggregate liability of Purchaser for any Losses for inaccuracies or breaches
of representations or warranties under Section 7.2(a) hereof shall not exceed
the Cap (provided that the Cap shall not apply to representations and warranties
made in Sections 3.2.1 and 3.2.2(a) and (b)).
7.3.3 Waiver of Certain Remedies. Absent fraud, neither party hereto
shall be entitled to recover for any liabilities, damages, obligations,
payments, losses, costs, or expenses under this Agreement for any amounts in
excess of the actual compensatory damages, including lost profits or diminution
in value of the Shares or the Company Assets suffered by such party, and neither
party hereto shall have any liability for, and each party hereto waives any
right to recover, punitive, incidental, special, exemplary and consequential
damages arising in connection with or with respect to this Agreement, except to
the extent such damages are payable to an unrelated third party. Neither party
hereto shall be entitled to recover for any Losses resulting from a breach or
inaccuracy by the other party of any of its representations or warranties
contained in this Agreement or other Transaction Documents under Sections 7.1(a)
and 7.2(a), as applicable, if such other party can demonstrate that such party
had actual knowledge of such breach or inaccuracy at as of the date hereof.
7.3.4 Duty to Mitigate. Each Purchaser Indemnitee and each Seller
Indemnitee shall take, and shall cause their Affiliates to take, all
commercially reasonable steps to mitigate, to the extent practical, any Losses
upon becoming aware of any event which would reasonably be expected to, or does,
give rise thereto, including taking all commercially reasonable steps to
minimize the amount of costs incurred to remedy the breach which gives rise to
the Losses.
7.4 Indemnification Procedure as to Third-Party Claims.
7.4.1 If any Indemnified Party receives notice of the assertion of
any claim or of the commencement of any claim, action, or proceeding made or
brought by any Person who is not a party to this Agreement or any Affiliate of a
party to this Agreement (a "Third Party Claim") with respect to which
indemnification is to be sought from an Indemnifying Party, the Indemnified
Party shall give such Indemnifying Party reasonably prompt written notice
thereof,
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except that, subject to Section 7.3.1, any failure to give notice shall not
affect the right to be indemnified except to the extent the Indemnifying Party
is actually harmed thereby. Such notice shall describe the nature of the Third
Party Claim in reasonable detail and shall indicate the estimated amount, if
practicable, of the Losses that have been or may be sustained by the Indemnified
Party. The Indemnifying Party will have the right to participate in or, by
giving written notice to the Indemnified Party, to elect to assume the defense
of any Third Party Claim at such Indemnifying Party's expense and by such
Indemnifying Party's own counsel that is reasonably acceptable to the
Indemnified Party; provided that the Indemnifying Party shall not have the right
to assume the defense of any Third Party Claim in the event such Third Party
Claim is for injunctive relief or criminal penalty of the Indemnified Party, and
in any such case, the reasonable fees and expenses of counsel to the Indemnified
Party in connection with such Third Party Claim shall be considered "Losses" for
purposes of this Agreement. The Indemnified Party shall cooperate in good faith
in such defense at such Indemnified Party's expense.
7.4.2 If, within thirty (30) calendar days after an Indemnified
Party provides written notice to the Indemnifying Party of any Third Party
Claim, the Indemnified Party receives written notice from the Indemnifying Party
that such Indemnifying Party has elected to assume the defense of such Third
Party Claim as provided in Section 7.4.1, the Indemnifying Party will not be
liable for any legal expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof if the Indemnifying Party acknowledges its
potential liability to the Indemnified Party in its written notice and
diligently pursues such defense; provided, however, that: (a) if the
Indemnifying Party assumes control of such defense and the Indemnified Party
reasonably concludes, based on advice from counsel, that the Indemnifying Party
and the Indemnified Party have conflicting interests with respect to such
action, suit, proceeding or claim, the reasonable fees and expenses of counsel
to the Indemnified Party solely in connection therewith shall be considered
"Losses" for purposes of this Agreement, and (b) in no event shall the
Indemnifying Party be responsible for the fees and expenses of more than one
counsel for all Indemnified Parties under clause (a) of this sentence. The
Indemnifying Party shall not enter into any settlement of, or consent to the
entry of a judgment in connection with, any Third Party Claim that: (i) does not
include a complete release of the Indemnified Party from all liability with
respect thereto, (ii) admits the liability or fault of any Indemnified Party, or
(iii) imposes any liability or obligation or injunction or other equitable
relief on the Indemnified Party. If a firm offer is made to settle a Third Party
Claim that: (1) includes a complete release of the Indemnified Party from all
liability with respect thereto, (2) does not admit the liability or fault of any
Indemnified Party, and (3) does not impose any liability or obligation or
injunction or other equitable relief on the Indemnified Party, and the
Indemnifying Party desires to accept and agree to such offer, the Indemnifying
Party shall give written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within thirty (30)
calendar days after its receipt of such notice, the Indemnifying Party shall be
relieved of its obligations to defend such Third Party Claim and the Indemnified
Party may contest or defend such Third Party Claim. In such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will be the
amount of such settlement offer plus reasonable costs and expenses paid or
incurred by Indemnified Party up to the date of said notice. The party
controlling any defense under this Section 7.4.2 shall keep the other party
advised of the status of such action, suit,
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proceeding or claim and the defense thereof and shall consider all reasonable
recommendations made by the other party with respect thereto.
7.4.3 If the Indemnifying Party assumes the defense of a Third Party
Claim, in no event will the Indemnified Party consent to the entry of any
judgment or enter into any settlement with respect to any Third Party Claim
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld (but which consent may be withheld if the
Indemnifying Party disputes, in good faith, any potential liability with respect
to such Third Party Claim).
7.5 Direct Claims. Any claim by an Indemnified Party on account of a Loss
which does not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable. The Indemnifying Party shall have a period
of thirty (30) calendar days within which to respond to the notice of such
Direct Claim. If the Indemnifying Party does not respond within such thirty (30)
calendar day period, the Indemnifying Party shall be deemed to have accepted
such claim. If the Indemnifying Party rejects such claim, the Indemnified Party
will be free to seek enforcement of its right to indemnification under this
Agreement.
7.6 Adjustment For Insurance. Any indemnification payable pursuant to this
Article VII shall be net of any amounts actually recovered (after deducting
related costs and expenses) by the Indemnified Party for the Losses for which
such indemnification payment is made, under any insurance policy, warranty or
indemnity from any third party.
7.7 Payment.
(a) Upon a determination of liability in respect of Article VII of
this Agreement, the Indemnifying Party shall pay the Indemnified Party the
amount so determined (subject to the limitations contained herein) within 10
Business Days after the date of determination (such tenth Business Day, the "Due
Date"). If there should be a dispute as to the amount or manner of determination
of any indemnity obligation owed under this Agreement, the party from which
indemnification is due shall nevertheless pay when due such portion, if any, of
the obligation as shall not be subject to dispute. Upon the payment in full of
any claim, either by setoff or otherwise, the party or entity making payment
shall be subrogated to the rights of the Indemnified Party against any Person
with respect to the subject matter of such claim.
(b) If all or part of any indemnification obligation under this
Agreement is not paid when due, then the Indemnifying Party shall pay the
Indemnified Party interest on the unpaid amount of the obligation for each day
from the Due Date until payment in full, payable on demand, at a rate per annum
equal to the Prime Rate on the Due Date.
(c) To the extent permitted by Law, the parties hereto agree in good
faith to treat any indemnification payable pursuant to this Article VII as an
adjustment to the Purchase Price for United States federal income Tax purposes.
If, notwithstanding the agreement of the parties hereto regarding the treatment
of indemnity payments for Tax purposes, and subject to the provisions of Section
5.5 hereof, an indemnity payment under this Article VII is determined
58
by any Governmental Authority to be taxable income of the recipient and not an
adjustment to the Purchase Price, then the Indemnifying Party shall indemnify
the Indemnified Party for any Taxes actually payable by the Indemnified Party as
a result of such determination. For purposes of determining the indemnity
obligation of an Indemnifying Party hereunder, the amount of Losses incurred by
an Indemnified Party shall be reduced by the amount of any Tax Benefit currently
realized by the Indemnified Party with respect to such Losses. To the extent any
Loss does not give rise to a currently realizable Tax Benefit, the Indemnified
Party shall refund to the Indemnifying Party the amount of any subsequently
realized Tax Benefit attributable to such Loss at the time such Tax Benefit is
realized. Where an Indemnified Party has other losses, deductions, credits or
other items available to it, such losses, deductions, credits and other items
will be taken into account prior to any Losses incurred by such Indemnified
Party in determining whether and to what extent such Indemnified Party currently
realizes a Tax Benefit from such Losses. Subject to the provisions of Section
5.5 of this Agreement, if there is a determination by a Governmental Authority
disallowing any Income Tax Benefit previously realized by an Indemnified Party
with respect to any Losses, the Indemnifying Party shall pay to the Indemnified
Party the amount of any related reduction previously allowed or payment
previously made to the Indemnifying Party hereunder.
7.8 Other Rights and Remedies. Except as otherwise provided in Section
8.9, THE PARTIES HERETO ACKNOWLEDGE THAT EACH PARTY'S SOLE AND EXCLUSIVE REMEDY
WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT FOLLOWING CLOSING SHALL BE
PURSUANT TO THE INDEMNIFICATION PROVISIONS SET FORTH IN ARTICLE V AND THIS
ARTICLE VII; provided, however, that nothing contained herein or in any
Transaction Document is intended to waive any claim for fraud; and provided,
further, that nothing shall prohibit or limit the parties' right to bring an
action to specifically enforce the compliance by the other party with any
covenant to be performed by such other party after the Closing.
7.9 No Right of Contribution. Following the Closing, Seller shall not have
any right of contribution against the Company or any Subsidiary for any
indemnification payment made by Seller hereunder and Seller hereby waives any
and all rights of contribution for any such payment that it may have against the
Company or any Subsidiary.
ARTICLE VIII
MISCELLANEOUS
8.1 Termination; Remedies for Failure to Close.
(a) Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated at any time before the Closing Date only as
follows:
(i) by mutual written consent of Seller and Purchaser;
(ii) by Seller, if there has been (A) a breach by Purchaser at
any time before the Closing of any representation or warranty that would
cause the failure of the condition to Closing in Section 6.2.1 or (B) a
breach by Purchaser at any time before the
59
Closing of Purchaser's covenants or agreements contained in this Agreement
that would cause the failure of the condition to Closing in Section 6.2.2,
in each case to the extent that such breach is not curable or, if curable,
is not cured within 30 calendar days after written notice of such breach
is given by Seller to Purchaser or if assurances of cure reasonably
acceptable to Seller are not provided in such period;
(iii) by Purchaser, if there has been (A) a breach by Seller
at any time before the Closing of any representation or warranty that
would cause the failure of the condition to Closing in Section 6.1.1 or
(B) a breach by Seller at any time before the Closing of Seller's
covenants or agreements contained in this Agreement that would cause the
failure of the condition to Closing in Section 6.1.2, in each case to the
extent that is not curable or, if curable, is not cured within 30 calendar
days after written notice of such breach is given by Purchaser to Seller
or if assurances of cure reasonably acceptable to Purchaser are not
provided in such period;
(iv) by Purchaser or Seller upon written notice given to the
other if the Closing shall not have taken place on or before 12:01 a.m.
Central Standard time on May 31, 2004 (the "Initial Termination Date"), or
such later date as requested by either party (which date shall be a date
no later than thirty (30) days following the Initial Termination Date) in
the event that the required consents and approvals of the FCC and the PUC,
and under the HSR Act, have not been received by the Initial Termination
Date; provided that (i) the right to terminate this Agreement under this
Section 8.1(a)(iv) shall not be available to the party whose failure to
fulfill any of its obligations under this Agreement has been the cause of
or resulted in the failure of the Closing to occur on or before such date,
and (ii) the terminating party waives any right to claim damages under
Sections 8.1(b) or (c) unless the terminating party has given the other
party written notice of any breach or unexcused failure to cure and such
breach or failure has not been cured within thirty days after receipt of
such written notice; or
(v) by Purchaser or Seller upon written notice given to the
other if any Governmental Authority (i) shall have issued an order, decree
or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement, and
such order, decree, ruling or other action shall have become final and
nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action, as applicable, and such denial of a
request to issue such order, decree, ruling or take such other action
shall have become final and nonappealable, in the case of each of (i) and
(ii) which is necessary to fulfill the conditions set forth in Article VI;
provided, however, that the right to terminate this Agreement under this
Section 8.1(a)(v) shall not be available to any party whose failure to
comply with any of Sections 4.1, 4.2 or 4.3 has been the cause of such
action or inaction.
(b) In the event of the termination of this Agreement as provided in
Section 8.1(a), this Agreement shall forthwith become wholly void and of no
further force and effect (except as set forth in Section 3.1.13, Section 3.2.5,
Section 4.1.2, this Section 8.1(b), Section 8.1(c), Section 8.2, Section 8.9 and
Section 8.17).
60
(c) If a party elects not to Close because a condition precedent has
not been satisfied due to a material breach by the other party of any
representation, warranty, covenant or agreement set forth in this Agreement, or
if either party fails to Close for any reason except pursuant to an express
right to do so as provided in this Agreement, and such breach or unexcused
failure has not been cured by the breaching or failing party within thirty (30)
days after receipt by it of written notice from the non-breaching party
describing in reasonable detail the alleged breach or unexcused failure, the
non-breaching party may seek equitable relief pursuant to Section 8.9 or shall
be entitled to monetary damages from the breaching party in an amount of
$25,000,000 as liquidated damages. A party electing to receive liquidated
damages shall be paid by the other party by wire transfer immediately upon
demand and without right of setoff. The obligations of each party pursuant to
this Section 8.l(c) shall be secured by the guaranty delivered by it to the
other party contemporaneously with the execution of this Agreement. If Closing
does not occur, each party's sole remedies shall be as set forth in this Section
8.1(c) or Section 8.9, and each party hereby waives and releases any other
Losses, rights to recovery and remedies (except as set forth in Section 3.1.13,
Section 3.2.5, Section 4.1.2, this Section 8.1(c), Section 8.2, Section 8.9 and
Section 8.17); provided that nothing in this Section 8.1(c) shall restrict the
non-breaching party from pursuing claims under this Section 8.1(c) and Section
8.9 in the alternative.
8.2 Expenses. Except as otherwise provided in this Agreement, Seller and
Purchaser shall pay their own expenses incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement, the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby; provided that all such costs incurred by the Company and the
Subsidiaries and relating to the period of time prior to the Closing shall be
borne by Seller.
8.3 Further Assurances. Seller and Purchaser shall from time to time after
the Closing Date, at the request of the other party, execute, acknowledge and
deliver to such other party such other instruments of conveyance and transfer or
assumption and will take such other actions and execute and deliver such other
documents, certifications and further assurances as such other party may
reasonably require in order to vest more effectively in Purchaser, or to put
Purchaser more fully in possession of, the Shares to be transferred to it
pursuant to the provisions of this Agreement. Each of the parties hereto will
cooperate with the other and execute and deliver to the other party such other
instruments and documents and take such other actions as may be reasonably
requested from time to time by such other party as necessary to carry out,
evidence and confirm the intended purposes of this Agreement. Each of the
parties will cause their respective Affiliates to comply with this Section 8.3
to the extent necessary or desirable to fulfill the purposes thereof.
8.4 Contents of Agreement. This Agreement and the other Transaction
Documents, including their respective preambles, recitals, Schedules and
Exhibits, which are specifically incorporated herein, and the Confidentiality
Agreement between the parties dated July 9, 2003 (the "Confidentiality
Agreement") sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby and supersedes any and all
previous agreements and understandings, oral or written, between or among the
parties regarding the transactions contemplated hereby.
61
8.5 Disclosures in Schedules. The parties hereto agree that information
contained in any Schedule delivered under this Agreement shall constitute, where
applicable, disclosure with respect to any other Schedule delivered under this
Agreement; provided, however, that no disclosure set forth in a particular
Schedule shall be deemed to be disclosed for purposes of another Schedule if the
disclosure in the first Schedule cannot reasonably be construed as applying to
the representations and warranties to which the other Schedule relates.
8.6 Assignment and Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. No party hereto may assign this Agreement or any of its
rights and obligations hereunder, wholly or partially, and whether by operation
of law or otherwise, without the prior written consent of the other party (such
consent not to be unreasonably withheld); provided, however, that without
Seller's consent, (a) Purchaser may assign its rights and obligations hereunder
to any of its Affiliates, and (b) Purchaser may collaterally assign its rights
and interests hereunder to its senior secured lenders for security purposes, but
Purchaser shall remain liable for all of its obligations hereunder
notwithstanding any such assignment.
8.7 Waiver; Amendment. No waiver, modification or amendment of this
Agreement, or of any term or provision hereof, shall be effective unless in a
written instrument signed by the parties hereto. The grant of a waiver in one
instance does not constitute a continuing waiver in all similar instances. No
failure to exercise, and no delay in exercising, by any party, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof.
8.8 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be effective only if delivered personally or sent by registered or
certified mail or by Federal Express or other overnight mail service, postage
prepaid, or by telefacsimile, with written confirmation to follow, as follows:
If to Purchaser, to:
HOMEBASE ACQUISITION TEXAS
CORP.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
With a required copy to:
King & Spalding, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
62
If to Seller, to:
PINNACLE ONE PARTNERS, L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Treasurer
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
With a required copy to:
Hunton & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or facsimile numbers as the addressee may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, demand, waiver, consent, approval or other communication will be
effective as of the date so delivered or, if not delivered during the receiving
party's normal business hours or on a Business Day, on the next Business Day.
8.9 Remedies. The parties acknowledge and agree that the Shares are unique
and that, prior to Closing, remedies at law, including monetary damages, will be
inadequate in the event of a breach by Seller or Purchaser, respectively, in the
performance of their obligations under this Agreement. Accordingly, the parties
agree that in the event of any such breach, prior to Closing, the non-breaching
party shall be entitled to specific performance of the terms of this Agreement.
The foregoing shall not be deemed to be or construed as a waiver or election of
remedies by the non-breaching party and the non-breaching party expressly does
not waive any rights and remedies available to it under Section 8.1(c) in the
event Closing does not occur.
8.10 Knowledge. "Knowledge" or "knowledge" when used with respect to (a)
Seller means the actual knowledge of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
III, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇'▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ or
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and (b) Purchaser means the actual knowledge of any officer or
director of the Purchaser.
8.11 Applicable Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the Laws of the State of Texas,
without giving effect to such State's Laws and principles regarding the conflict
of laws. Each of the parties hereto irrevocably and unconditionally (a) consents
to submit itself to the personal jurisdiction of any Federal court located in
the State of Texas, County of Dallas, or any Texas state court located in Dallas
County, in connection with any dispute that arises out of this Agreement or any
of the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court on the basis that litigation brought therein has
been brought in an inconvenient forum and (c) agrees that it
63
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of Texas, County of Dallas, or a Texas state court located in
Dallas County, and waives any objection to the laying of venue in any such
court.
8.12 No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and, in the case of Article VII hereof, the other indemnified parties,
and their heirs, executors, administrators, legal representatives, successors
and assigns, and they shall not be construed as conferring any rights on any
other Persons.
8.13 Headings. All section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement and shall
not affect in any way the meaning or interpretation of this Agreement.
8.14 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof so long as the economic and legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party, and such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provisions in any
other jurisdiction.
8.15 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by all of the parties. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
8.16 Rules of Construction. The parties acknowledge that each party has
read and negotiated the language used in this Agreement. The parties agree that,
because all parties participated in negotiating and drafting this Agreement, no
rule of construction shall apply to this Agreement which construes language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
8.17 Press Releases and Public Announcements. No party hereto shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement before the Closing without the prior written approval of the
other party (which approval shall not be unreasonably withheld or delayed);
provided, however, that any party may make any public disclosure it believes in
good faith is required by applicable Law or any listing agreement with any
national securities exchange or national dealer quotation system concerning the
publicly traded securities of such party or its affiliates (in which case the
disclosing party will use its commercially reasonable efforts to advise the
other party before making the disclosure).
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the date first written above.
PINNACLE ONE PARTNERS, L.P.
BY: PINNACLE ONE GP, LLC,
ITS GENERAL PARTNER
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Treasurer
HOMEBASE ACQUISITION TEXAS CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief
Executive Officer
EXECUTION PAGE TO STOCK PURCHASE AGREEMENT