EXECUTION COPY - ARIZONA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under the
Operating Contracts, except that Buyer shall not assume any liabilities or
obligations for any breach or default by, or payment obligations of,
Seller under such Operating Contracts occurring or arising or accruing on
or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by State
Regulatory Authorities in connection with the operation of the Exchanges,
including without limitation obligations to provide 911 emergency services
and to make any investment in the Exchanges required by any Governmental
Authority, except that Buyer shall not assume any liabilities or
obligations, other than held order or other service obligations, imposed
on Seller by State Regulatory Authorities that arise out of Seller's
breach of any decision by the State Regulatory Authorities, or any
intentional misconduct or material misrepresentation by Seller;
(iv) All federal, state, county, municipal, foreign or other taxing
jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under Environmental Laws
with respect to the real property included in the Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other payment
obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to any one
or more of its Affiliates;
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(iii) Subject to Section 1.5, all taxes and assessments relating to
the operation of the Business (other than Transfer Taxes) on or before the
Closing Date for the use, ownership or operation of the Transferred Assets
on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising out of
or related to any actions, lawsuits or legal proceedings based on facts,
circumstances or conditions arising, existing or occurring on or before
the effective time of Closing, regardless of whether known or unknown,
asserted or unasserted, as of the Closing, including any liability under
any claim (whether made on or before the Closing Date) relating to the
period ending on or before the effective time of Closing which, but for
the consummation of the transactions contemplated hereby, would have been
covered under any insurance policy of Seller, and all liability associated
with workers' compensation claims incurred but not reported as of the
effective time of Closing and workers' compensation claims reported as of
the Closing Date but not then due or payable, but expressly excluding any
such liability, responsibility or obligation for litigation or claims of
any Governmental Authority relating to liabilities and obligations arising
under Environmental Laws with respect to the Fee Realty included in the
Transferred Assets, unless such liabilities, responsibilities and
obligations result from the actions or omissions of Buyer constituting
breaches of this Agreement;
(vi) All liabilities and obligations for prior period adjustments of
revenues from the Business, for any refunds or bill credits to ratepayers
for overbillings or overearnings occurring or relating to the period prior
to the effective time of Closing, and for all toll revenues, settlements,
pools, separations studies or similar activities relating to the Exchanges
for which Seller is responsible, provided that such liabilities and
obligations are asserted within four years of the Closing Date;
(vii) All liabilities, responsibilities and obligations arising out
of or occurring or resulting from the use or ownership of the Transferred
Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
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1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$5,839,310 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $145,982,761 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $30,992,400. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $30,992,400
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $14,127,364, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
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remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
13
has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
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(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
\ Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
18
5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
19
(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Environmental
Quality Act, Ariz. Rev. Stat., Tit. 49, Ch 281-287, as amended.
21
(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and
Other Plan maintained or contributed to by Seller or its affiliates for the
benefit of any employee employed by, or associated with, the Business
(hereinafter, an "employee of the Business"). Seller has provided Buyer with
full and complete copies (including all amendments) of all of such Employee
Benefit Plans and Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare
Plan and Other Plan maintained by Seller has been operated in accordance with
its terms and in accordance with applicable law, to the extent that the failure
to do so would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no
Employee Benefit Plan or Other Plan provides benefits for persons who are not
active employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no
actions, suits or claims pending or threatened (other than routine claims for
benefits) relating to any Employee Benefit Plan or Other Plan identified in
Schedule 4.2.20(a) except for actions, suits or claims that are not in the
aggregate reasonably likely to have a material adverse effect on the Business
following the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or
Other Plan under which it would be obligated to pay benefits because of the
consummation of the transaction contemplated by this Agreement, which could
become an obligation of the Buyer.
(f) Seller has used its best efforts to maintain each trust
forming a part of any Pension Plan identified in Schedule 4.2.20(a) which is not
exempt from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
23
(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
28
5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
30
the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
31
5.2.12 Third Party Software Licenses. To the extent that the
transfer of Transferred Assets by Seller to Buyer under this Agreement results
in the transfer of third party software that was rightfully used by Seller prior
to the Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
32
disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
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Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
37
could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
38
customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
41
("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer
shall indemnify and hold harmless Seller from and against any and all Losses
arising out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
43
promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
44
indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
47
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
52
11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:
------------------------------------
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:
------------------------------------
Solomon D. Trujillo
President and Chief Executive Officer
EXECUTION COPY - COLORADO
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
2
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
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1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$5,839,310 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $145,982,761 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $30,992,400. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $30,992,400
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $14,127,364, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
7
remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
8
2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer
will deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
9
reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
13
has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
16
(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
19
(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Hazardous
Waste Sites Act, C.R.S. Sections 25-16-101 et seq., as amended, the Water
Quality Control Act, C.R.S. Sections 25-8-101 et seq., or the Hazardous Waste
Management Act, C.R.S. Sections 25-12-101 et seq.
21
(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
23
(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
30
the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
31
5.2.12 Third Party Software Licenses. To the extent that the
transfer of Transferred Assets by Seller to Buyer under this Agreement results
in the transfer of third party software that was rightfully used by Seller prior
to the Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
32
disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
33
Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
34
The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
\ INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
43
promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
44
indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone Exchanges,
together with all Schedules and Exhibits thereto, as any of the foregoing may be
amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
47
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
52
11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:_______________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:_______________________________________
Solomon D. Trujillo
President and Chief Executive Officer
EXECUTION COPY - IDAHO
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
2
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$4,916,706 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $122,917,650 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $17,837,100. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $17,837,100
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $11,895,256, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
7
remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
8
2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
9
reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys, agents,
employees, and others, has made or will have made prior to the Closing such
investigations of the Exchanges and Transferred Assets and of the factual, legal
and other condition and location of the Exchanges and Transferred Assets that it
deems necessary or advisable with respect to the Transactions. Buyer
13
has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
16
(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is situated in a federal "Superfund" site or, to Seller's
Knowledge, in any federal "Superfund" study area.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
23
(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
30
the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to this
Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
32
disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
33
Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
34
The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
35
times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
36
5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
37
could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
38
customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
44
indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
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If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:_______________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:_______________________________________
Solomon D. Trujillo
President and Chief Executive Officer
EXECUTION COPY - IOWA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
2
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$5,348,887 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $133,722,180 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $25,762,500. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $25,762,500
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $12,940,856, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
5
(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
6
1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
7
remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
8
2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
9
reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
13
has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
16
(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
18
5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Environmental
Quality Control Act, Iowa Code Ch. 381-397 and 455B 423-431, as amended, or the
Groundwater Protection Act, Iowa Code Ch. 455E, as amended.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
28
5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
32
disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
33
Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
34
The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
35
times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
36
5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
37
could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
38
customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
39
7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
47
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
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If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:_______________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:_______________________________________
Solomon D. Trujillo
President and Chief Executive Officer
EXECUTION COPY - MINNESOTA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
1
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
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(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
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1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$5,348,887 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $133,722,180 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $25,762,500. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $25,762,500
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $12,940,856, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
5
(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
6
1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
7
remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
8
2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
9
reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
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has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
16
(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
18
5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
19
(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Environmental
Quality Control Act, Iowa Code Ch. 381-397 and 455B 423-431, as amended, or the
Groundwater Protection Act, Iowa Code Ch. 455E, as amended.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
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(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
28
5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
30
the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
31
5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
32
disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
33
Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
34
The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
35
times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
37
could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
\
38
customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
39
7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
40
7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
41
("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
42
Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
43
promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
44
indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
47
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:________________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:________________________________________
Solomon D. Trujillo
President and Chief Executive Officer
EXECUTION COPY - MONTANA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
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(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
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1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$1,127,732 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $28,193,295 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $8,054,100. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $8,054,100
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $2,728,383, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
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remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
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2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
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reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
13
has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
16
(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:\
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
18
5. no Date Data will cause one or more Business Assets
to perform an abnormally ending routine or function within the Processes
or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
19
(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by the Comprehensive
Environmental Cleanup and Responsibility Act, Mont. Code Ann. Sections 75-10-701
through -738, as amended.
21
(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
23
(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
28
5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
30
the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
31
5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
32
disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
33
Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
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times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
37
could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
38
customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
41
("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
43
promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
44
indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
45
"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
47
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By: ________________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By: ________________________________________
Solomon D. Trujillo
President and Chief Executive Officer
EXECUTION COPY - NEBRASKA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under the
Operating Contracts, except that Buyer shall not assume any liabilities or
obligations for any breach or default by, or payment obligations of,
Seller under such Operating Contracts occurring or arising or accruing on
or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by State
Regulatory Authorities in connection with the operation of the Exchanges,
including without limitation obligations to provide 911 emergency services
and to make any investment in the Exchanges required by any Governmental
Authority, except that Buyer shall not assume any liabilities or
obligations, other than held order or other service obligations, imposed
on Seller by State Regulatory Authorities that arise out of Seller's
breach of any decision by the State Regulatory Authorities, or any
intentional misconduct or material misrepresentation by Seller;
(iv) All federal, state, county, municipal, foreign or other taxing
jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under Environmental Laws
with respect to the real property included in the Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other payment
obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to any one
or more of its Affiliates;
2
(iii) Subject to Section 1.5, all taxes and assessments relating to
the operation of the Business (other than Transfer Taxes) on or before the
Closing Date for the use, ownership or operation of the Transferred Assets
on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising out of
or related to any actions, lawsuits or legal proceedings based on facts,
circumstances or conditions arising, existing or occurring on or before
the effective time of Closing, regardless of whether known or unknown,
asserted or unasserted, as of the Closing, including any liability under
any claim (whether made on or before the Closing Date) relating to the
period ending on or before the effective time of Closing which, but for
the consummation of the transactions contemplated hereby, would have been
covered under any insurance policy of Seller, and all liability associated
with workers' compensation claims incurred but not reported as of the
effective time of Closing and workers' compensation claims reported as of
the Closing Date but not then due or payable, but expressly excluding any
such liability, responsibility or obligation for litigation or claims of
any Governmental Authority relating to liabilities and obligations arising
under Environmental Laws with respect to the Fee Realty included in the
Transferred Assets, unless such liabilities, responsibilities and
obligations result from the actions or omissions of Buyer constituting
breaches of this Agreement;
(vi) All liabilities and obligations for prior period adjustments of
revenues from the Business, for any refunds or bill credits to ratepayers
for overbillings or overearnings occurring or relating to the period prior
to the effective time of Closing, and for all toll revenues, settlements,
pools, separations studies or similar activities relating to the Exchanges
for which Seller is responsible, provided that such liabilities and
obligations are asserted within four years of the Closing Date;
(vii) All liabilities, responsibilities and obligations arising out
of or occurring or resulting from the use or ownership of the Transferred
Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations with
respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$782,400 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $19,560,000 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
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(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $8,013,600. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $8,013,600
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but on or
prior to the two year anniversary of the Closing Date, Buyer shall prepare
and deliver to Seller, as soon as practicable after the Reinitialization,
a written statement (the "Reinitialization Statement") of the calculation
of the actual number of interstate switched access minutes of use (the
"Interstate Use Minutes") for the Exchanges per month for the period
commencing on the Closing Date and ending on the last day of the month in
which the Reinitialization occurred. Subject to the dispute resolution
mechanism set forth in Section 1.4.4(c), Seller shall pay Buyer within 60
days of delivery of the Reinitialization Statement an amount equal to
$0.023 multiplied by the Interstate Use Minutes for the period commencing
on the day after the Closing Date and ending on the date of the
Reinitialization (pro rated, if necessary, for the first and final month).
Seller's failure to make such payment by the 60th day following delivery
of the Reinitialization Statement shall be deemed to be an initiation of
the dispute resolution mechanism set forth in Section 1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $1,892,903, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
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(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing Statement,
the parties shall calculate the portion of the undisputed amount, if any,
and such amount shall be paid by the appropriate party within five
business days of the determination of the undisputed amount. Buyer and
Seller shall negotiate in good faith to resolve any dispute. If any
dispute cannot be resolved within 30 days following Buyer's receipt of the
proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no remittance of Transfer Taxes. Buyer shall remit to Seller on
the day prior to the due date of such return, by wire transfer of immediately
available funds, the agreed upon amount of Transfer Taxes to be remitted to the
taxing authorities. In the event Seller does not receive the agreed upon amount
of Transfer Taxes to be remitted to the taxing authorities from Buyer on or
before the day prior to the due date of the return, Seller shall interpret such
failure of Buyer to provide funds as direction by Buyer to make no report of and
no
7
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
8
2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
9
reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
10
3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
13
has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
16
(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing processes of the
Business Assets (collectively, "Processes") perform in a consistent manner
regardless of the date in time on which the Processes are actually
performed and regardless of the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000 and whether or not the
Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort, extract,
sequence, and otherwise process all Date Data, and returns and displays
all Date Data, in a consistent manner regardless of the dates used in such
Date Data, whether before, on, during or after January 1, 2000.
3. the Business Assets will function without interruptions caused by
the date in time on which the Processes are actually performed or by the
Date Data inputs to the Business Assets, whether before, on, during or
after January 1, 2000;
4. the Business Assets store and display all Date Data in ways that
are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business Assets to perform an
abnormally ending routine or function within the Processes or generate
incorrect values or invalid results; and
6. each of the Business Assets will properly exchange Date Data with
all other Business Assets that it may interact or inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
19
(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is (i) situated in a federal "Superfund" site or, to
Seller's Knowledge, in any federal "Superfund" study area, or (ii) to Seller's
Knowledge, situated in a site or study area that is covered by Volume 8, Title
118, Title 119, Title 122 or Title 128 of the Nebraska Administrative Rules and
Regulations, as amended.
21
(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
23
(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
30
the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
31
5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
32
disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
33
Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
34
The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
35
times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
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could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
44
indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:\
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
47
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
52
11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:_____________________________________
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:_____________________________________
Solomon D. Trujillo
President and Chief Executive Officer
EXECUTION COPY - NORTH DAKOTA
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
2
(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on
or before the Closing Date for the use, ownership or operation of the
Transferred Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations
with respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$1,589,568 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $39,739,200 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $11,191,500. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $11,191,500
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $3,845,729, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
5
(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
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1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no remittance of Transfer Taxes. Buyer shall remit to Seller on
the day prior to the due date of such return, by wire transfer of immediately
available funds, the agreed upon amount of Transfer Taxes to be remitted to the
taxing authorities. In the event Seller does not receive the agreed upon amount
of Transfer Taxes to be remitted to the taxing authorities from Buyer on or
before the day prior to the due date of the return, Seller shall interpret such
failure of Buyer to provide funds as direction by Buyer to make no report of and
no remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no
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remittance of Transfer Taxes will be based on substantial state and/or local
authority that Transfer Taxes are not due and owing. Buyer shall indemnify and
hold harmless Seller from and against any and all such Transfer Taxes and any
penalties, interest or expenses (including attorneys' fees) incurred by Seller
with respect thereto unless such interest and penalties result from the actions
or omissions of Seller that are unrelated to any breaches by Buyer of its
obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
8
2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
9
reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
13
has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
16
(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date
Data in ways that are unambiguous as to the determination of the century;
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5. no Date Data will cause one or more Business
Assets to perform an abnormally ending routine or function within the
Processes or generate incorrect values or invalid results; and
6. each of the Business Assets will properly
exchange Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is situated in a federal "Superfund" site or, to Seller's
Knowledge, in any federal "Superfund" study area.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
23
(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
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5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
30
the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
32
disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
33
Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
34
The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
35
times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
36
5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
37
could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
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customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
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7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
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"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
50
If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
51
11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
53
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:
----------------------------------
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:
----------------------------------
Solomon D. Trujillo
President and Chief Executive Officer
EXECUTION COPY -- WYOMING
AGREEMENT
For
PURCHASE AND SALE
of
TELEPHONE EXCHANGES
Dated as of June 16, 1999
Between
CITIZENS UTILITIES COMPANY
And
U S WEST COMMUNICATIONS, INC.
AGREEMENT FOR PURCHASE AND SALE OF TELEPHONE EXCHANGES
This Agreement for Purchase and Sale of Telephone Exchanges is made and
entered into as of June 16, 1999 by and between U S WEST Communications, Inc., a
Colorado corporation ("Seller"), and Citizens Utilities Company, a Delaware
corporation ("Buyer").
A. Seller possesses certain rights to provide and operate wireline
telecommunication services pursuant to operating authorities issued by the
public utilities commissions or similar authorities of various states, and owns
certain assets used to provide such services in the telephone exchanges listed
on Exhibit A hereto and in any cross-border communities served by such exchanges
(the "Exchanges").
B. Buyer desires to acquire Seller's right to provide and operate wireline
telecommunication services and related non-tariffed or non-regulated wireline
services and products in the Exchanges (the "Business") and to purchase the
Transferred Assets (as defined below), and Seller wishes to sell, assign and
transfer such right and assets to Buyer.
C. Each defined term used herein shall have the meaning set forth in this
Agreement where such term is first used or, if no definition is so set forth,
shall have the meaning set forth in Article 10 below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF EXCHANGES
1.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions hereinafter set forth, at the Closing described in Article 2,
Seller agrees to sell, convey, transfer, assign and deliver all of the
Transferred Assets to Buyer, and Buyer agrees to purchase and receive the
Transferred Assets from Seller. Except as specifically set forth in Section 1.2
hereof, Seller shall transfer the Transferred Assets to Buyer on the Closing
Date free and clear of all Encumbrances, and Buyer shall not, by virtue of its
purchase of the Transferred Assets, assume or become responsible for any debts,
liabilities or obligations of Seller.
1.2 Assumption of Obligations. Buyer covenants and agrees that, on the
Closing Date, it shall execute and deliver to Seller an Assumption Agreement in
substantially the form of Exhibit
B hereto (the "Assumption Agreement") pursuant to which it will assume and agree
to perform and discharge the following liabilities and obligations of Seller to
the extent related to the Exchanges (collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations of Seller arising under
the Operating Contracts, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Operating Contracts occurring or arising
or accruing on or prior to the Closing Date;
(ii) All liabilities and obligations of Seller related to
unperformed service obligations, right-of-way relocation obligations and
construction in progress as of the Closing Date;
(iii) All liabilities and obligations imposed on Seller by
State Regulatory Authorities in connection with the operation of the
Exchanges, including without limitation obligations to provide 911
emergency services and to make any investment in the Exchanges required by
any Governmental Authority, except that Buyer shall not assume any
liabilities or obligations, other than held order or other service
obligations, imposed on Seller by State Regulatory Authorities that arise
out of Seller's breach of any decision by the State Regulatory
Authorities, or any intentional misconduct or material misrepresentation
by Seller;
(iv) All federal, state, county, municipal, foreign or other
taxing jurisdiction sales, use, transfer, gross receipts, consumer levy,
privilege or similar taxes, duties, excises or governmental charges,
including any penalties and interest thereon, arising out of the sale of
the Transferred Assets by Seller to Buyer hereunder, excluding any income
tax liability of Seller (collectively, "Transfer Taxes"); and
(v) All liabilities and obligations arising under
Environmental Laws with respect to the real property included in the
Transferred Assets.
1.3 Retained Liabilities. Seller shall retain and shall pay, perform and
discharge when due, the following liabilities, responsibilities and obligations
of Seller with respect to the Business (collectively, the "Retained
Liabilities"):
(i) Subject to Section 1.5, all trade payables and other
payment obligations of Seller as of the Closing Date;
(ii) All long-term debt of Seller and debt of Seller owed to
any one or more of its Affiliates;
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(iii) Subject to Section 1.5, all taxes and assessments
relating to the operation of the Business (other than Transfer Taxes) on or
before the Closing Date for the use, ownership or operation of the Transferred
Assets on or before the Closing Date;
(iv) All liabilities and obligations arising on or before the
Closing Date with respect to Seller's employees that may be hired by Buyer
(the "Hired Employees"), including (a) all liabilities, responsibilities
and obligations arising on or before the Closing Date relating to
collective bargaining agreements or other union contracts, and (b) any
such liabilities or obligations that arise after the Closing Date to the
extent that such liabilities and obligations relate to facts,
circumstances or conditions arising or occurring on or before the Closing
Date with respect to the Hired Employees;
(v) All liabilities, responsibilities and obligations arising
out of or related to any actions, lawsuits or legal proceedings based on
facts, circumstances or conditions arising, existing or occurring on or
before the effective time of Closing, regardless of whether known or
unknown, asserted or unasserted, as of the Closing, including any
liability under any claim (whether made on or before the Closing Date)
relating to the period ending on or before the effective time of Closing
which, but for the consummation of the transactions contemplated hereby,
would have been covered under any insurance policy of Seller, and all
liability associated with workers' compensation claims incurred but not
reported as of the effective time of Closing and workers' compensation
claims reported as of the Closing Date but not then due or payable, but
expressly excluding any such liability, responsibility or obligation for
litigation or claims of any Governmental Authority relating to liabilities
and obligations arising under Environmental Laws with respect to the Fee
Realty included in the Transferred Assets, unless such liabilities,
responsibilities and obligations result from the actions or omissions of
Buyer constituting breaches of this Agreement;
(vi) All liabilities and obligations for prior period
adjustments of revenues from the Business, for any refunds or bill credits
to ratepayers for overbillings or overearnings occurring or relating to
the period prior to the effective time of Closing, and for all toll
revenues, settlements, pools, separations studies or similar activities
relating to the Exchanges for which Seller is responsible, provided that
such liabilities and obligations are asserted within four years of the
Closing Date;
(vii) All liabilities, responsibilities and obligations
arising out of or occurring or resulting from the use or ownership of the
Transferred Assets on or before the Closing Date; and
(viii) All liabilities, responsibilities and obligations
with respect to the Excluded Assets.
1.4 Letters of Credit and Purchase Price.
3
1.4.1 Letters of Credit. Within 15 business days of the date hereof,
Buyer shall deliver to Seller one or more irrevocable letters of credit issued
by financial institutions reasonably acceptable to Seller (the "Letters of
Credit") providing for drawings in an aggregate principal amount equal to
$713,900 (the "LC Amount"). The Letters of Credit shall be returned to Buyer
upon the Closing of the Transactions or upon termination of this Agreement for
any reason other than the following: (i) Seller's termination of this Agreement
pursuant to Section 6.2.4 or 6.2.5, or (ii) Seller's termination of this
Agreement pursuant to Section 6.2.1 because the condition precedent set forth in
Section 3.2.1 becomes incapable of satisfaction through no fault of Seller after
Buyer has had a reasonable opportunity to cause such condition precedent to be
satisfied. In addition, if Seller terminates this Agreement pursuant to Section
6.2.4 as a result of Buyer's breach of Section 4.1.4 for any reason, Buyer and
Seller have mutually agreed that in addition to Seller's right to draw down the
full amount of the Letters of Credit, Buyer shall be liable to Seller for an
additional amount equal to the LC Amount. If Buyer fails to deliver the Letters
of Credit within 15 business days of the date hereof, and Seller thereafter
terminates this Agreement pursuant to Section 6.2.4 as a result thereof, Buyer
shall be liable to Seller for the LC Amount. In the event that Seller terminates
this Agreement for any of the foregoing reasons, in view of the difficulty of
determining the amount of damages which may result to Seller from such failure
to consummate the Transactions, Buyer and Seller have mutually agreed that the
proceeds of the Letters of Credit and any other monies payable to Seller in
accordance with the foregoing provisions shall be retained by Seller as
liquidated damages, and not as a penalty, and this Agreement shall thereafter
become null and void except for those provisions which by their terms survive
termination of this Agreement. The parties have agreed that the proceeds of the
Letters of Credit and such other monies payable to Seller in accordance with the
foregoing provisions in such event shall be Seller's exclusive remedy.
1.4.2 Purchase Price. Subject to Section 1.4.4, Buyer shall pay to
Seller as consideration for the transfer of Seller's rights with respect to the
Business and the sale of the Transferred Assets an aggregate purchase price (the
"Purchase Price") consisting of $17,847,494 plus (a) the estimated amount of
Exchange Investments, if any, calculated pursuant to Section 1.4.3(a) (the
"Estimated Exchange Investments") less (b) the Revenue Adjustment, if any
calculated pursuant to Section 1.4.3(b). The Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds to such bank
account(s) as Seller shall designate within a reasonable time prior to Closing
and the Letters of Credit shall be returned to Buyer upon payment of the
Purchase Price.
1.4.3 Closing Date Purchase Price Adjustments.
(a) Estimated Exchange Investments. Seller shall prepare and deliver
to Buyer, no less than five business days prior to the Closing, an estimate of
the net book value on the Closing Date associated with any investment by Seller
in the Exchanges (the "Exchange Investment") prior to Closing required by any
Governmental Authority pursuant to an order issued between the date hereof and
the Closing Date, other than with respect to investments contemplated by
Schedule 5.2.3(iii) or with respect to Seller's efforts to comply with any
Governmental Authority's orders issued prior to the date hereof.
4
(b) Revenue Adjustment. The Purchase Price shall be decreased if the
product of four times the aggregate revenues from the Business, as reported on
the monthly profit and loss statements for the Business for the three full
consecutive calendar months most recently completed prior to the Closing Date,
less any portion of such revenues attributable to the Excluded Assets (the
"Adjusted Annualized Closing Revenues"), are less than $3,878,100. Any decrease
in the Purchase Price in accordance with this Section 1.4.3(b) shall be equal to
the difference between the Adjusted Annualized Closing Revenues and $3,878,100
multiplied by 400% (the "Revenue Adjustment"); provided, that the Purchase Price
shall not be decreased pursuant to this Section 1.4.3(b) to the extent that the
Maximum Adjustment Amount shall have been reached.
1.4.4 Post-Closing Purchase Price Adjustment.
(a) Actual Exchange Investments. Within 120 days following the
Closing Date, Buyer shall prepare and deliver to Seller a written statement (the
"Exchange Investment Statement") of the calculation of the actual amount of
Exchange Investment. Subject to the dispute resolution mechanism set forth in
Section 1.4.4(c), to the extent that the actual amount of Exchange Investment as
shown on the Exchange Investment Statement differs from the Estimated Exchange
Investment, the difference shall be paid within 35 days of delivery of the
Exchange Investment Statement (i) by Buyer to Seller in the case of an excess,
or (ii) by Seller to Buyer in the case of a deficit.
(b) Reinitialization Adjustment. If, on the Closing Date, the
Reinitialization has not been effected, the Purchase Price shall be adjusted in
accordance with the following:
(i) If the Reinitialization occurs after the Closing Date but
on or prior to the two year anniversary of the Closing Date, Buyer shall
prepare and deliver to Seller, as soon as practicable after the
Reinitialization, a written statement (the "Reinitialization Statement")
of the calculation of the actual number of interstate switched access
minutes of use (the "Interstate Use Minutes") for the Exchanges per month
for the period commencing on the Closing Date and ending on the last day
of the month in which the Reinitialization occurred. Subject to the
dispute resolution mechanism set forth in Section 1.4.4(c), Seller shall
pay Buyer within 60 days of delivery of the Reinitialization Statement an
amount equal to $0.023 multiplied by the Interstate Use Minutes for the
period commencing on the day after the Closing Date and ending on the date
of the Reinitialization (pro rated, if necessary, for the first and final
month). Seller's failure to make such payment by the 60th day following
delivery of the Reinitialization Statement shall be deemed to be an
initiation of the dispute resolution mechanism set forth in Section
1.4.4(c).
(ii) If the Reinitialization has not occurred by the two year
anniversary of the Closing Date, Buyer shall so notify Seller and Seller
shall pay Buyer within 60 days after receipt of such notice an amount
equal to $1,727,177, plus simple interest at a rate of 8% per annum for
the period commencing on the Closing Date through but excluding the date
of payment.
5
(c) Dispute Resolution Mechanism.
(i) Within 30 days after receipt of the Exchange Investment
Statement or 60 days after receipt of the Reinitialization Statement
(each, a "Post-Closing Statement"), as the case may be, Seller may, in a
written notice to Buyer, describe in reasonable detail any proposed
adjustments to the relevant Post-Closing Statement in question and the
reasons therefor. If Buyer shall not have received a notice of proposed
adjustments within such 30 or 60 day period, as the case may be, Seller
will be deemed irrevocably to have accepted such Post-Closing Statement.
(ii) If Seller disputes any portion of the Post-Closing
Statement, the parties shall calculate the portion of the undisputed
amount, if any, and such amount shall be paid by the appropriate party
within five business days of the determination of the undisputed amount.
Buyer and Seller shall negotiate in good faith to resolve any dispute. If
any dispute cannot be resolved within 30 days following Buyer's receipt of
the proposed adjustment, Deloitte & Touche or another independent public
accounting firm that is nationally recognized in the United States jointly
selected by Buyer and Seller shall be engaged to resolve such disputes in
accordance with the standards set forth in this Section, which resolution
shall be final and binding. The fees and expenses of such accounting firm
shall be shared by Buyer and Seller in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of Buyer
and Seller, respectively. Upon delivery of such public accounting firms's
resolution of such dispute to the parties, the party required to make a
payment pursuant to such resolution shall promptly, but no later than five
business days after such delivery, pay to the other party the amount
determined by such public accounting firm to be owed to such party.
(d) Any amount paid pursuant to Section 1.4.4(a) shall bear interest
from the Closing Date through but excluding the date of payment, at a rate of 8%
per annum. Any amount owing pursuant to Section 1.4.4(b)(i) that is not paid
within 60 days of delivery of the Reinitialization Statement shall bear interest
from the 61st day following delivery of the Reinitialization Statement through
but excluding the date of payment, at a rate of 8% per annum. Such interest
shall accrue daily on the basis of a year of 365 days and the actual number of
days for which due and shall be payable together with the relevant amount
payable pursuant to this Section 1.4.4. All amounts payable pursuant to this
Section 1.4.4 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer, in the case of amounts payable by Buyer, to such
account of Seller as Seller may designate and, in the case of amounts payable by
Seller, to such account of Buyer as Buyer may designate.
(e) The Purchase Price shall be deemed to be adjusted by any amounts
paid pursuant to this Section 1.4.4.
6
1.5 Prorations. All real and personal property and similar taxes and
assessments with respect to the Transferred Assets, all rents, utilities and
other periodic charges and expenses arising from the normal operations of the
Business shall be prorated as of 11:59 p.m. local time on the Closing Date. Such
prorations shall be agreed upon by the parties as of the Closing Date and
reflected as an adjustment to the Purchase Price. Following the Closing Date,
each party shall thereafter be responsible for the payment of all such amounts
for which it is responsible, as determined by such prorations, as they become
due. For purposes of the foregoing proration, the parties agree that, with
respect to states in which Seller is assessed for real or personal property
taxes on a centralized basis or where a tax is imposed in lieu of property tax,
Seller shall be responsible for payment of property or other taxes assessed by
such state for the entire taxable year in which the Closing occurs and a pro
rata portion of such property taxes will be allocated to Buyer as of the Closing
Date and paid to Seller on the Closing Date. All prorations pursuant to this
Section 1.5 will be final and binding on both parties. Unless otherwise mutually
agreed no later than 30 days prior to the Closing Date, the specific date and
time for the change of telecommunications service to occur with respect to the
Exchanges shall be at 11:59 p.m., local time, on the Closing Date.
1.6 Allocation of the Purchase Price. Prior to the Closing Date, Buyer and
Seller shall use their good faith efforts to agree to the allocation (the
"Allocation") of the Purchase Price, the Assumed Liabilities and other relevant
items (including, for example, adjustments to the Purchase Price) to the
individual assets or classes of assets within the meaning of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Buyer and Seller
agree to such Allocation prior to Closing, Buyer and Seller covenant and agree
that (i) the values assigned to the assets by the parties' mutual agreement
shall be conclusive and final for all purposes, and (ii) neither Buyer nor
Seller will take any position before any Governmental Authority or in any
judicial proceeding that is in any way inconsistent with such allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an
Allocation, Buyer and Seller covenant and agree to file, and to cause their
respective Affiliates to file, all tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Buyer and Seller's good faith Allocations,
unless otherwise required because of a change in applicable law.
1.7 Transfer Taxes. Buyer shall be responsible for all Transfer Taxes
imposed by any local, state or federal governmental authorities in connection
with the sale, transfer or assignment of the Transferred Assets or otherwise on
account of the Transactions, regardless of whether Buyer or Seller is assessed
therefor. Seller shall be responsible for filing the applicable returns and
shall file them in a timely manner. No less than 20 days prior to the due date
of any such returns, Seller shall provide Buyer with the proposed amount of
Transfer Taxes to be reported and remitted. No less than 10 days prior to the
due date of any such returns, Buyer shall either approve the proposed amount or
advise Seller of an adjusted amount of Transfer Taxes to be reported and
remitted. Seller shall report and remit Transfer Taxes in amounts as approved or
adjusted by Buyer. In the event Buyer fails to approve Seller's proposed amount
of Transfer Taxes and fails to advise Seller of an adjusted amount of Transfer
Taxes within 10 days prior to the due date of such return, Seller shall
interpret such inaction on the part of Buyer as direction by Buyer to make no
report of and no
7
remittance of Transfer Taxes. Buyer shall remit to Seller on the day prior to
the due date of such return, by wire transfer of immediately available funds,
the agreed upon amount of Transfer Taxes to be remitted to the taxing
authorities. In the event Seller does not receive the agreed upon amount of
Transfer Taxes to be remitted to the taxing authorities from Buyer on or before
the day prior to the due date of the return, Seller shall interpret such failure
of Buyer to provide funds as direction by Buyer to make no report of and no
remittance of Transfer Taxes. Buyer warrants that any adjustments by Buyer to
Seller's proposed amount of Transfer Taxes or any direction by Buyer to make no
report of and no remittance of Transfer Taxes will be based on substantial state
and/or local authority that Transfer Taxes are not due and owing. Buyer shall
indemnify and hold harmless Seller from and against any and all such Transfer
Taxes and any penalties, interest or expenses (including attorneys' fees)
incurred by Seller with respect thereto unless such interest and penalties
result from the actions or omissions of Seller that are unrelated to any
breaches by Buyer of its obligations hereunder.
ARTICLE 2
CLOSING
2.1 Closing. The consummation of the purchase and sale of the Transferred
Assets (the "Closing") shall take place at Seller's offices in Denver, Colorado,
at 10:00 a.m., local time, on the last calendar day of the month in which all
the conditions precedent to Closing set forth in Article 3 have been satisfied
or waived, or on such other date as the parties mutually agree, but in no event
shall the Closing occur later than September 30, 2001 unless the parties shall
mutually agree to extend the date of the Closing. The date that the Closing
actually occurs is referred to as the "Closing Date." If the Closing is
postponed, all references to the Closing Date in this Agreement shall refer to
the postponed date of Closing.
2.2 Deliveries by Seller to Buyer. At or prior to the Closing, Seller will
deliver to Buyer:
2.2.1 Certified copies of all Seller's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Seller;
2.2.2 a duly executed Bill of Sale, in substantially the form of
Exhibit C hereto, and duly executed assignments and other instruments of
transfer sufficient to convey to Buyer title to all the personal property
included in the Transferred Assets;
2.2.3 A duly executed closing certificate of Seller contemplated by
Sections 3.1.1 and 3.1.2;
2.2.4 Releases, satisfactions or terminations of all mortgages,
financing statements or other Encumbrances on any of the Transferred Assets or,
in the alternative, an indemnity of Seller with respect to such Encumbrances in
form and substance reasonably acceptable to Buyer;
8
2.2.5 Special warranty deeds covering the Fee Realty and assignments
in customary local form covering the other realty and Interests included in the
Transferred Assets, including all rights-of-way which are by their terms
assignable;
2.2.6 An affidavit in a form complying with Section 1445 of the
Code; and
2.2.7 Such other documents and items as are reasonably necessary or
appropriate to effect the consummation of the Transactions or which may be
customary under local law, including vehicle transfer documentation.
2.3 Deliveries by Buyer to Seller. At or prior to the Closing, Buyer will
deliver to Seller:
2.3.1 The Purchase Price as required by Section 1.4, together with
any proration payment required to be paid on the Closing Date pursuant to
Section 1.5;
2.3.2 Certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the Transactions by
Buyer;
2.3.3 A duly executed closing certificate of Buyer contemplated by
Sections 3.2.1 and 3.2.2; and
2.3.4 The Assumption Agreement and such other certificates and
documents as are reasonably necessary or appropriate to effect the consummation
of the Transactions or which may be customary under local law.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. Within 30
days after the date of this Agreement, the parties shall negotiate in good faith
and enter into a Transition Agreement similar in scope to the agreement attached
as Exhibit D hereto. Within 90 days after the date of this Agreement, the
parties shall commence to negotiate in good faith the definitive terms of the
services agreements for the services that Buyer requests Seller to provide upon
Closing and described on Exhibit E hereto. At or prior to the Closing, Buyer and
Seller shall execute and deliver such services agreements. The parties
acknowledge and agree that the agreements contemplated by this Section 2.4 are
an integral part of, and will be entered into as part and parcel to, and in
conjunction with, the other transactions and agreements contemplated by this
Agreement.
2.5 Further Assurances. Except as otherwise provided herein or in the
transition agreements, all instruments of conveyance, assignment or transfer
referred to herein, all sums of money, and all records and data to be delivered
as specified in this Agreement shall be delivered at or prior to the Closing.
The parties agree following the Closing to execute and deliver such further
instruments of conveyance, assignment and assumption as may be reasonably
necessary to give effect to the transfer of the Transferred Assets and the
assumption of the Assumed Liabilities. In addition, in the event of an
inadvertent transfer of Excluded Assets, Buyer shall upon request by Seller
execute and deliver such instruments of conveyance, assignment and transfer as
may be
9
reasonably necessary to reconvey such Excluded Assets to Seller and shall
promptly return such Excluded Assets to Seller.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
3.1.1 Representations and Warranties. All representations and
warranties of Seller made in this Agreement shall be true and correct on and as
of the Closing Date as though made at such time, other than inaccuracies in such
representations and warranties that in the aggregate do not have a material
adverse effect on the Business or changes approved by Buyer in writing, and
Seller shall have delivered to Buyer a certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.2 Covenants. Seller shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Seller shall have delivered to Buyer a Certificate of Seller to that effect,
dated as of the Closing Date, signed by an authorized officer of Seller.
3.1.3 Governmental Approvals. The State Regulatory Approvals and the
FCC Approval (collectively, "Governmental Approvals") shall have been obtained
and shall be in full force and effect and shall not contain any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date. All such approvals and consents shall be deemed to have been obtained
after the grant thereof has become a Final Order.
3.1.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.1.5 Hart-Scott-Rodino Act. All filings required to be made under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
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3.1.6 Certificates and Other Documents. Seller shall have executed
and delivered the certificates and other documents required by Sections 2.2 and
2.4.
3.1.7 Absence of Material Adverse Change. Since December 31, 1998,
there shall have occurred no casualty or other event or change, not subsequently
cured by Seller, that has resulted in a material adverse effect on the Business,
unless such event has resulted in an amendment to this Agreement as contemplated
by Section 6.1.2.
3.1.8 Material Third Party Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the required
third party consents listed on Schedule 3.1.8 have been obtained and remain in
full force and effect on the Closing Date.
3.1.9 Delivery of Financial Information. Seller shall have delivered
the Required Financial Statements and representation letters, in each case as
and when required by Section 5.2.7.
3.1.10 Environmental Inspections. If it is determined pursuant to
Section 5.3.7 that remediation of potential material liabilities under
Environmental Laws is required, then (i) Seller shall have completed the
remediation to Buyer's reasonable satisfaction, (ii) if Seller elects to exclude
a parcel of Fee Realty, and Buyer so elects, Seller and Buyer shall have entered
into a long-term, low-cost lease, in form and substance reasonably satisfactory
to Buyer, for Buyer's use of such parcel after Closing, or (iii) if Seller
elects to exclude the parcel or the Exchange to which such parcel relates, and
if such parcel alone has been excluded and Buyer has not elected to lease such
parcel, Seller and Buyer shall have agreed in good faith to a reduction in the
Purchase Price. In no event shall Seller be responsible for any other
environmental remediation.
3.1.11 Title Matters. If the aggregate estimated costs and expenses
reasonably necessary to remedy all Encumbrances pursuant to Section 5.3.9
exceeds $10,000 (the "Title Threshold"), Seller shall have removed the Excessive
Encumbrances. "Excessive Encumbrances" means one or more Encumbrances selected
by Seller, the removal of which will bring the aggregate estimated costs and
expenses reasonably necessary to remedy the remaining Encumbrances below the
Title Threshold. Seller shall have removed the Excessive Encumbrances by either
(i) causing the title company to agree to delete such Excessive Encumbrances as
an exception in the Title Commitment or, with the prior written consent of
Buyer, shall have insured over such Excessive Encumbrances by endorsement, or
(ii) if acceptable to Buyer and Seller in each of its reasonable discretion, the
parties shall have entered into a written agreement containing Seller's
commitment to remedy such Excessive Encumbrances on terms reasonably
satisfactory to Buyer. In no event shall Seller have any obligation to cure or
remove any Encumbrance that is not an Excessive Encumbrance.
3.1.12 Billing Conversion. The Steering Committee established
pursuant to the Transition Services Agreement shall have concluded at least
thirty days prior to Closing that the billing system conversion will be
completed by Closing.
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3.2 Conditions to Seller's Obligations. The obligation of Seller to
consummate the Transactions shall be subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by Seller:
3.2.1 Representations and Warranties. All representations and
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes approved by Seller in writing, and Buyer shall have delivered
to Seller a certificate of Buyer to that effect, dated as of the Closing Date,
signed by an authorized officer of Buyer.
3.2.2 Covenants. Buyer shall have performed and complied in all
material respects with all covenants and agreements required or contemplated by
the Transaction Documents to be performed by it on or prior to the Closing Date,
and Buyer shall have delivered to Seller a Certificate of Buyer to that effect,
dated as of the Closing Date, signed by an authorized officer of Buyer.
3.2.3 Governmental Approvals. All Governmental Approvals shall have
been obtained and shall be in full force and effect. All such approvals and
consents shall be deemed to have been obtained after the grant thereof has
become a Final Order. The terms and conditions of the Governmental Approvals
shall be acceptable in all material respects to Seller in its reasonable
discretion.
3.2.4 No Injunction or Governmental Proceedings. No preliminary or
permanent injunction by any Governmental Authority shall have been issued and
remain in effect which prevents or delays the Transactions, nor shall any
Governmental Authority have instituted any action or proceeding challenging the
acquisition by Buyer or the transfer and sale by Seller of the Transferred
Assets or otherwise seeking to restrain or prohibit the consummation of the
Transactions.
3.2.5 H-S-R Act. All filings required to be made under the H-S-R Act
shall have been made, and the waiting period thereunder shall have expired or
early termination thereof shall have been granted.
3.2.6 Certificates and Other Documents. Buyer shall have delivered
the certificates and other documents required under Sections 2.3 and 2.4.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Buyer's Representations and Warranties. Buyer represents and warrants
to Seller that:
4.1.1 Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Buyer has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.1.2 Corporate Authority. This Agreement has been, and when
executed by Buyer each of the other Transaction Documents will be, duly and
validly executed and delivered by Buyer. This Agreement constitutes, and when
executed by Buyer each of the other Transaction Documents will constitute, the
valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
4.1.3 Governmental Authorizations. Except as contemplated by this
Agreement or as set forth in Schedule 4.1.3, neither Buyer's execution and
delivery of the Transaction Documents nor Buyer's consummation of the
Transactions require authorization or approval of, or filing with, any
Governmental Authority.
4.1.4 Funds. On the Closing Date, Buyer shall have sufficient funds
available to pay the Purchase Price, any proration payment required to be paid
on the Closing Date pursuant to Section 1.4, the amount of any Transfer Taxes to
be paid by Seller as provided in Section 1.6 and to consummate the Transactions.
4.1.5 Litigation. There are no actions, suits, proceedings, claims,
arbitrations or investigations, either at law or in equity, of any kind now
pending (or to the best of Buyer's knowledge threatened) involving Buyer or any
of its properties or assets that (i) question the validity of any of the
Transaction Documents or the Transactions; or (ii) seek to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under the Transaction Documents.
4.1.6 Investigation. Buyer, through its accountants, attorneys,
agents, employees, and others, has made or will have made prior to the Closing
such investigations of the Exchanges and Transferred Assets and of the factual,
legal and other condition and location of the Exchanges and Transferred Assets
that it deems necessary or advisable with respect to the Transactions. Buyer
13
has not received from the Seller, or from anyone acting or claiming to act on
behalf of the Seller, any accounting, tax, legal or other similar advice with
respect to the Transactions, and Buyer is relying solely on advice of its own
accounting, tax, legal, and other advisors for such advice. Buyer has based its
decision to acquire the Transferred Assets solely on the results of such
investigations and the representations, warranties and covenants of Seller set
forth herein, and not based on any other information (including without
limitation information contained in Seller's descriptive memorandum) provided to
Buyer by Seller, its Affiliates, employees, agents, representatives or advisors.
4.2 Seller's Representations and Warranties. BUYER UNDERSTANDS THAT,
EXCEPT AS SET FORTH IN THIS SECTION 4.2, SELLER MAKES NO REPRESENTATIONS,
WARRANTIES OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR
TYPE WHATSOEVER WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, AND WARRANTIES AS TO THE APPURTENANCES, FACILITIES AND
IMPROVEMENTS THEREON, OR THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR
ADAPTABILITY THEREOF. Seller represents and warrants to Buyer that:
4.2.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado
with full corporate power and authority to execute and deliver the Transaction
Documents, to consummate the Transactions and to perform all of its obligations
under the Transaction Documents. Seller has obtained all corporate approvals
necessary to consummate the Transactions and authorize the execution, delivery
and performance of the Transaction Documents.
4.2.2 Authorization, Execution and Delivery. This Agreement has
been, and when executed by Seller each of the other Transaction Documents will
be, duly and validly executed and delivered by Seller. This Agreement
constitutes, and when executed by Seller each of the other Transaction Documents
will constitute, the valid, legal and binding agreement of Seller enforceable
against Seller in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights generally
and by principles of equity.
4.2.3 Transferred Assets. Except with respect to Fee Realty, the
Transferred Assets are, and at the time of Closing will be, owned by Seller and
conveyed, transferred and assigned to Buyer free and clear of all Encumbrances.
The Transferred Assets (i) are in a normal state of repair (except for ordinary
wear and tear), (ii) are sufficient, both in number and condition, to comply
with applicable requirements of State Regulatory Authorities and the
manufacturer's specifications, except for non-compliances that in the aggregate
are not reasonably likely to have a material adverse effect on the Business
following the Closing Date, and (iii) will include all assets of every type,
nature and description that relate to, arise from, are used or held by Seller
primarily in the operation of the Business as presently operated by Seller
(including vehicles and related vehicle stock, portable
14
office equipment, test equipment, generators, materials, supplies, tools,
maintenance radio equipment and antennas normally located within the Exchanges
or primarily used in connection with the Business), except for the Excluded
Assets. Assuming the receipt of all required third-party consents, the
instruments and documents to be executed and/or delivered by Seller to Buyer
pursuant to Section 2.2 hereof at or following the Closing Date shall be
adequate and sufficient to vest in Buyer all of Seller's right, title and
interest in or to the Transferred Assets. To Seller's Knowledge, Seller enjoys
peaceful, undisturbed possession under all leases included in the Material
Contracts and rights-of-way and easements with respect thereto and with respect
to the Fee Realty. Notwithstanding the foregoing to the contrary, with respect
to all Fee Realty included in the Transferred Assets, Seller makes no
representations or warranties as to the ownership or Encumbrances thereon, it
being the express agreement of the parties that such matters shall be the
subject of the arrangements set forth in Sections 3.1.11 and 5.3.9.
4.2.4 Governmental Authorization. Except as contemplated by this
Agreement and except for such of the following the absence of which would not
have a material adverse effect on the Business, no authorization or approval of,
or filing with, any Governmental Authority will be required in connection with
Seller's execution and delivery of the Transaction Documents or Seller's
consummation of the Transactions.
4.2.5 Litigation. As of the date hereof there are no actions, suits,
proceedings, claims, arbitrations or investigations, either at law or in equity,
of any kind now pending (or to the best of Seller's Knowledge threatened)
against Seller (i) in which an adverse determination would have a material
adverse effect on the Business; (ii) that question the validity of any of the
Transaction Documents or the Transactions; or (iii) that seek to delay, prohibit
or restrict in any manner any actions taken or contemplated to be taken by
Seller under the Transaction Documents.
4.2.6 Tax Matters. All taxes and assessments, including interest and
penalties thereon, of any kind whatsoever accrued with respect to the Business
through the Closing Date (other than Transfer Taxes and taxes subject to
proration at Closing pursuant to Section 1.4) have been or will be paid in full
by Seller. There are no liens for federal, state or local taxes upon the
Transferred Assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by Seller
in appropriate proceedings, the ultimate liability for which shall remain the
obligation of Seller, and Seller shall indemnify Buyer against all such
liabilities. Seller has timely filed, or will cause to be timely filed, all
federal, state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Business for all periods up to and including the Closing Date.
4.2.7 No Breach. The execution and delivery by Seller of the
Transaction Documents and the consummation by Seller of the Transactions will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of Seller; (ii) violate any
applicable law, statute, ordinance, rule, regulation, code, license,
certificate, franchise, permit, writ, ruling award, executive order, directive,
requirement, injunction (whether
15
temporary, preliminary or permanent), judgment, decree or other order
(collectively "Applicable Laws") issued, enacted, entered or deemed applicable
by any Governmental Authorities having jurisdiction over Seller or any of the
Transferred Assets; (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give another
party any rights of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of the Operating Contracts; or (iv) result in
the creation or imposition of any Encumbrance on any of the Transferred Assets,
excluding from the foregoing clauses those violations, breaches or defaults
which individually or in the aggregate would not reasonably be expected to have
a material adverse effect upon the operation of the Business by Buyer after the
Closing.
4.2.8 Compliance with Laws. Except as set forth on Schedule
4.2.18(a), the Business has been operated and the Exchanges are in compliance
with all requirements of the Authorities and all Applicable Laws, except where
Seller's non-compliance would not have a material adverse effect on the
Business. Seller has not received any notice of (and to Seller's Knowledge there
is no reason to anticipate) any material violation of any Applicable Laws.
Notwithstanding the foregoing, except as specifically provided in Section 5.3.7,
Seller hereby disclaims all warranties, whether express or implied, with regard
to the presence of Hazardous Materials in the Transferred Assets or compliance
of the Business with Environmental Laws. Buyer understands and agrees that,
other than as specifically provided in Section 5.3.7, any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Transferred Assets following the Closing Date, including the costs of any
remediation or cleanup associated with the Transferred Assets, or environmental
claim or liability associated with the Transferred Assets, irrespective of when
contamination occurred, is assumed by Buyer on the Closing Date.
4.2.9 Operating Contracts. Schedule 4.2.9(a) sets forth all of the
Operating Contracts of the type described below (the "Material Contracts") that
Seller, after using commercially reasonable efforts, has been able to gather for
Buyer's review. No Operating Contract described in (i) below will be entered
into after the date of this Agreement and no Operating Contract described in
(ii) - (ix) will be entered into after the date of this Agreement other than in
the ordinary course of business:
(i) an agreement containing a non-compete agreement or other
non-compete covenant that in either case would by its terms limit the freedom of
Buyer following the Closing to compete in any respect with respect to the
Business with any third party;
(ii) an agreement granting an Encumbrance on Property other than Fee
Realty;
(iii) an agreement for the sale of any material Transferred Assets
or grant of any preferential rights to purchase any material Transferred Assets;
(iv) a land development agreement or other similar construction
agreement;
(v) a lease of real property;
16
(vi) an agreement with respect to 911 services or E911 services;
(vii) an agreement between Seller and a third party for the
construction of mutual transmission facilities between various switching points
included in the Exchanges;
(viii) an agreement that relates to arrangements and commitments
between Seller and a third party for the third party's location of equipment in
facilities included in the Transferred Assets except to the extent set forth in
a separate interconnection agreement; or
(ix) an agreement other than as set forth above with respect to
which the aggregate amount to be received or paid thereunder attributable to the
Exchanges with respect to calendar year 1999 or any subsequent calendar year is
expected to exceed $50,000 based on the terms of such agreement or on the
payments which have been made under such agreement with respect to calendar year
1998, to the extent applicable.
Schedule 4.2.9(b) identifies (i) each interconnection agreement between
Seller and a third party or an Affiliate of Seller that is applicable to the
Exchanges, (ii) each agreement that relates to arrangements and commitments
between Seller and an Affiliate of Seller for such Affiliate's co-location of
equipment in facilities included in the Transferred Assets that Seller, using
commercially reasonable efforts, has been able to identify, and (iii) each
Exchange where a third party has physically co-located equipment or, to Seller's
Knowledge, where a third party has made a written request to co-locate equipment
located in the Exchanges.
All of the Operating Contracts were made in the ordinary course of
business and are in all material respects valid, binding and currently in full
force and effect. Seller is not in default in any material respect under any of
the Operating Contracts, and to Seller's Knowledge no event has occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default or give rise to a right of termination or cancellation under any of the
Operating Contracts, cause the acceleration of an obligation of Seller, or
result in the creation of any Encumbrance upon any of the Transferred Assets. To
Seller's Knowledge, no other party is in default under any of the Operating
Contracts, nor has any event occurred which, through the passage of time or the
giving, of notice, or both, would constitute a default or give rise to a right
of termination or cancellation under any of the Operating Contracts, or cause
the acceleration of any obligation owed to Seller. Complete and correct copies
of all the Material Contracts in Seller's possession, together with all
modifications and amendments thereto to date of this Agreement in Seller's
possession, have been made available to Buyer or its representatives. Schedule
4.2.9(a) also specifically identifies each lease that requires the consent,
approval or waiver of the other party thereto for the assignment thereof.
4.2.10 Realty. (i) To Seller's Knowledge, the legal descriptions to
be delivered by Seller to the title insurance company shall be complete and
accurate in all material respects; (ii) as of the date hereof, there are no
deferred property taxes or assessments payable by Seller with respect to the Fee
Realty which may or will become due and payable as a result of the consummation
of the
17
Transactions, other than Transfer Taxes; (iii) there are no condemnation
proceedings pending or to Seller's knowledge threatened with respect to all or
any part of any parcel of Fee Realty; and (iv) Seller is not a foreign person
within the meaning of Section 1445 of the Code.
4.2.11 Reports. Seller has filed all reports relating to the
Business required by all Applicable Laws to be filed, and it has duly paid or
accrued on its books of account all applicable duties and charges due or
assessed against it pursuant to such reports.
4.2.12 Year 2000 Matters.
(a) Year 2000 Compliance. Seller warrants and represents that to the
best of its knowledge and belief following an effort of commercially reasonable
diligence by Seller, all of its business assets, including but not limited to
information technology and non-information technology systems and facilities and
those of its external suppliers utilized by Seller in the Business and included
in the Transferred Assets ("Business Assets"), are or will be "Year 2000
Compliant" (defined below) on or before the Closing Date. For purposes of this
Agreement, the following definitions apply:
(i) "Date Data" means any data, formula, algorithm, process,
input or output which includes, calculates or represents a date, a reference to
a date or a representation of a date;
(ii) "Year 2000 Compliant" means:
1. the functions, calculations, and other computing
processes of the Business Assets (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the Date Data inputs to the
Business Assets, whether before, on, during or after January 1, 2000 and
whether or not the Date Data is affected by leap year;
2. the Business Assets accept, calculate, compare, sort,
extract, sequence, and otherwise process all Date Data, and returns and
displays all Date Data, in a consistent manner regardless of the dates
used in such Date Data, whether before, on, during or after January 1,
2000.
3. the Business Assets will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data inputs to the Business Assets,
whether before, on, during or after January 1, 2000;
4. the Business Assets store and display all Date Data
in ways that are unambiguous as to the determination of the century;
18
5. no Date Data will cause one or more Business
Assets to perform an abnormally ending routine or function within the
Processes or generate incorrect values or invalid results; and
6. each of the Business Assets will properly exchange
Date Data with all other Business Assets that it may interact or
inter-operate with.
(b) Year 2000 Testing. Seller warrants that the Business Assets have
been tested by Seller and/or Seller's suppliers of Business Assets to determine
whether each of the Business Assets is Year 2000 Compliant. Seller's suppliers
of Business Assets have represented to Seller that the Business Assets provided
by them are Year 2000 Compliant and/or have been tested by those suppliers to
determine whether such Business Assets are Year 2000 Compliant. Seller will
notify Buyer immediately of the results of any test or any claim or other
information that indicates any Business Asset is not Year 2000 Compliant.
(c) Year 2000 Remedies. In the event that Buyer encounters a
Business Asset that is not Year 2000 Compliant, within a commercially reasonable
period after receipt from Buyer of written notice thereof, Seller shall at its
expense cause the identified non-compliant Business Asset to be repaired or
replaced.
4.2.13 Correct Records. The financial records, ledgers, account
books and other accounting records of Seller relating to the Business are
current, correct and complete and, if required by applicable law, conform with
the rules and regulations of the FCC and the State Regulatory Authorities,
except for instances that in the aggregate are not reasonably likely to have a
material adverse effect on the Business following the Closing Date and except
for the Continuing Property Records for the Exchanges, which are dealt with
specifically elsewhere in this Agreement. Seller has retained substantially all
original cost documentation relating to the regulated Business regarding the
expenditures made by Seller within the period required by Applicable Law that
relate to the Property, and such original cost documents are correct and
complete in all respects, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
4.2.14 Tribal and Federal Consents.
(a) To Seller's Knowledge, all easements, rights-of-way, franchises,
licenses, permits, consents, approvals, certificates and other authorizations of
tribal authorities and the United States Bureau of Indian Affairs (the
"BIA")(collectively, "Tribal Authorizations") held by Seller and relating to any
Purchased Property located, or any operations of the Business conducts, on
Native American reservations are in full force and effect, Seller is not in
material default thereunder, and there are no other Tribal Authorizations
required to be obtained by Seller from, or filings required to be made by Seller
with, any tribal authority or the BIA with respect to any such Purchased
Property or any such operations of the Business, except for instances that in
the aggregate are not reasonably likely to have a material adverse effect on the
Business following the Closing Date.
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(b) Except as set forth on Schedule 4.2.14(b), to Seller's Knowledge
no consent, approval or waiver from, or filing with, any tribal authority or the
BIA is required to be obtained or made in connection with the execution and
delivery by Seller of this Agreement, or Seller's fulfillment of its obligations
under this Agreement, except for instances that in the aggregate are not
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(c) If during the period between the date of this Agreement and the
Closing Date the representation and warranty set forth in this Section 4.2.14
proves to be untrue with respect to one or more parcels of Realty and Buyer and
Seller in good faith have been unable to remedy the circumstances that causes
such representation and warranty to be untrue with respect to such parcel, at
the election of either Buyer or Seller such parcel shall be excluded from the
Transferred Assets, and Buyer and Seller shall in good faith reduce the Purchase
Price accordingly.
4.2.15 Financial Statements.
Within 15 business days of the date hereof, Seller shall deliver to Buyer
a copy of financial statements relating to the Business, consisting of a balance
sheet and income statement and statements of cash flow and changes in equity for
the Business as of and for the respective periods ended December 31, 1996,
December 31, 1997, and December 31, 1998, together with the auditor's report
thereon (the "Financial Statements"). The Financial Statements were prepared
based upon the books and records of Seller, fairly present in all material
respects the financial condition of the business as of the appropriate periods
and the results of operations for the year then ended, in each case in
conformity with GAAP.
4.2.16 Loss of Major Customer. Except as set forth on Schedule
4.2.16, since June 1, 1997, Seller has not suffered the loss of any customer of
the Business that had billings in any year in excess of $25,000.
4.2.17 CPRs; Vehicles. Seller has provided Buyer with its Continuing
Property Records ("CPRs") for the Exchanges. Schedule 4.2.17 contains a true and
complete list and description (including vehicle identification numbers) as of
June 1, 1999 of the vehicles that are included in the Transferred Assets.
4.2.18 Tariffs and Authorities.
(a) The regulatory tariffs applicable to the Business stand in full
force and effect on the date of this Agreement in accordance with all terms, and
there is no outstanding notice of cancellation or termination or, to Seller's
Knowledge, any threatened cancellation or termination in connection therewith,
nor is Seller subject to any restrictions or conditions applicable to its
regulatory tariffs that limit or would limit the operation of the Business
(other than restrictions or conditions generally applicable to tariffs of that
type). Each such tariff has been duly and validly approved by Seller's
regulatory agency. Seller is not in material default under the terms and
conditions of any such tariff and there is no basis for any claim of default by
Seller in any material
20
respect under any such tariff. Schedule 4.2.18(a) sets forth all applications by
Seller or complaints or petitions by others or proceedings pending or, to
Seller's Knowledge, threatened before the state regulatory authority relating to
the Business or its operations or the regulatory tariffs that Seller, after
using commercially reasonable efforts, has been able to identify. To Seller's
Knowledge, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Business
has been delivered or made available to Buyer.
(b) Listed on Schedule 4.2.18(b) are the material Authorities held
by Seller and used in the operation of the Business. Each of such Authorities is
in full force and effect of the date of this Agreement in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
Seller's knowledge, any threatened cancellation or termination in connection
therewith, nor are any of such Authorities subject to any restrictions or
conditions that limit the operation of the Business (other than restrictions or
conditions generally applicable to licenses or permits of that type). Subject to
the Communications Act of 1934, as amended, and the regulations thereunder, the
FCC licenses included in the Authorities are free from all security interests,
liens, claims or encumbrances of any nature whatsoever. Except as disclosed on
Schedule 4.2.18(c), there are no applications by Seller or complaints or
petitions by others or proceedings pending or threatened before the FCC relating
to the Business or the FCC licenses that would reasonably be expected to have a
material adverse impact on the Business.
4.2.19 Environmental Matters.
(a) Schedule 4.2.19(a) accurately describes each incident known to
Seller and arising since December 31, 1996, involving violation of or
noncompliance with Environmental Laws in connection with Seller's operation of
the Business or the use or ownership of the Transferred Assets with respect to
which the fines exceed $100,000. Except as will be set forth on Schedule
4.2.19(d), no environmental remediation is occurring on any parcel of Fee Realty
or leased real property included in the Transferred Assets nor has Seller or any
Affiliate of Seller issued a request for proposal or otherwise asked an
environmental remediation contractor to begin plans for environmental
remediation.
(b) Schedule 4.2.19(b) sets forth a true and accurate list of all
underground storage tanks ("USTs") and aboveground storage tanks ("ASTs")
located on the Fee Realty and the leased real property included in the
Transferred Assets that are in use.
(c) Except as set forth in Schedule 4.2.19(c) and, to the extent
such information is unavailable on the date of execution of this Agreement, as
set forth and supplemented on Schedule 4.2.19(d), none of the Fee Realty or
leased real property is situated in a federal "Superfund" site or, to Seller's
Knowledge, in any federal "Superfund" study area.
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(d) Within 30 days from the date of this Agreement, Seller will
prepare and deliver to Buyer Schedule 4.2.19(d), which schedule will list (i)
all environmental remediation occurring on any parcel of Fee Realty or leased
real property included in the Transferred Assets, (ii) any requests for
proposals for remediation, (iii) any requests by Seller or any Affiliate of
Seller to begin plans for environmental remediation, (iv) all USTs and ASTs
located on the Fee Realty and the leased real property included in the
Transferred Assets that, to Seller's Knowledge, have been abandoned in place,
and (v) each incident known to Seller and arising since December 31, 1996,
involving violation of or noncompliance with Environmental Laws in connection
with Seller's operation of the Business or the use or ownership of the
Transferred Assets with respect to which the fines exceed $10,000. In addition,
within such period, Seller shall deliver to Buyer complete copies of letters of
non-compliance with respect to each incident listed in subsection (v) above,
copies of AST and UST closure letters contained in the files and records of
Seller, copies of all No Further Action letters contained in the files and
records of Seller, and a description of the status of any existing fuel tank
remediation.
4.2.20 Employee Benefits.
(a) Schedule 4.2.20(a) lists each Employee Benefit Plan and Other
Plan maintained or contributed to by Seller or its affiliates for the benefit of
any employee employed by, or associated with, the Business (hereinafter, an
"employee of the Business"). Seller has provided Buyer with full and complete
copies (including all amendments) of all of such Employee Benefit Plans and
Other Plans.
(b) To Seller's Knowledge, each such Pension Plan, Welfare Plan and
Other Plan maintained by Seller has been operated in accordance with its terms
and in accordance with applicable law, to the extent that the failure to do so
would have material adverse effect on the Business or its assets.
(c) Except as otherwise set forth on Schedule 4.2.20(c), no Employee
Benefit Plan or Other Plan provides benefits for persons who are not active
employees of Seller.
(d) Except as set forth on Schedule 4.2.20(g), there are no actions,
suits or claims pending or threatened (other than routine claims for benefits)
relating to any Employee Benefit Plan or Other Plan identified in Schedule
4.2.20(a) except for actions, suits or claims that are not in the aggregate
reasonably likely to have a material adverse effect on the Business following
the Closing Date.
(e) Seller does not maintain any Employee Benefit Plan or Other Plan
under which it would be obligated to pay benefits because of the consummation of
the transaction contemplated by this Agreement, which could become an obligation
of the Buyer.
(f) Seller has used its best efforts to maintain each trust forming
a part of any Pension Plan identified in Schedule 4.2.20(a) which is not exempt
from Part 2, 3 and 4 of Title I of
22
ERISA to meet all requirements for qualification under Sections 401 and 501 of
the Internal Revenue Code, and all applicable related rules and final
regulations.
(g) Schedule 4.2.20(g) sets forth all the exceptions to the
following statements that Seller, after using commercially reasonable efforts,
has been able to identify: (i) Seller is not subject to any collective
bargaining agreement covering any employees of the Business; (ii) there are no
current, or to Seller' Knowledge, any pending or threatened strikes, slowdowns,
picketing, work stoppages or lock-outs affecting the Business; (iii) to Seller's
knowledge, there is no pending or threatened organized activity or petition for
certification of a collective bargaining representative involving employees of
the Business; (iv) to Seller's Knowledge, there is no pending or threatened
charge, action, complaint, or proceeding of any nature against Seller relating
to the violation of any applicable state and federal labor or employment law or
regulation in connection with the Business, nor is there any other pending or
threatened labor or employment dispute against or affecting Seller in connection
with the Business ,except for items that in the aggregate are not reasonably
likely to have a material adverse effect on the Business following the Closing
Date; and (v) with respect to employees of the Business, Seller has complied in
all respects with the laws relating to employment, equal employment opportunity,
nondiscrimination, collective bargaining, wages, hours of work, employee
benefits, occupation safety and health, immigration, and plant closings ,except
for items that in the aggregate are not reasonably likely to have a material
adverse effect on the Business following the Closing Date. Seller has delivered
to Buyer accurate and complete copies of all collective bargaining agreements
affecting any of the employees in the Exchanges.
"Employee Benefit Plan" means any Pension Plan and Welfare Plan within the
meaning of Section 3(3) of ERISA.
"Other Plan" means any employment, noncompetition, management, agency or
consulting arrangement, bonus, profit sharing, deferred compensation, incentive,
stock option, stock ownership or stock purchase plan, severance or unemployment
arrangement, vacation pay, fringe benefit or other similar plan, policy or
arrangement, whether or not in written form, which does not constitute an
Employee Benefit Plan and which is not listed on Schedule 4.2.20(a).
"Pension Plan" means any employee pension plan within the meaning of
Section 3(2) of ERISA.
"Welfare Plan" means any employee welfare benefit plan within the meaning
of the Section 3(1) of ERISA.
4.2.21 Accuracy of Information Furnished.
(a) To Seller's Knowledge:
23
(i) Seller made a good faith effort, given the voluminous
nature of the material available with respect to the Transferred Assets, the
necessity to present in many cases representative documents or descriptions of
documents, and Seller's need to maintain certain competitive information
confidential, to include in the due diligence notebooks contained in the Data
Room located in Seller's offices in Denver, Colorado all documents or
appropriate descriptions of all documents that, in Seller's reasonable opinion,
a reasonable prospective acquiror of the Transferred Assets would deem to be
material in its decision; and
(ii) Seller did not intentionally and consciously decide to
(1) exclude from the due diligence notebooks (2) withhold from Buyer in response
to Buyer's requests for additional information or (3) not make available for
review by Buyer or its agents at Seller's offices in Denver, Colorado any
document relating to the operation of the Business as currently conducted which,
in Seller's reasonable opinion, a reasonable prospective acquiror of the
Transferred Assets would deem to be material in its decision to acquire the
Transferred Assets.
4.2.22 No Material Adverse Change. Since December 31, 1998 there has not
occurred (i) any event or condition that would have a material adverse effect on
the Business, (ii) any increase in compensation payable or to become payable by
Seller to any of its Hired Employees or agents, other than normal merit or
promotional increases and pursuant to any collective bargaining agreements,
(iii) any amendment or termination of, or delivery of written notice to amend or
terminate, any Material Contract, except any amendment or termination in the
ordinary course of business or (iv) any change in any accounting method,
practice or policy of Seller with respect to the Business.
ARTICLE 5
COVENANTS
5.1 Covenants of Buyer. Buyer hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.1.1 Continued Efforts. Buyer will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Buyer; (ii) cause to be performed all of
the actions required of Buyer at or prior to the Closing; and (iii) take such
steps and do all such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect as
if the same had been made as of the Closing Date. Without limiting the
foregoing, Buyer agrees if requested by Seller to apply for or otherwise seek
any required third-party consents on a joint basis.
5.1.2 Cooperation. Buyer agrees to cooperate with Seller with
respect to (i) Seller's assignment to Buyer and Buyer's assumption of the
Transferred Assets hereunder, and (ii) Seller's structuring of the Transactions
to comply with the requirements of a like-kind exchange under Section 1031 of
the Code (a "1031 Transaction") at no additional expense to Buyer, such
24
cooperation to include, without limitation, purchase of the Transferred Assets
from a "qualified intermediary" (as defined in Section 1031) of Seller's choice
and execution of such documents in connection with the Transactions as Seller
may reasonably request. If Seller elects to pursue the Transactions as a 1031
Transaction, then (i) notwithstanding anything in this Agreement to the
contrary, Seller shall fully indemnify, defend and hold Buyer harmless from and
against any and all liabilities resulting therefrom, including, but not limited
to, any tax impacts on Buyer or the Transferred Assets, and (ii) Seller shall
remain directly and primarily bound by all other conditions, representations,
warranties and covenants contained herein and remedies related thereto.
5.1.3 Employee Matters.
(a) Buyer agrees that, during the period between the date hereof and
the Closing Date and for a period of 18 months thereafter, without the prior
written consent of Seller, Buyer will not actively solicit for employment any
employee of Seller other than those persons identified by Seller to Buyer in
writing as provided in this Section 5.1.3 or who respond to a general
solicitation of employment made by Buyer.
(b) As soon as practicable following the date hereof and as
permitted by applicable law and collective bargaining agreements, Seller shall
provide to Buyer a list of all employees whose services are primarily related to
the Exchange (the employees on such list being referred to as "Prospective
Hires"). Buyer shall have the right to audit such list to determine that it
contains an accurate and complete listing of all Prospective Hires, and Seller
shall cooperate in providing Buyer with such information as Buyer may reasonably
request to assist in such audit. Within 90 days following the date of this
Agreement, and consistent with applicable law and any collective bargaining
agreement, Seller shall provide Buyer with a definitive list of Prospective
Hires, such list to contain the name, job classification, position, title, date
of hire, current salary or wage, bargaining unit, primary exchange(s), work
location, telephone number and last known address of each Prospective Hire.
(c) Buyer may, but shall have no obligation to, employ or offer
employment to any Prospective Hire. Seller shall cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview the Prospective
Hires to make hiring decisions. At least 60 days before the scheduled Closing
Date, Buyer shall provide to Seller in writing a list of the Prospective Hires
that Buyer intends to offer employment. At least 45 days before the scheduled
Closing Date, Buyer shall notify those Prospective Hires whom Buyer intends to
hire on the Closing Date; the form and manner of such notification shall be
reasonably satisfactory to and approved in advance by Seller. Buyer shall be
permitted to conduct appropriate pre-hire investigations of such named
Prospective Hires and make any offer of employment for such Prospective Hires
conditional upon receiving results of such investigations as are satisfactory to
Buyer.
(d) As of the Closing Date, Seller shall separate from its payroll
the employment of all of the Prospective Hires to whom Buyer has made offers of
employment other than any such Prospective Hire who has been offered employment
by Buyer and who is on leave status, including
25
employees receiving Workers' Compensation Benefits, as of the Closing Date
(each, an "Employee on Leave Status"). Buyer shall employ any Employee on Leave
Status (i) who is on approved leave under the Family and Medical Leave Act on
the Closing Date only when such Employee on Leave Status returns to work from
such approved leave under the Family and Medical Leave Act or (b) who is
receiving Workers' Compensation Benefits on the Closing Date only when such
Employee on Leave Status is released to return to work but only if such release
occurs within sixteen weeks after the date of initial eligibility for Workers'
Compensation Benefits, in each case subject to Buyer's right to conduct
appropriate pre-hire investigations of such Employee on Leave Status and to
Buyer's receipt of results of such investigations that are satisfactory to
Buyer.
(e) Seller shall be responsible for and shall cause to be discharged
and satisfied in full all amounts owed to any Prospective Hire who is employed
by Seller as of the Closing Date, including salaries, commissions, bonuses,
deferred compensation, severance, insurance, vacation, and other compensation or
benefits to which they are entitled for periods prior to the Closing (and for
Employee on Leave Status, until their employment by Buyer, as set forth in
Section 5.1.3(d) hereof), including all amounts (if any) payable on account of
the termination of such Prospective Hires.
(f) Seller will be responsible for maintenance and distribution of
benefits accrued under any Employee Benefit Plan maintained by Seller pursuant
to such plan and any legal requirements. Buyer will not assume any obligation or
liability for any such accrued benefits under any employee benefit plans
maintained by Seller.
(g) Nothing in this Section 5.1.3 or elsewhere in this Agreement
shall be deemed to make any Prospective Hire a third party beneficiary of this
Agreement.
(h) Seller acknowledges and agrees that Buyer has not agreed to be
bound, and will not be bound, by any provision of any collective bargaining
agreement or similar contract with any labor organization to which Seller or any
of its Affiliates is or may become bound.
(i) Seller shall provide employees of the Business with any required
notices under any federal, state, or municipal law or regulation concerning the
termination of their employment with Seller.
5.1.4 Directory Publishing Rights. Buyer will enter into good faith
negotiations with U S WEST Dex, Inc. ("Dex"), an Affiliate of Seller (or its
successor so long as such successor remains an Affiliate of Seller), concerning
an agreement whereby either (i) Dex will publish all subscriber listings
corresponding to the Exchanges on behalf of Buyer in satisfaction of Buyer's
regulatory obligations to publish such listings, or (ii) Buyer will license such
listings to Dex in accordance with Buyer's regulatory obligations to provide
such listings in the event that Buyer elects to publish or arrange with a third
party to publish such listings.
26
5.1.5 911 Emergency Services. Buyer will obtain or contract for the
appropriate 911 emergency data bases in order to commence providing 911
emergency services in connection with the operation of the Business as of the
Closing Date.
5.2 Covenants of Seller. Seller hereby covenants and agrees that, from the
execution date hereof to the Closing Date:
5.2.1 Access to Information and Facilities. Seller will afford Buyer
and its representatives, at Buyer's sole expense, reasonable access during
normal business hours to all Transferred Assets, facilities, properties, books,
accounts, records, contracts and documents of or relating to the Business in
Seller's possession or control. Seller shall exercise commercially reasonable
efforts to furnish or cause to be furnished to Buyer and its representatives all
data and information in Seller's possession concerning the Exchanges as shall
reasonably be requested by Buyer. Seller shall exercise commercially reasonable
efforts to gather additional Material Contracts for Buyer's review.
Seller acknowledges and agrees that Buyer's ongoing review, examination
and investigation of the Business and the Transferred Assets, facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business contemplated in the immediately preceding sentence is necessary to
facilitate the assimilation of the Business into Buyer's operations, the
transfer of the ownership and use of the Transferred Assets from Seller to Buyer
and other reasonable business purposes, and may include the following
activities:
(i) review of the Operating Contracts and Authorities, the
performance of which after Closing is an Assumed Liability (e.g., land
development agreements, 911 and E911 service agreements and customer
prepaid maintenance agreements) in order, among other things, to identify
those that require third party consent to assign to Buyer, those that
expire prior to or soon after the Closing and those that may require
special documentation to transfer to Buyer;
(ii) investigation of the third party arrangements included among
the Excluded Assets that Buyer will need to replicate or replace,
including interconnection agreements and national account agreements that
affect any Exchange.
(iii) examination of various assets included in the Property in
order, among other things, to determine what changes Buyer may need to
make to such assets after the Closing Date;
(iv) investigation of miscellaneous underwriting data, including an
insurance claims history of Seller relating to the operation of the
Business and the ownership or use of the Transferred Assets, the current
surety bonds and certificates of insurance relating to the Transferred
Assets, and Seller's policies and practices relating to pertinent
environmental, health, safety and property protection issues, in order for
Buyer to arrange appropriate
27
insurance coverage by Closing with respect to Buyer's operation of the
Business and ownership and use of the Transferred Assets after the Closing
Date;
(v) investigation of the location and organization of the Records,
including the original cost documents and outside plant maps relating to
the Property, in order for the parties to arrange for appropriate delivery
(including via electronic transfer) or retention by Seller upon the
Closing;
(vi) review of the appropriate financial and accounting records of
Seller relating to the operation of the Business in order, among other
things, for Buyer to analyze the current balances and writeoff history of
the materials and supplies inventory included in the Transferred Assets,
the aging and write-off history of Accounts Receivable, and the manner in
which the Seller historically has allocated costs to the Purchased
Exchanges;
(vii) review of the ongoing State Regulatory Authorities and FCC
reporting obligations of Seller and Buyer relating to the Exchanges,
including responsibility for filing "form M" financial information, FCC
Report No. 43-04, Armis Joint Cost Report, and FCC Report No. 43-8, Armis
Operating Data Report, for the Exchanges for the year in which the Closing
Date occurs;
(viii) investigation of the construction and plant upgrade
activities of Seller between the date of execution of this Agreement and
the Closing Date, including a review of the construction work in progress,
in order, among other things, to enable Buyer to make appropriate
arrangements for the continuation of such activities after the Closing
Date; and
(ix) investigation of other regulatory issues, including with
respect to regulatory mandates and matters relating to the National
Exchange Carrier Association (including the Universal Service Fund, Local
Switching Support, and Telecommunications Relay Services funds) and
corresponding funds established by the State Regulatory Authorities.
The parties agree to cooperate and to negotiate in good faith regarding
resolution, on commercially reasonable terms and conditions, of issues and
concerns raised by either party in connection with such activities. Each party's
cooperation will include making appropriate subject matter experts and other
knowledgeable personnel available to meet with the appropriate representatives
of the other party and facilitating Buyer's contacts with the appropriate
Governmental Authorities (including the State Regulatory Authorities).
5.2.2 Continued Efforts. Seller will use commercially reasonable
efforts to: (i) cause to be fulfilled and satisfied all of the conditions to the
Closing to be performed or satisfied by Seller; (ii) cause to be performed all
of the actions required of Seller at or prior to the Closing; and (iii) take
such steps and do such acts as may be necessary to make all of its warranties
and representations true and correct as of the Closing Date with the same effect
as if the same had been made as of the Closing Date.
28
5.2.3 Maintenance of Business. Seller shall carry on the Business in
the usual and ordinary course and substantially in the same manner as heretofore
conducted. Accordingly, Seller shall (i) maintain its books and records in the
normal and usual manner, (ii) keep the Transferred Assets in a normal state of
repair (except for ordinary wear and tear) and operating efficiency to permit
the conduct of the Business as it is currently being conducted; (iii) use its
commercially reasonable efforts to undertake or complete capital projects as
budgeted on Schedule 5.2.3(iii) and any capital projects required by Applicable
Laws or any Governmental Authority to be undertaken by the Closing Date (it
being understood and agreed that Seller shall have no obligation for any capital
spending other than in connection with such capital projects and as required to
comply with the provisions of this Section 5.2.3 and provided that Seller shall
be entitled to the Purchase Price adjustment (to the extent applicable) pursuant
to Section 1.4.3(a)); (iv) not increase the benefit provided under any plans
concerning employee benefits or increase the general rates of compensation of
its employees in the Exchanges, except (a) as required by Applicable Law, (b)
pursuant to any contracts existing on the date hereof and listed on Schedule
5.2.3(iv) to which Seller is a party, (c) increases in base pay or bonuses in
the ordinary course of business of Seller and in amounts consistent with the
recent past practices of Seller, or (d) as listed or described on Schedule
5.2.3(iv); and (v) not amend, modify or terminate any contract identified on
Schedule 4.2.9 or permit any of the foregoing to occur other than in the
ordinary course of business.
5.2.4 Consent to Assignment. Seller will transfer to Buyer all
Operating Contracts and permits that are by their terms assignable. Seller shall
also request assignment to Buyer of those Operating Contracts and permits that
are not by their terms assignable. To the extent that the assignment of any
Operating Contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Operating
Contract or permit if an attempted assignment would constitute a breach thereof.
Seller shall use commercially reasonable efforts (excluding the payment of
money) to obtain the consent of any other party to the assignment of such
Operating Contracts or permits to Buyer. If any such consent is not obtained, to
the extent permitted by Applicable Law, this Agreement shall constitute an
equitable assignment by Seller to Buyer of all of Seller's right, title, and
interest in and to such Operating Contracts and permits, and Buyer shall be
deemed Seller's agent for the sole purposes of completing, fulfilling and
discharging all of Seller's rights and obligations arising after the Closing
Date under such assigned Operating Contracts and permits.
5.2.5 Payment and Performance of Obligations. Seller will timely pay
and discharge all invoices, bills and other monetary obligations (other than
obligations which are contested by Seller in good faith) and shall not knowingly
perform or fail to perform any act which will cause a material breach of any of
the Operating Contracts.
5.2.6 Restrictions on Sale of Transferred Assets. Seller shall not
sell, assign, transfer, lease, sublease, pledge or otherwise encumber or dispose
of any of the Transferred Assets except in the ordinary course of the Business.
29
5.2.7 Audit or Review of Financial Statements. To the extent Buyer
reasonably requires audited or reviewed financial statements with respect to the
Business in order to comply with the reporting requirements of the Securities
and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, Seller
will cooperate with the independent auditors chosen by Buyer in connection with
their audit of any annual financial statements that Buyer reasonably requires to
comply with Regulations S-X and S-K, and their review of any interim quarterly
financial statements that Buyer reasonably requires to comply with Regulations
S-X and S-K. If Closing has not occurred prior to March 31, 2000, then as soon
as practicable but in any event by May 15, 2000. Seller will provide for audit a
balance sheet as of December 31, 1999, and an income statement and statement of
cash flows and changes in equity for the year ending December 31, 1999. The
financial statements to be audited or reviewed pursuant to this Section 5.2.7,
are hereinafter referred to as the "Required Financial Statements." Seller's
cooperation will include (i) such access to Seller's employees who were
responsible for preparing the Required Financial Statements and to workpapers
and other supporting documents used in the preparation of the Required Financial
Statements as may be reasonably required by such auditors to perform an audit in
accordance with generally accepted auditing standards, (ii) delivery of any
Required Financial Statements within 45 days after Buyer's request for the same
(except as otherwise provided in the second sentence of this Section 5.2.7) and
in the form required by Regulations S-X and S-K, and (iii) delivery of one or
more representation letters from Seller to such auditors that are requested by
Buyer to allow such auditors to complete the audit (or review of any interim
quarterly financials), and to issue an opinion acceptable to the SEC with
respect to the audit or review of those Required Financial Statements. Seller
will bear the cost of preparation of the Required Financial Statements. Buyer
and Seller will share equally the cost of the audit or review.
5.2.8 [Intentionally Deleted]
5.2.9 Interconnection Agreements. Seller shall furnish to Buyer such
necessary information and reasonable assistance as Buyer may reasonably request
in connection with Buyer's replacement of the interconnection agreements
relating to the Exchanges, including supplying to Buyer copies of such
interconnection agreements to the extent permissible and, to the extent
requested by Buyer and in compliance with applicable law, contacting the other
party to such interconnection agreements to notify such party that its
interconnection agreement will not apply to the Buyer and the Exchanges after
Closing. Buyer acknowledges its obligation to negotiate interconnection
agreements with third parties that have ongoing interconnection activities
related to the Exchanges with the expectation that interconnection agreements
between Buyer and such third partes will be entered into effective as of the
Closing Date. If such agreements are not entered into or, if required, approved
by appropriate Governmental Authorities, Buyer will offer to provide
interconnection to such third parties according to the terms of the Seller's
interconnection agreements with such third parties until the Buyer's new
agreements with such third parties are entered into or, if required, approved by
appropriate Governmental Authorities.
5.2.10 State Regulatory Authority/FCC Filings. Seller shall make all
necessary filings with the State Regulatory Authorities, the FCC or any other
Governmental Authority between
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the date of this Agreement and the Closing Date. Seller shall notify Buyer of
any significant proposed changes in the rates, charges, standards of service or
accounting of the Exchanges from those in effect on the date of this Agreement
prior to making any filing with the State Regulatory Authorities, FCC or any
other Governmental Authority (or any amendment thereto), or effecting with any
Governmental Authority any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto. Between the
date of this Agreement and the Closing Date, Seller shall use commercially
reasonable efforts to notify Buyer before Seller files any application,
petition, motion, brief, testimony, settlement agreement or other pleading in
any proceeding before the State Regulatory Authorities, FCC or any other
Governmental Authority or appeals related thereto with respect to which Buyer or
an Affiliate of Buyer has or reasonably could be expected to take a contrary
position that reasonably could be expected to have any adverse effect on the
revenue, earnings, or business of Buyer. Seller will give or cause to be given
to Buyer, as promptly as reasonably practicable, copies of all correspondence
(including notices, complaints, and pleadings) with any Governmental Authority
relating to any such proceeding or other rate regulatory matter that is sent or
received by Seller after the date of this Agreement.
5.2.11 Missing Plant.
(a) If, between the period commencing on execution date of the
Agreement and ending six months after the effective time of Closing, Buyer
notifies Seller in writing regarding items of Property (other than items that
have been fully depreciated on the books and records of Seller, items that are
no longer used in or necessary to the Business, and items covered by Section
5.2.11(b)) that are included in the CPRs relating to the Exchanges but that
Buyer, using commercially reasonable efforts, cannot locate in the Exchanges or
that have been sold, transferred or removed from the Exchanges by Seller or an
Affiliate of Seller, then Seller, at its option, either (i) shall pay to Buyer
(or reduce the Purchase Price by) an amount equal to the net book value of such
items as reflected on the books and records of Seller or (ii) deliver to Buyer
such items or replacement items that have reasonably comparable (or superior)
value, vintage and functionality; provided, however, that Seller shall have no
obligation under this Section 5.2.11(a) until the aggregate net book value of
all such items, together with the aggregate net book value of all such similar
items identified in Section 5.2.11 of each of the Multi-State Exchange Purchase
Agreements, exceeds $400,000, at which time Seller shall become obligated under
this Section 5.2.11(a) with respect to all items so identified by Buyer in all
notices delivered to Seller on or before the date that is six months after the
effective time of Closing; and provided, further that Seller shall have no
obligation under this Section 5.2.11(a) to the extent that the Maximum
Adjustment Amount shall have been reached.
(b) At Closing, Seller shall cause the Transferred Assets to include
all vehicles listed on Schedule 4.2.17 except to the extent any such vehicle has
been replaced with items of reasonably comparable (or superior) value, vintage
and functionality, in which event Seller shall cause such replacement items to
be included in the Transferred Assets.
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5.2.12 Third Party Software Licenses. To the extent that the transfer of
Transferred Assets by Seller to Buyer under this Agreement results in the
transfer of third party software that was rightfully used by Seller prior to the
Closing Date in the normal course operation of the Business pursuant to
contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then effective as of the Closing and provided
that no payments to any person are thereby required (except with respect to
payments relating to the transfer of switch software, which will be shared
equally by Buyer and Seller), at Closing Seller shall assign to Buyer, to the
extent permitted by the Third Party Intellectual Property Contracts, and Buyer
shall accept all rights and licenses if any to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses.
5.3 Mutual Covenants.
5.3.1 Confidentiality. Each party to this Agreement agrees to hold
in strict confidence all Confidential Information received from the other party,
whether received before or after entering into this Agreement, and to use such
information solely for the purposes of this Agreement. Each party agrees to make
no more copies of such Confidential Information than is reasonably necessary for
such purposes. Each party agrees that it will not make disclosure of any such
Confidential Information received from the other party to anyone except as
specifically permitted by this Agreement and as required by law. Each party may
disclose Confidential Information to its employees and agents to whom disclosure
is necessary for the purposes set forth above, provided that disclosing party
shall notify each such employee and agent that disclosure is made in confidence
and instruct such employees and agents that such Confidential Information shall
be kept in confidence by such employee and agent in accordance with this
Agreement. If the Transactions are not consummated for any reason, each party
agrees to return to the other party all such Confidential Information, including
all copies thereof, immediately on request. The obligations arising under this
section shall survive any termination or abandonment of this Agreement. This
Agreement will be filed on a confidential basis with the State Regulatory
Authorities. The provisions of the existing Confidentiality Agreement between
Buyer and Seller dated January 15, 1999 are incorporated herein by reference.
5.3.2 Public Announcements. No public announcement with respect to
this Agreement or the transactions contemplated hereby shall be made before the
Closing without the mutual prior approval of both Seller and Buyer, which
approval shall not be unreasonably withheld; provided, however, that each party
shall be permitted to make such disclosure to its lenders or to any Governmental
Authority, including but not limited to the Securities and Exchange Commission
or similar state securities authorities, necessary to comply with any applicable
laws and to obtain all required Governmental Approvals necessary to consummate
the Transactions, or to any stock exchange upon which such party has a class of
securities listed. Notwithstanding the foregoing, the disclosing party shall
give the non-disclosing party reasonable advance notice of any permitted
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disclosure to third parties under this Section 5.3.2 and shall provide the
non-disclosing party with a reasonable opportunity to review and comment on such
disclosure.
5.3.3 Cooperation. Each party covenants to use all commercially
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all things, that are necessary, proper or advisable under applicable
laws and regulations, expeditiously and practicably to consummate and make
effective the Transactions, including but not limited to (i) using its
commercially reasonable efforts to resolve any disagreements between Buyer and
Seller with respect to any applications for governmental or regulatory approval
prior to application for such approval, (ii) facilitating the regulatory
approval process by agreeing that Buyer will adopt and maintain intrastate
tariffs similar in all material respects to Seller's intrastate tariffs in
effect for the Exchanges on the Closing Date for a period of at least six months
following the Closing Date, provided that such tariffs of Seller are
substantially similar to the tariffs of Seller in effect on the date of this
Agreement except that Buyer's tariffs will reflect rate changes by Seller (x)
made prior to Closing as required by an order of a State Regulatory Authority
that has been issued prior to the date of this Agreement or (y) made prior to
Closing to the extent such changes are substantially revenue neutral to the
Exchanges, (iii) obtaining all necessary actions, waivers, consents and
approvals from third parties or Governmental Authorities, and (iv) effecting all
necessary filings with Governmental Authorities, and to consummate the
agreements referred to in Section 2.4.
5.3.4 State Regulatory Filings. Seller and Buyer agree to promptly
file after execution of this Agreement any required applications and to take
such reasonable actions as may be necessary or helpful (including, but not
limited to, making available witnesses, information, documents, and data
requested by the State Regulatory Authorities) to apply for and receive approval
by the State Regulatory Authorities for the transfer of the Transferred Assets
and Authorities to Buyer. To the maximum extent practicable, all communications
with the State Regulatory Authorities shall be made jointly by Buyer and Seller.
In connection with making such required applications to the State Regulatory
Authorities, Buyer agrees to cooperate with Seller in appropriate public
relations activities, including participation in "town hall" meetings with
citizens, contacts with civic and business leaders, legislators and government
officials, and other activities designed to establish Buyer's presence in and
commitment to the communities in which the Exchanges are located. In the event
any state legislature proposes to enact legislation after the date of this
Agreement which would have an adverse impact on the consummation of the
Transactions or would impose a material liability on either Seller or Buyer in
connection with the transfer of the Transferred Assets, Seller and Buyer agree
to use commercially reasonable efforts to oppose such legislation at their own
expense.
5.3.5 FCC Filings. The parties agree to promptly file after
execution of this Agreement such applications and to take such reasonable
actions as may be necessary or helpful to apply for and receive approval by the
FCC for the transfer of the Transferred Assets and the Authorities to Buyer and
the change in the provider of telecommunications services in the Exchanges to
Buyer. Buyer shall file an application for study area waivers and the
reinitialization of the PCI with respect to at least one of the transactions
contemplated by the Multi-State Exchange Purchase
33
Agreements with the FCC within 120 days of the date hereof. Further, Buyer shall
use its best efforts to obtain the FCC's approval of (i) study area waivers for
the Exchanges and (ii) the Reinitialization.
5.3.6 H-S-R Filing. The parties agree to make all required filings
under the H-S-R Act no later that 90 days prior to the anticipated date of
Closing and to request early termination of all applicable waiting periods
thereunder, and thereafter to promptly respond to all requests for additional
information from the Federal Trade Commission or the United States Department of
Justice thereunder.
5.3.7 Environmental Inspections. Within 30 days following the
execution of this Agreement, Seller and Buyer shall select Environmental
Strategies Corporation (or another qualified environmental consultant reasonably
satisfactory to Buyer and Seller) to conduct a Transaction Screen with respect
to each parcel of Fee Realty included in the Transferred Assets (except for any
parcel designated by Buyer not to receive a Transaction Screen), which review
shall be conducted in accordance with ASTM standards and shall be completed
within 90 days following the execution of this Agreement. Upon completion of
such Transaction Screen, such consultant shall deliver to Buyer and Seller a
written report with respect thereto. Each party shall notify the other party in
writing (the "Remediation Notice") within 10 days of learning of any potential
material liabilities under any Environmental Laws with respect to a parcel of
Fee Realty included in the Transferred Assets, but in no event later than the
10th day following receipt of the related Transaction Screen. Thereafter, Buyer
shall determine whether to conduct additional environmental due diligence,
including a Phase I Environmental Report, which shall be completed within 60
days of delivery of the Remediation Notice. If the estimated costs of
remediation of such potential liabilities on such parcel (the "Remediation
Costs") will exceed $400,000, Seller shall either effect such remediation or may
instead elect to exclude either such parcel of Fee Realty or the Exchange to
which such parcel of Fee Realty relates from the Transferred Assets, and Buyer
and Seller shall in good faith reduce the Purchase Price accordingly. If,
pursuant to the preceding sentence, Seller elects to exclude the parcel of Fee
Realty, then, at Buyer's request, Seller shall grant to Buyer a long-term lease
at an annual rental rate of $1.00 and otherwise in form and substance reasonably
satisfactory to Buyer, for the use of such parcel (and Seller shall have no
obligation to effect any remediation with respect to such parcel); provided that
if Buyer is required to pay a higher rental rate for such leased parcel pursuant
to or in connection with the granting of any Governmental Approval, the Purchase
Price shall be decreased by the net present value of the aggregate lease
payments, discounted at a rate of 8% per annum. If the environmental consultant
conducting Buyer's additional environmental due diligence ("Buyer's Consultant")
estimates that the Remediation Costs will exceed $400,000, Seller may elect to
conduct its own additional environmental due diligence during the 60 day period
following completion of Buyer's additional environmental due diligence, and if
the environmental consultant conducting Seller's additional environmental due
diligence ("Seller's Consultant") estimates that the Remediation Costs will be
less than $400,000, Seller shall not be required to so remediate or exclude such
parcel of Fee Realty or such Exchange unless Buyer elects to pursue an
arbitration conducted as contemplated by Article 8 and the arbitrator estimates
that the Remediation Costs will exceed $400,000.
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The costs of the Transaction Screens required by this Section shall be
borne equally by Buyer and Seller, and the costs of any additional environmental
due diligence (the scope of which shall be reasonably acceptable to Seller)
shall be borne by the party conducting such additional due diligence. Buyer
shall indemnify Seller for any liabilities or losses incurred by Seller as a
result of any additional environmental due diligence conducted by Buyer.
5.3.8. Cost Studies/NECA Matters.
(a) Prior to Closing. Seller agrees that, with respect to all
revenues, settlements, pools, separations studies or similar activities, Seller
shall be responsible for (and shall receive the benefit or suffer the burden of)
any adjustments to contributions, or receipt of funds, by Seller resulting from
any such activities that are related to the operation of the Business or the
ownership or operation of the Transferred Assets prior to the Closing Date.
Specifically, this paragraph shall apply, but shall not be limited to, any
maters related to the National Exchange Carrier Association ("NECA") including
the Universal Service Fund ("USF"), Local Switching Support ("LSS") and
Telecommunications Relay Services funds.
(b) From and After Closing.
(i) Buyer shall receive a pro rata share of USF funds received
by Seller, under Seller's methodology of computing USF, pursuant to FCC rules
and regulations. The USF Funds due to Buyer shall be determined by multiplying
the number of Access Lines served by the Exchanges on the Closing Date times a
per-line amount of USF support received by Seller for the study area containing
the Exchanges prior to the Closing Date. The resulting Buyer's annual USF amount
shall be prorated in proportion to the number of months in the year from and
after the Closing Date. Beginning July 1, 1999 or a date thereafter determined
by the FCC, non-rural carriers shall not receive USF pursuant to Part 36 and
Part 54, but will receive support in accordance with guidelines using
forward-looking economic cost. Except as contemplated by clause (i) below, after
the Closing Date, Buyer shall make its own filing in accordance with applicable
FCC rules and regulations. Within a reasonable time after Buyer's written
request and in any event at least 30 days prior to the NECA filing date, Seller
shall furnish to Buyer such necessary information regarding Seller's ownership
of the Transferred Assets during the partial calendar year prior to the Closing
Date and the prior calendar year and such reasonable assistance, at Buyer's
expense, as required in connection with Buyer's preparation of necessary filings
or submissions.
(ii) If Closing occurs within 30 days before the NECA filing
date for the USF to be received in the subsequent calendar year, then Seller
will include the Exchanges in its NECA filing for the subsequent calendar year.
Buyer shall receive, in the subsequent calendar year, a pro rata share of USF
Funds received by Seller, under Seller's methodology of computing USF, pursuant
to applicable FCC rules and regulations; provided that in no event shall such
sharing continue for more than 18 months after the Closing Date. The USF Funds
due to Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date
35
times the per-line amount of USF support received by Seller for the study area
containing the Exchanges in the full calendar year subsequent to the Closing
Date.
(iii) Notwithstanding the foregoing, Buyer's right to receive
a pro rata share of USF is conditioned upon Buyer's payment, from and after the
Closing Date, of a pro rata share of the annual universal service contribution
liability assessed by the Universal Service Administrative Company (the "USAC")
based on end-user retail revenues for the previous year generated by the
Transferred Assets. The resulting Buyer's annual USF obligation for the
Transferred Assets shall be prorated in proportion to the number of months in
the year from and after the Closing Date.
(c) State USF. If Seller is entitled to receive any State USF
Funds as of the Closing Date that include State USF Funds relating to the
Exchanges, then Buyer shall receive a pro rata share of such State USF Funds
received by Seller, under Seller's methodology of computing such State USF
Funds, pursuant to the applicable State USF rules and regulations. The State USF
Funds due Buyer shall be determined by multiplying the number of Access Lines
served by the Exchanges on the Closing Date time the per-line amount of USF
support received by Seller for the appropriate period. The resulting Buyer's
annual State USF amount shall be prorated in proportion to the number of months
in the year from and after the Closing Date. Such sharing of Seller's State USF
Funds shall discontinue upon commencement of the first period for which Buyer is
permitted to make its own State USF filings, and in no event shall such sharing
continue for more than 18 months after the Closing Date. Seller shall cooperate
with Buyer and provide such reasonable assistance, at Buyer's expense, as may be
required in connection with Buyer's preparation of necessary State USF filings
or submissions.
5.3.9 Owned Real Property Transfers. Within 60 days of the date of
this Agreement, Seller shall deliver to Buyer copies of all existing title
insurance policies covering Fee Realty. No later than 150 days following the
date hereof, Seller shall deliver a preliminary title binder (on a standard
form) to Buyer issued by a title insurance company reasonably acceptable to
Buyer and a certified current survey (collectively, the "Title Commitment") with
respect to all Fee Realty included in the Transferred Assets. Buyer shall,
within 45 days following receipt of the Title Commitment for a parcel, deliver
to Seller, in writing, any objections to any matters affecting any of the Fee
Realty. In the event that Buyer fails to notify Seller as set forth above, such
objections shall be deemed waived. If the Title Commitment indicates the
existence of an Excessive Encumbrance, Seller shall, at its expense, cause such
Excessive Encumbrance to be removed on or before the Closing Date or, with the
prior written consent of Buyer, cause the title company to insure over each such
Excessive Encumbrance. Seller shall provide the title company with such
instructions, authorizations and affidavits at no cost to Seller as may be
reasonably necessary for the title company to issue title policies, based on the
most recent assessed value, to Buyer, dated as of the Closing Date, for all of
the Fee Realty with so-called non-imputation endorsements. Buyer and Seller
shall share equally the costs of the Title Commitments and the title policies.
By no later than 45 days after the Closing Date, Seller shall deliver to Buyer a
final title insurance policy covering the Fee Realty included in the Title
Commitment.
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5.3.10 IntraLATA Tolls. Buyer and Seller will use their best efforts
to negotiate appropriate agreements and arrangements in order to satisfy the
requirements of Section 7.1.9 at Closing.
ARTICLE 6
TERMINATION
6.1 Termination By Buyer.
6.1.1 If any condition precedent to Buyer's obligation to effect the
Closing set forth in Section 3.1 shall become incapable of satisfaction through
no fault of Buyer and such condition is not waived by Buyer, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement by written
notice to Seller.
6.1.2 If any Governmental Approval contains any special term,
condition, restriction, imposed liability or other provision that is reasonably
likely to have a material adverse effect on the Business following the Closing
Date, but only after Buyer has entered into good faith negotiations with Seller
to amend this Agreement in light of such terms or conditions and no such
amendment could be agreed upon, Buyer shall not be obligated to effect the
Closing and may terminate this Agreement by written notice to Seller; provided,
however, that Buyer shall not be entitled to terminate this Agreement based on
(x) Buyer's failure to obtain increases in intrastate tariff rates above those
then in effect, or (y) Buyer's being deemed a "successor" to Seller for any
regulatory purposes.
6.1.3 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Seller, and such misrepresentation
or breach has not been cured within 30 days of Seller's receipt of Buyer's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Buyer, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Seller.
6.2 Termination By Seller.
6.2.1 If any condition precedent to Seller's obligation to effect
the Closing set forth in Section 3.2 shall become incapable of satisfaction
through no fault of Seller and such condition is not waived by Seller, Seller
shall not be obligated to effect the Closing and may terminate this Agreement by
written notice to Buyer.
6.2.2 If any Governmental Approval contains terms or conditions
unacceptable to Seller, in Seller's reasonable discretion, but only after Seller
has entered into good faith negotiations with Buyer to amend this Agreement in
light of such terms or conditions and no such amendment
37
could be agreed upon, Seller shall not be obligated to effect the Closing and
may terminate this Agreement by written notice to Buyer.
6.2.3 If Buyer does not deliver the Letters of Credit within 15
business days of the date hereof or the Letters of Credit, in whole or in part,
have been withdrawn or are no longer irrevocable.
6.2.4 If there has been a material misrepresentation, breach of
covenant or breach of warranty on the part of Buyer, and such misrepresentation
or breach has not been cured within 30 days of Buyer's receipt of Seller's
notice of the same (or significant efforts have not been commenced to cure such
misrepresentation or breach if it is not capable of being cured within such 30
days), Seller, provided it is not in material breach hereof, may terminate this
Agreement by written notice to Buyer.
6.2.5 If Buyer does not make the FCC filing described in the second
to last sentence of Section 5.3.5 within 120 days of the date hereof.
6.3 Termination By Buyer or Seller. If (i) a final, non-appealable order
is issued by any Governmental Authority to restrain, enjoin or prohibit the
consummation of the Transactions, (ii) the Closing shall not have occurred on or
before September 30, 2001 through no fault of the terminating party, then either
party may terminate this Agreement by written notice to the other.
6.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 6.1, 6.2 or 6.3, this Agreement shall thereafter
become void, except as set forth in Section 1.4.1 and for the provisions of
Sections 5.3.1 and 5.3.2 and Article 9, and there shall be no further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing herein
shall relieve any party from liability for any breach of this Agreement, and
(ii) the obligations of the parties hereto set forth in Section 11.6 shall not
be affected by a termination of this Agreement.
ARTICLE 7
POST CLOSING MATTERS
7.1 Post Closing. In order to effectuate an orderly transition in the
provision of telecommunications services to customers in the Exchanges, Buyer
and Seller agree to utilize the measures set forth below:
7.1.1 Notice to Customers. Seller shall provide written
notification, which notification shall be reasonably acceptable to Buyer, in its
final bill to each customer affected by this Agreement, that Seller is no longer
the customer's telecommunications provider and advising the
38
customer of the name, address and telephone number of Buyer. Seller and Buyer
shall agree upon appropriate service cut-off dates with respect to the
Exchanges.
7.1.2 Customer Deposits. The disposition of customer deposits and
advance payments for future services made to Seller by residential and business
customers in the Exchanges shall be delegated to a transition team. The intent
of the parties to be carried out by the transition team is that, to the extent
practicable and subject to the rules and orders of the State Regulatory
Authorities, Seller shall retain all deposits for delinquent customers and the
remaining deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges shall be transferred to
Buyer. Notwithstanding the foregoing, all deposits and advance payments for
future services held by Seller under land development contracts or other similar
construction arrangements as of the Closing Date shall be credited to Buyer at
Closing.
7.1.3 Customer Records. To the extent not previously provided to
Buyer, Seller shall use commercially reasonable efforts to make available, upon
reasonable request from Buyer, all readily available billing and service records
for goods sold or services provided to customers of the Exchanges prior to
Closing for so long as such records are required to be maintained by applicable
law.
7.1.4 Operator Services and Directory Assistance. Buyer acknowledges
and agrees that, following the Closing, Buyer shall provide all subscriber list
information gathered in its capacity as a provider of local exchange service on
a timely and unbundled basis, under nondiscriminatory and reasonable rates,
terms and conditions, to any person requesting such information for any lawful
purpose in any format, including but not limited to Seller and its Affiliates.
Buyer's listing information will be treated the same as Seller's end user
listings for purposes of additional listings and dissemination of listings to
directory publishers, directory assistance providers, or other third parties.
Seller will incorporate listings information in all existing and future
directory assistance applications developed by Seller. Buyer authorizes Seller
to sell and otherwise make listings available to directory publishers, directory
assistance providers, and other third parties. Listings shall not be provided or
sold in such a manner as to segregate end users by carrier. Seller will not
charge for updating and maintaining the listings database.
7.1.5 Directory Publishing and 911 Emergency Services. Buyer shall
continue to comply with the covenants set forth in Sections 5.1.4 and 5.1.5
following the Closing Date, as appropriate, to the extent necessary to
accomplish the intent of such covenants.
7.1.6 911 Emergency Services. In the event that Seller becomes
obligated after the Closing Date to provide 911 emergency services with respect
to any portion of the Business, Buyer shall provide Seller (at no cost to
Seller) complete access to and use of the 911 Assets related to such 911
emergency services and shall enter into such agreements as Seller reasonably
requests in order to facilitate the provision by Seller of such 911 emergency
services and to provide for compensation to Seller at prevailing rates.
39
7.1.7 Tariffs. Buyer agrees that for the six month period following
the Closing Date it will adopt and maintain intrastate tariffs similar in all
material respects to Seller's intrastate tariffs in effect for the Exchanges on
the Closing Date, provided that such tariffs of Seller are substantially similar
to Seller's tariffs in effect on the date of execution of this Agreement, except
that Buyer's tariffs will reflect rate changes by Seller (x) made prior to
Closing as required by an order of a State Regulatory Authority that has been
issued prior to the date of this Agreement or (y) made prior to Closing to the
extent such changes are substantially revenue neutral to the Exchanges.
7.1.8 Access to Books and Records.
(a) After the Closing, Seller will retain all books and records
related to the Excluded Assets for so long as required by applicable law.
(b) Subject to the terms of Section 7.1.3, after the Closing, upon
reasonable notice, the parties will give to the representatives, employees,
counsel and accountants of the other, access during normal business hours, to
books and records relating to the Business and the Transferred Assets, and will
permit such persons to examine and copy such records (including any tax returns
and related information, but not attorney or accountants work product), audits,
legal proceedings, governmental investigations and other business purposes
(including such financial information and any receipts evidencing payment of
taxes as may be reasonably requested by Seller to substantiate any claim for tax
credits or refunds); provided, however, that nothing herein will obligate any
party to take actions that would unreasonably disrupt the normal course of its
business or violate the terms of any contract to which it is a party or to which
it or any of its assets is subject. Seller and Buyer will cooperate with each
other in the conduct of any tax audit or similar proceedings involving or
otherwise relating to the Business (or the income therefrom or assets thereof)
with respect to any tax and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
Section 7.1.8.
7.1.9 IntraLATA Toll. Buyer will (i) assume the retail toll carrier
role and obligations for any end users in the Exchanges that are picked or
defaulted to Seller for IntraLATA toll services or (ii) enter into agreements
with other inter-exchange carriers to assume this role or to resell the toll
services of an inter-exchange carrier to fulfill these obligations. Buyer will
execute intraLATA toll access agreements with Seller establishing the process
for the purchase of toll access from Seller by Buyer at the rates contained in
Seller's access tariffs. Seller agrees that it will need to establish its own
agreements with other telecommunications carriers for the purchase of toll
access that may be routed over joint Seller/Buyer transport or tandem switch
facilities (transit traffic). Buyer will cooperate with Seller and other
carriers to measure and share data required to facilitate billing for such
traffic. Buyer and Seller will establish a process by which Buyer will bill
Seller for terminating IntraLATA toll access based on actual termination of
Seller toll services to the Exchanges. Buyer and Seller will enter into a
billing and collection agreement for the billing and collection of casual toll
at a rate not to exceed $0.12 per message. Buyer and Seller shall establish meet
point percentages for jointly provided toll access and file such meet points as
required with Governmental Authorities.
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7.1.10 Extended Area Service. Buyer and Seller will enter into
extended area service agreements as necessary.
7.1.11 Transiting Toll Facilities. Concurrently with the Closing,
Buyer shall grant to Seller the irrevocable right to use or Buyer shall lease to
Seller, in either case for a term of 99 years, the portion of the transiting
toll facilities, network facilities and associated electronic equipment included
in the Property and relating to the Exchanges listed on Schedule 7.1.11 that is
required by Seller for the conduct of any business conducted by Seller other
than the Business. The consideration for such grant or lease shall be $1.00 and
other consideration including the mutual covenants and agreements set forth in
this Agreement. Within 90 days after the execution of this Agreement, Buyer and
Seller shall apportion and assign the total capacity of such facilities and
equipment for each Exchange listed on Schedule 7.1.11. The parties shall review
such apportionment on an annual basis and make such changes to assignments as
may be required. If any transiting toll facilities, network facilities and
related electronic equipment that are Excluded Assets are located in any
rights-of-way that are used in connection with the operation of the Business,
then concurrently with the Closing, Buyer shall, to the extent possible, assign
to Seller the right to use such right-of-way jointly with Buyer and appropriate
joint use agreements in recordable form and otherwise reasonably acceptable to
the parties shall be entered into at the Closing.
7.1.12 Reinitialization Period. If the Reinitialization has not been
approved at the time of the Closing, Buyer shall use its best efforts to obtain
the Reinitialization.
ARTICLE 8
ARBITRATION
8.1 Arbitrability. All claims, except and only to the extent such claims
are those over which the State Regulatory Authorities have primary jurisdiction,
by either party against the other arising out of or related in any manner to
this Agreement or any of the Transferred Assets or the Transactions shall be
resolved by arbitration as prescribed herein; provided, however, that either
party shall be entitled to seek temporary or permanent injunction against any
actual or threatened breach of Section 5.3.1 by the other party in any court of
competent jurisdiction without the necessity for showing any actual damages. The
Federal Arbitration Act and not state law will govern the arbitrability of all
claims. Failure of either party to assert or pursue a mandatory claim or defense
that must be asserted in litigation to avoid the loss of the right to assert
such claim or defense shall not preclude that party from asserting any such
claim or defense in arbitration proceedings hereunder.
8.2 Rules. A single arbitrator engaged in the practice of law, who is
knowledgeable about the telecommunications industry and telecommunications law,
shall conduct the arbitration under the then-current commercial arbitration
rules of the American Arbitration Association
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("AAA"), unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Denver, Colorado.
8.3 Discovery; Damages; Expenses. Buyer and Seller shall allow and
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall have authority to award only actual damages and shall not have
the authority to award consequential, compensatory, punitive or exemplary
damages or any other form of relief. Each party shall bear its own costs and
attorneys' fees. The arbitrator's decision and award shall be final and binding,
and judgment upon the award rendered by the arbitrator may be entered in any
court having personal jurisdiction. The non-prevailing party to the arbitration
shall pay all of the fees and expenses of the arbitrator and the AAA, provided,
however, that if the arbitrator deems Buyer and Seller to be equally prevailing
or non-prevailing on the matters at issue, then the parties shall each pay
one-half of the fees and expenses of the arbitrator and the AAA.
8.4 Judicial or Administrative Action. If any party files a judicial or
administrative action asserting claims properly subject to arbitration as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification by Seller. From and after Closing, Seller
shall indemnify and hold harmless Buyer from and against any and all claims,
losses, liabilities, damages, penalties, costs and expenses, including
reasonable counsel fees and costs and expenses ("Losses") arising out of or
resulting from:
(a) any representations and warranties made by Seller in the
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed upon or prior to the Closing;
(c) any breach or default by Seller in the performance of its
covenants, agreements or obligations under this Agreement required to be
performed after the Closing; and
(d) all liabilities and obligations arising out of or relating to
the operation of the Exchanges prior to the Closing, including without
limitation the Retained Liabilities.
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Section 9.2 Indemnification by Buyer. From and after Closing, Buyer shall
indemnify and hold harmless Seller from and against any and all Losses arising
out of or resulting from:
(a) any representations and warranties made by Buyer in this
Agreement not being true and accurate when made or when required by this
Agreement to be true and accurate;
(b) any breach or default by Buyer in the performance of its
covenants, agreements or obligations under this Agreement;
(c) all liabilities and obligations arising out of or relating to
the operation of the Exchanges after the Closing, including without limitation
the Assumed Liabilities;
(d) without limitation of the foregoing, violation of Environmental
Laws, to the extent such liability is an Assumed Liability or arises out of or
relates to the operation of the Exchanges after the Closing; and
(e) liability of Seller arising after Closing with respect to
Buyer's failure to enter into or perform interconnection agreements in or
directly related to the Exchanges.
Section 9.3 Indemnified Third Party Claim.
(a) If any person (including State Regulatory Authorities) not a
party to this Agreement ("Person") shall make any demand or claim or file or
threaten to file or continue any action, suit or proceeding of any kind ("Third
Party Claim") with respect to which Buyer or Seller is entitled to
indemnification pursuant to Sections 9.1 or 9.2, respectively, then within ten
days after notice (the "Notice") by the party entitled to such indemnification
(the "Indemnitee") to the other (the "Indemnitor") of such litigation, the
Indemnitor shall have the option, at its sole cost and expense, to retain
counsel for the Indemnitee (which counsel shall be reasonably satisfactory to
the Indemnitee) to defend any such litigation. Thereafter, the Indemnitee shall
be permitted to participate in such defense at its own expense, provided that,
if the named parties to any such litigation (including any impleaded parties)
include both the Indemnitor and the Indemnitee or, if the Indemnitor proposes
that the same counsel represent both the Indemnitee and the Indemnitor and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interest between them, then the Indemnitee shall
have the right to retain its own counsel at the cost and expense of the
Indemnitor, unless the Indemnitor shall acknowledge in writing its indemnity
obligation, in which event the retention by Indemnitee of its own counsel shall
be at its cost and expense. If the Indemnitor shall fail to respond within ten
days after receipt of the Notice, the Indemnitee may retain counsel and conduct
the defense of such litigation as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnitor.
(b) The Indemnitee shall provide reasonable assistance to the
Indemnitor and provide such access to its books, records and personnel as the
Indemnitor reasonably requests in connection with the investigation or defense
of the indemnified Losses. The Indemnitor shall
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promptly upon receipt of reasonable supporting documentation reimburse the
Indemnitee for out-of-pocket costs and expenses incurred by the later in
providing the requested assistance.
(c) With regard to litigation with any Person for which Buyer or
Seller is entitled to indemnification under Sections 9.1 or 9.2, such
indemnification shall be paid by the Indemnitor upon: (i) the entry of any
judgment, writ, order, injunction, award or decree of any court, the FCC or any
State Regulatory Authorities ("Judgment") against the Indemnitee and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
Judgment or final appellate Judgment against the Indemnitee; or (iii) a
settlement with the consent of the Indemnitor, which consent shall not be
unreasonably withheld, provided that no such consent need be obtained if the
Indemnitor fails to respond to the Notice as provided in Section 9.3(a).
Section 9.4 Determination of Indemnification Amounts and Related Matters.
(a) Neither Buyer nor Seller will be entitled to make a claim
against the other under Section 9.1(a) or (b) or 9.2(a) or (b) until (i) the
aggregate amount of Losses incurred by the Indemnitee for any individual
occurrence (or related series of occurrences) exceeds $50,000 and (ii) in the
case of Losses under Section 9.1(a) (except for Losses due to a breach of the
representations of Seller contained in Section 4.2.15) or 9.1(b) the aggregate
amount of claims that may be asserted for such Losses, together with all other
claims for Losses asserted under Section 9.1(a) or 9.1(b) under each of the
Multi-State Exchange Purchase Agreements, exceed an amount equal to 1% of the
aggregate of the Purchase Prices (as defined in each Multi-State Exchange
Purchase Agreement) for the transactions contemplated by the Multi-State
Exchange Purchase Agreements, to the extent actually paid to Seller, but only to
the extent such amount exceeds such aggregate of the Purchase Prices.
(b) Notwithstanding any other provision of this Agreement, (i)
Seller shall not be required to make any payments pursuant to Section 9.1(a),
(b) or (c) to the extent that the Maximum Adjustment Amount shall have been
reached, and (ii) Buyer shall not be required to make any payments pursuant to
Article 9 in excess of an amount equal to 3% of the Purchase Price.
(c) Subject to Section 9.3, all amounts payable by the Indemnitor to
the Indemnitee in respect of any Losses under Sections 9.1 and 9.2 shall be
payable by the Indemnitor as incurred by the Indemnitee and will include
interest at the rate of 8% per annum from the date that the related Losses were
incurred through but not including the date the payment is made.
Section 9.5 Time and Manner of Certain Claims. Except as otherwise
provided herein, the representations and warranties of Buyer and Seller, and the
covenants to be performed by them on or prior to the Closing Date, in this
Agreement shall survive Closing for a period of one year, except that the
representations of Seller contained in Section 4.2.15 shall survive Closing for
a period of 15 months and the representations and warranties contained in the
first sentence of Section 4.2.3 shall survive Closing indefinitely (the
"Survival Period"). Neither Seller nor Buyer shall have any liability under
Sections 9.1 or 9.2, respectively, unless a claim for Losses for which
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indemnification is sought thereunder is asserted by the party seeking
indemnification by written notice to the party from whom indemnification is
sought within the Survival Period.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Defined Terms. For purposes of this Agreement, certain terms used in
this Agreement and not otherwise defined herein shall have the meanings
designated below:
"Access Line" means a telephone line operating on the public switched
telephone network that runs from a central office to a customer's premises.
"Accounts Receivable" means all end user accounts receivable with respect
to goods sold and/or services provided by Seller on or prior to the Closing
Date.
"Affiliate" of a specified entity means any legal entity directly or
indirectly controlling, controlled by, or under the common control with the
specified entity. The term "control" (including "controlling", "controlled by"
and "under common control with") of an entity means the possession, directly or
indirectly, of the power to (i) vote 50% of more of the voting securities or
other voting interests of such person, or (ii) direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting shares, by contract or otherwise.
"Aggregate Adjustment Amount" means the aggregate amount that Seller has
paid or spent, or committed to pay or spend, pursuant to (i) purchase price
decreases pursuant to section 1.4.3(b) of each of the Multi-State Exchange
Purchase Agreements, (ii) payments or purchases pursuant to section 5.2.11(a) of
each of the Multi-State Exchange Purchase Agreements, and (iii) payments with
respect to indemnification claims under Section 9.1(a), (b) or (c) of each of
the Multi-State Exchange Purchase Agreements.
"Agreement" means this Agreement for Purchase and Sale of Telephone
Exchanges, together with all Schedules and Exhibits thereto, as any of the
foregoing may be amended, modified or supplemented in writing from time to time.
"Authorities" means (i) the construction permits, licenses or
authorizations granted by the FCC to Seller and used to develop and operate the
Systems; and (ii) the licenses or certificates of convenience and necessity
granted by the State Regulatory Authorities to operate the Systems.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
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"Confidential Information" means any and all technical, business or
financial information, in whatever form or medium, furnished or disclosed by or
on behalf of one party to the other or its representatives, irrespective of the
form of communication, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data and personnel statistics, and shall also include notes,
analyses, compilations, studies, interpretations or other documents prepared by
it or its representatives that contain, reflect or are based upon, in whole or
in part, other Confidential Information. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all security interests, liens, charges or
similar restrictions, except for (i) liens for taxes not yet due and payable or
that are being contested in good faith, (ii) liens of workers, carriers or
materialmen or similar liens arising by operation of law in the ordinary course
of the Business in respect of obligations that are not yet due and payable or
that are being contested in good faith, (iii) governmental conditions and
restrictions under the Authorities, (iv) with respect to Realty, recorded
easements, restrictions, reservations, rights-of-way, covenants, conditions and
similar encumbrances of record and matters that would be shown by an accurate
survey or inspection of such property, and other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
such Realty to which such defect or irregularity in title relates, and (v) with
respect to the Transferred Assets other than Realty, other minor defects and
irregularities in title that in the aggregate do not interfere in any material
respect with the conduct of the Business or the value, use or marketability of
the Transferred Assets to which such defect or irregularity in title relates.
"Environmental Laws" means all federal, state and local laws, statutes,
rules, regulations and ordinances (including common law), and all court or
administrative decisions, orders, policies or guidelines, now or hereafter in
effect relating to the environment, public health (including fire or building
safety), occupational safety, industrial hygiene, or the generation, disposal,
manufacture, release, storage, transportation or presence of Hazardous
Materials, including without limitation the National Environmental Policy Act
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act of 1975, the Toxic Substances Control Act, the
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean
Water Act, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act, and the regulations promulgated under any such acts or any permits
issued thereunder.
"Excessive Encumbrance" has the meaning set forth in Section 3.1.11.
"Excluded Assets" means (a) all cash, cash-equivalents, Accounts
Receivable and carrier access bills to interexchange carriers for minutes,
messages and other applicable charges through the
46
Closing Date; (b) any insurance policy, bond, letter of credit or other similar
item, and any cash surrender value in regard thereto; (c) all books and records
that Seller is required by law to retain or that relate primarily to internal
corporate matters; (d) all claims, rights and interests in and to any refunds of
Federal, state or local franchise, income or other taxes or fees of any nature
whatsoever for periods prior to the Closing Date; (e) any pension, profit
sharing or employee benefit plans; (f) any assets, interests or property of
Seller used in the operation of any business conducted by Seller other than the
Business, those including shared data processing, billing and collections
systems and related software; (g) the name U S WEST and all similar names and
related marks and logos used or owned by Seller or its Affiliates and any other
names, marks and logos not specifically identified as being included in the
Transferred Assets; (h) all portable office equipment, test equipment and
generators other than included in the Transferred Assets; (i) all motor vehicles
used in the operation of any business conducted by Seller other than the
Business and associated motor vehicle general stock; (j) all materials, supplies
and tools other than those included in the Transferred Assets; (k) all FCC
licenses for air-to-ground, cellular or paging services held by Seller or any
Affiliate of Seller other than those FCC radio licenses necessary to operate the
Business; (l) all maintenance radio equipment and antennas other than those
included in the Transferred Assets; (m) all assets relating to Yellow Pages or
classified directory advertising activities of Seller or any Affiliate of
Seller, (n) all transiting toll facilities, network facilities and associated
electronic equipment used in their entirety by Seller solely in the operations
of any business conducted by Seller other than the Business and containing no
capacity for use in the conduct of the Business and related rights-of-way; and
(o) all rights of Seller or any Affiliate of Seller under the Transaction
Agreements.
"Final Order" means action by any governmental or regulatory authority as
to which (i) no request for stay by any Governmental Authority, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action has been
granted by a governmental or regulatory authority; (iii) the governmental or
regulatory authority does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal by a
third party to a court, or a request to stay by a court, of any material
provision of the Governmental Authority's action, as applicable, is pending or
in effect and, if any deadline for filing any such appeal or request is
designated by statute or rule, it has passed.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities
and the grant of any study area waiver request submitted by Buyer related
thereto, but excluding the Reinitialization.
"Fee Realty" means all real property owned by Seller in fee simple and
located inside the boundaries of the Exchanges, including without limitation
tower sites or antenna sites.
47
"Governmental Authority" means any United States, state, or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, bureau, agency, court or instrumentality thereof.
"Hazardous Material" means (a) all chemicals, materials and substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words or similar import under any Environmental Law, and (b) any
other chemicals, materials or substances, including without limitation any
polychlorinated biphenyl, petroleum or any chemical fraction thereof, asbestos,
formaldehyde, flammables, explosives, and PCBs which could presently or at any
time in the future cause a detriment to or impair the value or beneficial use of
any of the Transferred Assets, or constitute or cause a health, safety or
environmental hazard to the any of the Transferred Assets or to any person or
require remediation at the behest of any state or local governmental agency
under any Environmental Law.
"Interests" means all rights, privileges, benefits and interests under all
contracts, agreements, consents, licenses, permits or certificates (except those
included as Authorities and Realty), including agreements, permits, leases and
arrangements with respect to intangible or personal property or interests
therein; equipment leases; agreements with suppliers, customers and subscribers;
business licenses; prepaid expenses; and any sales agent or sales affiliate
agreements, in each case, used or owned primarily in connection with the
Business.
"Maximum Adjustment Amount" means an Aggregate Adjustment Amount equal to
the product of (i) the aggregate number of access lines in the telephone
exchanges purchased pursuant to the Multi-State Exchange Purchase Agreements on
the closing date of each purchase thereunder multiplied by (ii) $50.00, it being
understood and agreed by the parties that (x) the Maximum Adjustment Amount
shall be preliminarily calculated at the Closing assuming that any Multi-State
Exchange Purchase Agreement that has not closed or been terminated on or before
the Closing Date shall, for purposes of such preliminary calculation, be deemed
to have closed on the Closing Date, and (y) on the date of closing or
termination of the last of Multi-State Exchange Purchase Agreement to have been
closed or terminated, the Maximum Adjustment Amount shall be finally calculated
and any resulting payments required to be made by Seller or refunds required to
be made by Buyer shall be taken into account in determining the amount of funds
to be paid by Seller at such Closing or to be paid by Seller or refunded by
Buyer upon such termination, as the case may be.
"Multi-State Exchange Purchase Agreements" means the Agreements for
Purchase and Sale, including this Agreement, entered into between Buyer, or any
Affiliate of Buyer, and Seller with respect to the purchase of Seller's rights
to provide and operate wireline telecommunications and related non-tariffed or
non-regulated wireline services and related assets in the following states:
Arizona, Colorado, Nebraska, North Dakota, Minnesota, Iowa, Idaho, Montana and
Wyoming.
"911 Assets" means all circuits, facilities and customer information used
by Seller in providing 911 emergency services in connection with the operation
of the Business.
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"Operating Contracts" means all contracts, agreements and instruments (and
all amendments and modifications thereto) entered into by Seller in the ordinary
course of the Business prior to the date hereof, including without limitation
all real property leases, documentation related to the Interests and
interconnection agreements to the extent that Buyer is required to perform such
obligations by applicable law or as a condition to obtaining any Governmental
Approvals, and all such contracts, agreements and instruments entered into by
Seller in the ordinary course of the Business between the date of this Agreement
and the Closing Date.
"Property" means all of Seller's physical facilities and other tangible
assets used primarily in the Business that are in Seller's plant in service
accounts in accordance with Part 32 of the FCC Uniform System of Accounts,
including all transiting toll facilities, network facilities and associated
electronic equipment located within the boundaries of an Exchange and not
included as Excluded Assets, which facilities and equipment shall be subject to
the arrangements set forth in Section 7.1.11.
"Reinitialization" means the implementation of the interstate access rates
pursuant to the reinitialization of the Price Cap Index ("PCI") applicable to
the approved new study area to reflect the underlying cost structure associated
with the Exchanges.
"Realty" means the Fee Realty together with all rights, privileges and
appurtenances owned by Seller inside the boundaries of the Exchanges that are a
burden upon, a benefit of, or otherwise related to the Fee Realty, including
without limitation all structures, buildings, easements, servitudes, licenses,
leasehold improvements, building improvements, fixtures, rights-of-way and other
similar interests owned by Seller and used in the Business.
"Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all open end-user customer account records, all service records kept in
the ordinary course of the Business which identify and describe the customers
being served by Seller in the Exchanges, the service that is being provided to
such customers, and those records which identify and describe the physical
property (including but not limited to cables, wires and central office
equipment) included in the Transferred Assets.
"Seller's Knowledge" means the actual knowledge of Paul Lit after due
inquiry and any senior manager specifically charged with operational
responsibility for the Exchanges concerning information about which Seller is
making a representation in this Agreement.
"State Regulatory Approvals" means the issuance of the required consents
or approvals of the State Regulatory Authorities with respect to the assignment
of the Authorities to Buyer and the designation of Buyer as an eligible
telecommunications carrier for the Exchange.
"State Regulatory Authorities" means the public utility commissions or
similar state governmental authorities in the states in which the Exchanges are
located and, where applicable, municipal authorities that have granted operating
authorities with respect to the Exchanges.
49
"Systems" means, as the context requires, Seller's service delivery
components in the Exchanges, including without limitation all equipment,
facilities, assets, properties, licenses, permits, certificates of public
convenience and necessity and other rights and authorities and related technical
knowledge and information, used in the conduct of the Business within the
particular Exchange.
"Transactions" means the purchase and sale of the Transferred Assets as
contemplated by the Agreement and all other transactions contemplated by the
Transaction Documents.
"Transaction Documents" means this Agreement and each document to be
executed in connection with the Closing of the Transactions. When used with
respect to Seller or Buyer, "Transaction Documents" means this Agreement and
such documents as are required to be executed by such party with respect to the
Closing of the Transactions.
"Transferred Assets" means all of Seller's right, title and interest in
and to the Authorities, the Interests, the 911 Assets, the Property, the Realty,
the Records and all goodwill associated with the Business as existing on the
Closing Date, but excluding the Excluded Assets.
ARTICLE 11
GENERAL
11.1 Notices. All notices hereunder will be in writing and served by
certified mail, return receipt requested, courier or facsimile. Notice shall be
deemed to have been duly given on (i) the earlier of the date received or the
fifth business day following the date mailed by the notifying party using first
class mail, postage prepaid or (ii) if delivered by courier service or
facsimile, upon actual receipt as evidenced by the appropriate confirmation
sheet. Notices shall be sent as follows:
If to Seller: U S WEST Communications, Inc.
1801 California Street, Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic
Transactions Group
Facsimile: (303) 308-0835
with a copy (which shall not constitute notice) to:
Brownstein Hyatt & Farber, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch
Facsimile: (303) 223-1111
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If to Buyer: Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: Donald P. Weinstein
Facsimile: (203) 614-4625
with a copy (which shall not constitute notice) to:
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06906
Attention: L. Russell Mitten, II., Esq.
Facsimile: (203) 614-4651
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Sixth Floor
Washington, DC 20036
Attention: Jeffry L. Hardin
Facsimile: (202) 387-3467
11.2 Waivers. No failure of a party to enforce a provision of this
Agreement will be construed as a general or a specific waiver of that provision,
or of a party's right to enforce that provision, or of a party's right to
enforce any other provision of this Agreement. No waiver of any breach of any
covenant or other provision herein contained shall be deemed to be a waiver of
any preceding or succeeding breach, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act shall
be deemed to be an extension of the time for performance of any other obligation
or act.
11.3 Commissions. Each party represents and warrants that no broker or
other person is entitled to any commission or finder's fee in connection with
the consummation of the Transactions based on arrangements made by such party
for which the other party could have any liability.
11.4 Payment of Expenses. Except as otherwise provided herein, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in consummating and carrying
out the Transactions, whether or not the Transactions are consummated.
Notwithstanding the foregoing, all transfer fees payable in connection with the
assignment of permits or rights-of-way shall be borne by Buyer.
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11.5 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and, when each of the parties hereto has
executed and delivered a counterpart to the other party, this Agreement shall be
binding and effective even though no single counterpart has been executed by
both of the parties.
11.7 Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.8 Assignment. The rights and obligations of the parties to this
Agreement or any interest in this Agreement shall not be assigned, transferred,
hypothecated, pledged or otherwise disposed of without the prior written consent
of the nonassigning party, which consent may be withheld in such party's sole
discretion; provided, however, that (i) Buyer may, without the prior consent of
Seller but without relieving Buyer of its obligations hereunder, assign its
rights under this Agreement to any Affiliate or lender, and (ii) Seller may
assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the Transactions as a 1031
Transaction.
11.9 Additional Instruments and Assistance. Each party hereto shall from
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its counsel
may reasonably request in order to complete and perfect the Transactions.
11.10 Seller's Control Over Authorized Facilities. No provision of this
Agreement shall be construed to abrogate Seller's control of and responsibility
for the operation of the authorized facilities of the Business prior to the
actual transfer of control of those facilities hereunder to the Buyer as
approved by the FCC and the State Regulatory Authorities.
11.11 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado.
11.12 Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable when applied to any person or
circumstance, the remaining provisions of this Agreement and the enforcement of
such provision to other persons or circumstances shall not be affected thereby,
and each provision of this Agreement shall be enforced to the fullest extent
allowed by law.
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11.13 Amendments. This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by its
agent duly authorized in writing or as otherwise expressly permitted herein.
11.14 No Construction Against the Drafting Party. Each party hereto
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.15 Integration. This Agreement, including all schedules and exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, warranties or representations between the parties with respect
to such subject matter except as set forth or noted herein. Except as provided
in Section 5.1.4 hereof, this Agreement is not made for the benefit of any
person, firm, corporation or association other than the parties hereto. Except
as provided in Section 5.1.5 hereof, the parties do not intend to confer any
benefit hereunder on any person, firm or corporation other than the parties
hereto.
* * * * *
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IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
CITIZENS UTILITIES COMPANY
By:
--------------------------------
Leonard Tow
Chairman and Chief Executive Officer
SELLER:
U S WEST COMMUNICATIONS, INC.
By:
---------------------------------
Solomon D. Trujillo
President and Chief Executive Officer