Exhibit 10.1
PURCHASE AGREEMENT
DATED AS OF JANUARY 25, 2006
BY AND BETWEEN
LEVEL 3 COMMUNICATIONS, LLC
AND
PT HOLDING COMPANY LLC
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS..................................................................................1
ARTICLE 2 PURCHASE AND SALE...........................................................................10
Section 2.1 Purchase and Sale of Units..................................................................10
Section 2.2 Assumption of Excluded Liabilities..........................................................10
Section 2.3 Purchase Price..............................................................................10
Section 2.4 Cash Substitution Right.....................................................................11
Section 2.5 Purchase Price Adjustment...................................................................11
Section 2.6 The Closing.................................................................................12
Section 2.7 Deliveries at the Closing...................................................................12
Section 2.8 Allocation..................................................................................12
ARTICLE 3 SELLER'S REPRESENTATIONS AND WARRANTIES.....................................................13
Section 3.1 Organization................................................................................13
Section 3.2 Authorization of Transaction................................................................14
Section 3.3 Noncontravention; Consents..................................................................14
Section 3.4 Financial Statements........................................................................14
Section 3.5 Brokers' Fees...............................................................................15
Section 3.6 Title to Tangible Assets....................................................................15
Section 3.7 Subsidiaries................................................................................16
Section 3.8 Absence of Changes..........................................................................16
Section 3.9 Legal Compliance............................................................................17
Section 3.10 Tax Matters.................................................................................18
Section 3.11 Contracts...................................................................................20
Section 3.12 Real Property...............................................................................21
Section 3.13 Intellectual Property.......................................................................22
Section 3.14 Litigation..................................................................................23
Section 3.15 Labor and Employment........................................................................23
Section 3.16 Employee Benefits...........................................................................24
Section 3.17 Environmental Matters.......................................................................25
Section 3.18 Certain Business Relationships with the Company and its Subsidiaries........................26
Section 3.19 Permits.....................................................................................26
Section 3.20 Insurance...................................................................................26
Section 3.21 Bank Accounts...............................................................................26
Section 3.22 DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES..........................................26
Section 3.23 Suppliers and Customers.....................................................................27
Section 3.24 Network Operations..........................................................................27
Section 3.25 Intentionally omitted.......................................................................27
Section 3.26 Acquisition of the Shares...................................................................27
Section 3.27 Representations and Warranties of Guarantors................................................28
Section 3.28 Additional Representations and Warranties of Seller.........................................30
Section 3.29 Brokers' Fees...............................................................................30
Section 3.30 Company Units...............................................................................31
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER and level 3.................................31
Section 4.1 Organization of Purchaser...................................................................31
Section 4.2 Authorization of Transaction................................................................31
Section 4.3 Non-contravention...........................................................................32
Section 4.4 Brokers' Fees...............................................................................32
Section 4.5 Litigation..................................................................................32
Section 4.6 Availability of Funds.......................................................................32
Section 4.7 Capitalization and Related Matters..........................................................32
Section 4.8 SEC Filings.................................................................................33
Section 4.9 No Material Adverse Effect..................................................................33
Section 4.10 Private Placement...........................................................................33
ARTICLE 5 PRE-CLOSING COVENANTS.......................................................................33
Section 5.1 General.....................................................................................34
Section 5.2 Notices and Consents........................................................................34
Section 5.3 Interim Conduct of the Company..............................................................34
Section 5.4 Full Access.................................................................................36
Section 5.5 Notice of Developments......................................................................36
Section 5.6 Negotiations................................................................................37
Section 5.7 Employment and Employee Benefit Matters.....................................................37
Section 5.8 Audited Financial Statements................................................................39
Section 5.9 Intentionally Omitted.......................................................................39
Section 5.10 Reorganization..............................................................................39
Section 5.11 Capital Projects............................................................................39
Section 5.12 Suppliers and Customers.....................................................................39
ARTICLE 6 CONDITIONS TO OBLIGATION TO CLOSE...........................................................40
Section 6.1 Conditions to Purchaser's Obligation........................................................40
Section 6.2 Conditions to Seller's Obligation...........................................................42
ARTICLE 7 POST-CLOSING COVENANTS......................................................................43
Section 7.1 General.....................................................................................43
Section 7.2 Litigation Support..........................................................................43
Section 7.3 Agreements Regarding Tax Matters............................................................43
Section 7.4 Records and Documents.......................................................................45
Section 7.5 Use of Company Trademarks...................................................................45
Section 7.6 Non-Solicitation of Employees...............................................................46
Section 7.7 Employment and Employee Benefits Matters....................................................46
Section 7.8 Insurance Matters...........................................................................46
Section 7.9 Other Customer Consents.....................................................................47
Section 7.10 Stock Certificate Legend....................................................................47
ARTICLE 8 REMEDIES FOR BREACHES OF THIS AGREEMENT.....................................................47
Section 8.1 Indemnification by Seller...................................................................47
Section 8.2 Indemnification by Purchaser................................................................49
Section 8.3 Procedure for Indemnification...............................................................50
Section 8.4 Certain Limitations.........................................................................51
Section 8.5 Certain Benefits............................................................................51
Section 8.6 Treatment of Indemnity Payments.............................................................51
ARTICLE 9 TERMINATION.................................................................................51
Section 9.1 Termination of Agreement....................................................................51
Section 9.2 Effect of Termination.......................................................................52
ARTICLE 10 MISCELLANEOUS...............................................................................52
Section 10.1 Survival....................................................................................52
Section 10.2 Public Announcements........................................................................52
Section 10.3 Expenses....................................................................................52
Section 10.4 Disclosure Schedule.........................................................................52
Section 10.5 Specific Performance........................................................................53
Section 10.6 Amendment; Successors and Assigns...........................................................53
Section 10.7 Extension of Time; Waiver...................................................................53
Section 10.8 Severability................................................................................53
Section 10.9 Counterparts.; Facsimile....................................................................53
Section 10.10 Descriptive Headings........................................................................53
Section 10.11 Notices.....................................................................................53
Section 10.12 No Third-Party Beneficiaries................................................................55
Section 10.13 Confidentiality.............................................................................55
Section 10.14 Entire Agreement............................................................................56
Section 10.15 Construction................................................................................56
Section 10.16 Schedules and Exhibits......................................................................56
Section 10.17 Governing Law...............................................................................56
SCHEDULES
Schedule 1.1 Capital Leases
Schedule 3.1(a) Foreign Qualifications
Schedule 3.3(a) Contract Noncontravention
Schedule 3.3(b) Material Governmental Consents
Schedule 3.4(a) Financial Statements
Schedule 3.4(b) Material Obligations
Schedule 3.4(c) Monthly Financial Information
Schedule 3.6(a) Title to Tangible Assets
Schedule 3.6(b) Fiber Ownership Encumbrances
Schedule 3.7 Subsidiaries
Schedule 3.8 Absence of Changes
Schedule 3.8(i) Prepaid Sales
Schedule 3.10 Tax Matters
Schedule 3.11(a) Contracts
Schedule 3.11(b) Contracts in Full Force and Effect
Schedule 3.11(c) Material Breach/Default
Schedule 3.12(a) Owned Real Property
Schedule 3.12(b) Leased Real Property
Schedule 3.13 Intellectual Property
Schedule 3.13(d) Imbedded Software Licenses
Schedule 3.14 Litigation
Schedule 3.15 Labor and Employment
Schedule 3.16 Employee Benefits
Schedule 3.17 Environmental Matters
Schedule 3.18 Certain Relationships with Subsidiaries
Schedule 3.20 Insurance
Schedule 3.21 Bank Accounts
Schedule 3.23(a) Major Suppliers
Schedule 3.23(b) Major Customers
Schedule 3.23(c) Indemnification
Schedule 3.24 Network Outages/Credits
Schedule 3.27(c) Guarantor Non-Contravention; Consents
Schedule 3.30 Company Units
Schedule 4.3 Purchaser Non-Contravention; Consents
Schedule 4.7 Purchaser Capitalization and Related Matters
Schedule 5.3(k) Interim Conduct of the Company
Schedule 5.7 Employment and Employee Benefit Matters
Schedule 5.7(e) Leave of Absence
Schedule 6.1(j) Employment Agreements
Schedule 7.6(a) Schedule of PGN Employees
Schedule 7.6(b) Schedule of Purchaser Employees
Schedule 8.1(e) Designated Entities
EXHIBITS
Exhibit 2.1(b) Excluded Assets
Exhibit 2.5 Pro Forma Net Current Assets
Exhibit 5.11 Capital Projects
Exhibit 6.1(i) Registration Rights Agreement
Exhibit 6.1(k) Approvals
Exhibit 6.1(t) Affiliate Agreement Transfer Consents
Exhibit 7.4 Records Retention Policy
Exhibit 7.5 Transitional Trademark License
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is entered into as of January
25, 2006 (the "Effective Date"), by and among Level 3 Communications, LLC, a
Delaware limited liability company ("Purchaser"), and PT Holding Company LLC, a
Delaware limited liability company ("Seller"), and solely for purposes of
Article 8 and Section 3.27 of this Agreement, Progress Telecommunications
Corporation, a Florida corporation ("PTC"), Caronet, Inc., a North Carolina
corporation ("Caronet"), EPIK Communications Incorporated, a Delaware
corporation ("EPIK"), Florida Progress Corporation, a Florida corporation
("FPC"), and Odyssey Telecorp, Inc., a Delaware corporation ("OT" which together
with Caronet, PTC, EPIK and FPC are individually or collectively referred to as
a "Guarantor" or the "Guarantors") and solely for purposes of Articles 8 and 4
of this Agreement, Level 3 Communications, Inc., a Delaware corporation ("Level
3"). Purchaser and Seller are referred to herein individually as a "Party" and
collectively as the "Parties."
RECITALS
WHEREAS, Seller owns all of the issued and outstanding membership units of
Progress Telecom, LLC, a Delaware limited liability company (the "Company");
WHEREAS, this Agreement contemplates a transaction in which Purchaser will
acquire from Seller, in exchange for the consideration described below, all of
the issued and outstanding membership units of the Company;
WHEREAS, Purchaser desires to purchase and acquire from Seller, and Seller
desires to sell and transfer to Purchaser all of the Units, on the terms and
subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the value, receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
"Acquired Assets" means all of the right, title, and interest that the
Company possesses in and to all the assets, rights and properties, including all
of its (a) Owned Real Property and Leased Real Property, (b) tangible personal
property (such as machinery, equipment, inventories of materials and supplies,
manufactured and purchased parts, goods in process and finished goods,
furniture, automobiles, trucks, tractors, trailers, tools, jigs, and dies), (c)
Company Intellectual Property, goodwill associated therewith, licenses and
sublicenses granted and obtained with respect thereto, and rights thereunder,
remedies against infringements thereof, and rights to protection of interests
therein under the laws of all jurisdictions, (d) leases, subleases, and rights
thereunder, (e) agreements, contracts, instruments, other similar arrangements,
and rights thereunder, (f) accounts, notes, and other receivables, (g)
securities (including the capital stock or other equity interests in its
Subsidiaries), (h) claims, deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery, rights of set-off, and rights of
recoupment
(excluding any such item relating to the payment of Taxes), (i) franchises,
approvals, permits, licenses, orders, registrations, certificates, variances,
and similar rights obtained from governments and governmental agencies, (j)
books, records, ledgers, files, documents, correspondence, lists, plats,
architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, studies, reports, and other printed or
written materials, and (k) the organizational documents of Company entered into
or effective as of or after the Reorganization, including the corporate charter,
qualifications to conduct business as a foreign corporation, minute books,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers; provided, however, that the Acquired Assets
shall not include Income Tax Returns and all related work papers or any of the
Excluded Assets.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Allocation" has the meaning set forth in Section 2.8.
"Business" shall refer to all businesses operated by the Company and its
Subsidiaries, excepting (i) the Tower Business, (ii) the Excluded Assets, and
(iii) the businesses operated by the Excluded Affiliate, each of which will be
transferred to Seller before Closing.
"Cash Purchase Price" has the meaning set forth in Section 2.3.
"Cash Substitution Right" has the meaning set forth in Section 2.4.
"Closing" has the meaning set forth in Section 2.6.
"Claims" has the meaning set forth in Section 8.2(a).
"Closing Date" has the meaning set forth in Section 2.6.
"COBRA Coverage" shall mean the continuation of health care coverage as
required under Part 6 (Sections 601-609) of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the Recitals.
"Company Benefit Plan" has the meaning set forth in Section 3.16(a).
"Company Contracts" has the meaning set forth in Section 3.11(a).
"Company Intellectual Property" means all of the Company's and
Subsidiaries' patents, patent applications, licenses, trademarks, trade names,
service marks, domain names, computer software, data, copyrights, trade secrets,
confidential business information (including formulas, compositions, inventions,
manufacturing and production processes and techniques, technical drawings and
designs, technical data, customer and supplier data, pricing and cost
information), associated goodwill, all results and other information related to
any research and development project, including all rights thereunder, remedies
against infringement and rights to protection of
2
interests therein under the Laws of all jurisdictions, in each case to the
extent legally assignable and used by the Company or the Subsidiaries as of the
Closing Date; provided, however, that notwithstanding the foregoing, "Company
Intellectual Property" does not include (i) any of the items or types of
intellectual property listed above if exclusively related to the Excluded
Assets, and (ii)any trademarks subject to the Transitional Trademark License.
"Confidential Information" means any information concerning the business
and affairs of Seller, its Subsidiaries and its Excluded Subsidiaries that is
not already generally available to the public.
"Confidentiality Agreement" has the meaning set forth in Section 5.4.
"Disclosure Schedule" has the meaning set forth in Article 3 below.
"Effective Date" has the meaning set forth in the preface hereto.
"Employee Benefit Plan" means any "employee benefit plan" as such term is
defined in ERISA Section 3(3) and any other material employee benefit plan,
program or arrangement, including, without limitation, any such plan, program or
arrangement providing severance pay, sick leave, vacation pay, salary
continuation for disability, retirement benefits, deferred compensation, bonus
pay, incentive pay, stock options, equity participation, hospitalization
insurance, medical insurance, life insurance, scholarships or tuition
reimbursements.
"Employees" means those employees of the Company and its Subsidiaries that
the Parties have agreed are principally involved in and dedicated to the
Business and whose names are set forth in Schedule 5.7 of the Disclosure
Schedule; provided, however, that such term shall in no event include the
Excluded Employees.
"Environmental Laws" shall mean any applicable laws, regulations or other
requirements of law or common law relating to the protection or pollution of the
environment or natural resources.
"ERISA Affiliate" means each entity that is, or has been, treated as a
single employer with Seller, the Company or any Subsidiary during the 5-year
period preceding the date hereof for purposes of Code Section 414.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Affiliate" shall mean PT Wireless, Inc., a Delaware corporation.
"Excluded Assets" has the meaning set forth in Section 2.1(b).
"Excluded Employees" means (i) those employees of the Company and its
Subsidiaries that the Parties have agreed are not principally involved in and
dedicated to the Business and whose names are set forth in Schedule 5.7 of the
Disclosure Schedule, and (ii) the former employees of the Company and its
Subsidiaries whose employment terminated prior to the Closing Date, whether or
not such employees' employment was at any time principally involved in and
dedicated to the Business.
3
"Excluded Liabilities" means all liabilities of the Company and its
Subsidiaries (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due) other than the Retained
Liabilities.
"Excluded Subsidiaries" shall mean, individually and collectively, (a)
Progress Telecom International, LLC, a Delaware limited liability company wholly
owned by the Company, (b)Progress Telecom Holding, Limitada, a Brazilian limited
liability company which is, indirectly through Progress Telecom International,
LLC and Progress Telecom Virginia, LLC, a wholly owned subsidiary of the
Company, (c) Progress Telecom Do, Limitada, a Brazilian limited liability
company which is, indirectly through Progress Telecom International, LLC and
Progress Telecom Holdings, Limitada, a wholly owned subsidiary of the Company,
(d) Progress Telecom Virginia, LLC, a Virginia limited liability company and a
wholly owned subsidiary of Company and (e) the Excluded Affiliate.
"Final Allocation" has the meaning set forth in Section 2.8.
"Final Purchase Price" has the meaning set forth in Section 2.5.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time, consistently applied.
"Governmental Entity" means any government or any agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other agency or instrumentality of any government, whether federal, state or
local, in the United States.
"Guarantor" and "Guarantors" each has the meaning set forth in the preface
hereto.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Hazardous Material" means any element, compound, chemical mixture,
contaminant, pollutant, material, waste or other substance that is defined as
hazardous or toxic under any Environmental Law, including but not limited to
hazardous substances and hazardous wastes. Hazardous Materials do not include
those materials that are produced, manufactured, or otherwise exist either
directly or as a coincidence of the primary business enterprise in which the
Company and the Subsidiaries are engaged.
"Income Taxes" means all Taxes based upon, measured by, or calculated with
respect to (i) gross or net income or gross or net receipts or profits
(including, but not limited to, any capital gains, alternative minimum taxes,
net worth and any taxes on items of tax preference, but not including sales,
use, goods and services, real or personal property transfer or other similar
taxes), (ii) multiple bases (including, but not limited to, corporate franchise,
doing business or occupation taxes) if one or more of the bases upon which such
tax may be based upon, measured by, or calculated with respect to, is described
in clause (i) above, or (iii) withholding taxes measured with reference to or as
a substitute for any tax described in clauses (i) or (ii) above; and "Income
Tax" means any one of them; provided, however, that Income Taxes shall not
include any Tax imposed on or payable by the Company or the Subsidiaries.
4
"Income Tax Return" means any Tax Return that relates to Income Taxes.
"Indemnitee" has the meaning set forth in Section 8.3.
"Indemnitor" has the meaning set forth in Section 8.3.
"IP" means Internet protocol, as such term is commonly understood and used
in the telecommunications industry.
"IRU" has the meaning set forth in Section 3.11(xi).
"Laws" means any applicable federal, state or local law, statute, rule,
regulation, ordinance, permit, order, writ, injunction, judgment or decree.
"Leased Real Property" means all leasehold or subleasehold estates and
other rights to use or occupy any land, buildings, structures, improvements,
fixtures or other interest in real property that is used in the Business.
"Leases" means all leases, subleases, licenses, concessions and other
agreements (written or oral), including all amendments, extensions, renewals,
guaranties, and other agreements with respect thereto, pursuant to which the
Company or any of its Subsidiaries holds any Leased Real Property.
"Level 3" has the meaning set forth in the preface hereto.
"Level 3 SEC Reports" has the meaning set forth in Section 3.26(b).
"Liability Cap" has the meaning set forth in Section 8.1(b).
"Lien" means any mortgage, pledge, lien, encumbrance, charge, or other
security interest other than (a) builders', mechanics', warehousemen's,
materialmen's, contractors, workmen's, repairmen's or carriers' liens and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, or (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Major Customers" has the meaning set forth in Section 3.23(b).
"Major Suppliers" has the meaning set forth in Section 3.23(a).
"Material Adverse Effect" means any effect or change that would have an
immediate material and adverse effect on the Business, taken as a whole, or to
the ability of Seller to consummate timely the transactions contemplated hereby;
provided that none of the following shall be deemed to constitute, and none of
the following shall be taken into account in determining whether there has been,
a Material Adverse Effect: any adverse change, event, development, or effect
arising from or relating to (1) general business or economic conditions,
including such conditions related to the Business, (2) changes or effects that
generally affect (i)
5
the industry in which the Company operates or (ii) any of the markets for
optical transport and/or related communications services (e.g., wholesale
bandwidth, waves, IP services, collocation, hosting or dark fiber), (3) national
or international political or social conditions, including the engagement by the
United States in hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military or terrorist attack
upon the United States, or any of its territories, possessions, or diplomatic or
consular offices or upon any military installation, equipment or personnel of
the United States, (4) financial, banking, or securities markets (including any
disruption thereof and any decline in the price of any security or any market
index), (5) changes in United States generally accepted accounting principles,
or (6) changes in laws, rules, regulations, orders, or other binding directives
issued by any governmental entity, so long as, in the case of clauses (1)
through (6) above, the Business is not materially disproportionately affected by
such change, event, development or effect relative to the affect suffered by the
Company's industry peers with respect to the same event or condition.
"Monthly Financial Information" has the meaning set forth in Section
3.4(c).
"Negative Adjustment" has the meaning set forth in Section 2.5.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Property" means all land, together with all buildings,
structures, improvements, and fixtures located thereon, and all easements and
other rights and interests appurtenant thereto, owned by Company or any of its
Subsidiaries and used in the Business.
"Party" and "Parties" has the meaning set forth in the preface hereto.
"Permitted Encumbrances" means with respect to each parcel of Owned Real
Property: (a) real estate taxes, assessments and other governmental levies,
fees, or charges imposed with respect to such Owned Real Property that are (i)
not due and payable as of the Closing Date or (ii) being contested by
appropriate proceedings as disclosed on Schedules 3.10 or 3.12 of the Disclosure
Schedule; (b) mechanics' liens and similar liens for labor, materials, or
supplies provided with respect to such Owned Real Property incurred in the
Ordinary Course of Business for amounts that are (i) not delinquent and that
are, in the aggregate, material or (ii) being contested by appropriate
proceedings; (c) zoning, building codes, and other land use laws regulating the
use or occupancy of such Owned Real Property or the activities conducted thereon
that are imposed by any governmental authority having jurisdiction over such
Owned Real Property; and (d) easements, covenants, conditions, restrictions and
other similar matters affecting title to such Owned Real Property and other
encroachments and title and survey defects that do not or would not materially
impair the use or occupancy of such Owned Real Property.
"Permits" means all licenses, permits, franchises, certificates of
authority or orders, or any waiver of the foregoing, issued by any Governmental
Entity.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, any other business entity, or a
governmental entity (or any department, agency, or political subdivision
thereof).
6
"PGN IRU" has the meaning set forth in Section 3.6(b).
"Positive Adjustment" has the meaning set forth in Section 2.5.
"Position Paper" has the meaning set forth in Section 2.5
"Pre-Closing Tax Period" shall mean any taxable period ending on or before
the Closing Date and the portion ending on and including the Closing Date of any
Straddle Period.
"Pro Forma Net Current Assets" has the meaning set forth in Section 2.5.
"Property Taxes" means all real, personal and intangible property Taxes,
including ad valorem Taxes; and "Property Tax" means any one of them.
"Property Tax Returns" means all Tax Returns that relate to Property Taxes.
"Purchase Price" has the meaning set forth in Section 2.3.
"Purchase Price Adjustment" has the meaning set forth in Section 2.5.
"Purchaser" has the meaning set forth in the preface hereto.
"Purchaser Claims" has the meaning set forth in Section 8.1(a).
"Purchaser Common Stock" means common stock, par value $0.01 per share, of
Level3.
"Purchaser Indemnified Party" has the meaning set forth in Section 8.1(a).
"Purchaser Material Adverse Effect" means any effect or change that would
have an immediate material and adverse effect on the business of Purchaser and
its subsidiaries, taken as a whole, or to the ability of Purchaser to consummate
timely the transactions contemplated hereby; provided that none of the following
shall be deemed to constitute, and none of the following shall be taken into
account in determining whether there has been, a Purchaser Material Adverse
Effect: any adverse change, event, development, or effect arising from or
relating to (1) general business or economic conditions, including such
conditions related to the business of Purchaser and its subsidiaries, (2)
changes or effects that generally affect (i) the industry in which the Purchaser
and its subsidiaries operates or (ii) any of the markets for optical transport
and/or related communications services (e.g., wholesale bandwidth, waves, IP
services, collocation, hosting or dark fiber), (3) national or international
political or social conditions, including the engagement by the United States in
hostilities, whether or not pursuant to the declaration of a national emergency
or war, or the occurrence of any military or terrorist attack upon the United
States, or any of its territories, possessions, or diplomatic or consular
offices or upon any military installation, equipment or personnel of the United
States, (4) financial, banking, or securities markets (including any disruption
thereof and any decline in the price of any security or any market index), (5)
changes in GAAP, or (6) changes in laws, rules, regulations, orders, or other
binding directives issued by any governmental entity, so long as, in the case of
clauses (1) through (6) above, the business of Purchaser and its subsidiaries is
not
7
materially disproportionately affected by such change, event, development or
effect relative to the affect suffered by the Purchaser's industry peers with
respect to the same event or condition
"Release" means any material spilling, leaking, pumping, pouring, emitting,
discharging, injecting, storing, escaping, dumping, burying, abandoning or
disposing into the environment not otherwise permitted.
"Reorganization" shall mean the recently completed restructuring of the
ownership of the Company through (i) the formation of Seller, (ii) the transfer
of the membership units held by the Company's members as of the Effective Date
to Seller in exchange for identical units in Seller, as a result of which the
Company has become a wholly-owned and, for federal tax purposes, a "disregarded"
entity; (iii) the pre-Closing assignment and transfer of the Excluded Assets and
assumption of Excluded Liabilities to Seller; and (iv) amendment and restatement
of the Operating Agreement for the Company.
"Retained Liabilities" means (i) all of the liabilities of the Company
constituting current liabilities under the definition of Pro Forma Net Current
Assets as of the Closing Date, (ii) all liabilities and obligations of the
Company (other than those resulting from a breach by the Company prior to
Closing ) under the agreements, contracts, leases, licenses, and other
arrangements to which the Company is a party (other than those agreements,
contracts, leases, licenses, and other arrangements which constitute Excluded
Assets), (iii) all liabilities of Company with respect to its deferred income
obligations related to the Business, but not including any Tax imposed in
respect of such obligations, (iv) all liabilities and obligations of the Company
arising under the capital leases set forth on Schedule 1.1 of the Disclosure
Schedule, and (v) all liabilities and obligations of the Company (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), in each case arising from events occurring, or the
operation of the Business, after the Closing, including use, possession or
ownership of the Acquired Assets after the Closing.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" has the meaning set forth in the preface above.
"Seller Claims" has the meaning set forth in Section 8.2(a).
"Seller Indemnified Parties" has the meaning set forth in Section 8.2(a).
"Seller's Knowledge" means actual knowledge of Ronald J. Mudry, Patricia
Morrison, Elizabeth A. Walker, Gregory M. Hadlock, James M. Jutzin, Elizabeth S.
Vanneste, Michael Drayer, Joe Stockwell and David Hatcher after review of this
Agreement and the Disclosure Schedules and Exhibits hereto and taking reasonable
efforts to confirm the accuracy thereof.
"Shares" means the number of shares of Level 3 Common Stock equal to (x)
the Share Value Factor divided by (y) the Share Price.
"Share Price" means the simple arithmetic average taken to four decimal
places of the share price of Level 3 Common Stock for the period beginning at
9:30 am New York Time
8
("NYT") and concluding at 4:00 pm NYT on each of the ten (10) consecutive
trading days on the Nasdaq National Market ending the third business day
immediately preceding the Closing Date, as calculated by Bloomberg Financial LP
under the function "LVLT Equity AQR" using the time periods indicated above.
Such number shall be appropriately adjusted as a result of any stock split,
combination, subdivision or reclassification, merger, exchange of shares or
other similar business combination transaction, or any dividends or
distributions with respect to such shares of Level 3 Common Stock, during such
ten (10) trading-day period.
"Share Value Factor" means $68.5 million, as such amount may be adjusted
pursuant to Section 2.4.
"Straddle Period" shall mean any taxable period that commences prior to and
includes (but does not end on) the Closing Date.
"Subsidiary" or "Subsidiaries" means PTLLC Acquisition Co., LLC, a Delaware
limited liability company wholly owned by the Company.
"Tax" or "Taxes" shall mean (i) all federal, state, local or foreign taxes,
including, without limitation, income, gross income, gross receipts, production,
excise, employment, sales, use, transfer, ad valorem, value added, profits,
license, capital stock, franchise, severance, stamp, withholding, Social
Security, employment, unemployment, disability, worker's compensation, payroll,
utility, windfall profit, custom duties, personal property, real property,
registration, alternative or add-on minimum, estimated and other taxes,
governmental fees or like charges of any kind whatsoever, including any
interest, penalties or additions thereto, whether disputed or not; (ii) any
liability to pay amounts due pursuant to clause (i) on behalf of another Person,
including any predecessor, under any contract, reimbursement or indemnity
agreement, as transferee, successor or otherwise (excluding, in all cases, any
liability as a tenant or other user of property to pay Property Taxes under a
lease or similar agreement); and (iii) any liability of any Person, including
any predecessor, to pay amounts described in clause (i) by reason of liability
imposed under Treasury Regulations S1.1502-6 or similar provision imposing
liability by reason of participation in a consolidated, combined, unitary or
similar Tax Return or similar filing; and "Tax" shall mean any one of them.
"Tax Returns" means any returns, forms, declarations, reports, claims for
refund, information returns or other documents (including any related or
supporting schedules, statements or information) filed or required to be filed
in connection with the determination, assessment, collection, payment or refund
of any Taxes associated with the Company or its business operations or the
administration of any Laws relating to any Taxes.
"Tower Business" means the Company's tower attachment and tower backhaul
business operated with certain assets and liabilities included in the Excluded
Assets and Excluded Liabilities.
"Transitional Trademark License" has the meaning set forth in Section 7.5.
"Treasury Regulations" shall mean all final, temporary and proposed
treasury regulations promulgated under the Code.
9
"Unaudited Interim Balance Sheet" has the meaning set forth in Section
3.4(a).
"Unaudited Interim Financial Statements" has the meaning set forth in
Section 3.4(a).
"Unaudited Interim Transport Statements" has the meaning set forth in
Section 3.4(a) below.
"Units" shall mean the units of membership interests constituting all of
the equity capital of the Company.
"Unitholder" means Seller.
"WARN Act" has the meaning set forth in Section 3.15 below.
"Year-End Financial Statements" has the meaning set forth in Section
3.4(a).
ARTICLE 2
PURCHASE AND SALE
Section 2.1 Purchase and Sale of Units.
(a) On the terms and subject to the conditions of this Agreement, Purchaser
(or any subsidiary of Purchaser designated by Purchaser, provided that such
designation does not release Purchaser from its obligations under this
Agreement) shall, on the Closing Date, purchase from Seller, and Seller agrees
to sell, transfer, assign, convey and deliver to Purchaser (or any subsidiary of
Purchaser designated by Purchaser), on the Closing Date, through the transfer of
the Units, all of the Acquired Assets and the Retained Liabilities, for the
consideration specified below in this Article 2.
(b) The Parties to this Agreement expressly understand and agree that,
notwithstanding anything contained herein to the contrary (or whether by
operation of law or otherwise), there shall be excluded from the Company, and
Purchaser shall in no way receive any interest in, the Excluded Subsidiaries,
the Excluded Affiliate and the other assets of Seller described in Exhibit
2.1(b) hereto (the "Excluded Assets").
Section 2.2 Assumption of Excluded Liabilities. The parties to this
Agreement expressly understand and agree that, notwithstanding anything
contained herein to the contrary (or whether by operation of law or otherwise),
Seller will assume at or prior to the Closing the Excluded Liabilities.
Section 2.3 Purchase Price. Purchaser agrees to pay and deliver, as
applicable, to Seller at the Closing a total purchase price (the "Purchase
Price") consisting of: (a) Sixty-Eight Million Five Hundred Thousand Dollars
($68,500,000.00) in cash (the "Cash Purchase Price") payable by wire transfer or
delivery of other immediately available funds to an account or accounts
designated in writing by Seller (as such amount may be adjusted pursuant to
Section 2.4 and 2.5); and (b) the Shares.
10
Section 2.4 Cash Substitution Right. At any time on or prior to the third
business day before the Closing, Purchaser shall have the right, in its sole
discretion, upon written notice to Seller, to elect to reduce the Share Value
Factor, thereby reducing the number of Shares otherwise deliverable by Purchaser
at the Closing, and in lieu of such number of Shares not being delivered pay
additional cash to Seller at the Closing (the "Cash Substitution Right"). If
Purchaser exercises its Cash Substitution Right, the Cash Purchase Price shall
be increased by an amount equal to the amount by which Purchaser has elected to
decrease the Share Value Factor.
Section 2.5 Purchase Price Adjustment.
(a) Exhibit 2.5 sets forth a calculation of certain current assets and
current liabilities of the Business stated as of the date of the balance sheet
contained in the Unaudited Interim Transport Statements which include only the
following: all net Accounts Receivable, Other Current Assets, all net Accounts
Payable, Accrued Payroll, Accrued Taxes, Current Portion of Capital Lease
Obligation and Other Current Liabilities (the "Pro Forma Net Current Assets").
Within thirty (30) days after the Closing Date, Seller will prepare and deliver
to Purchaser a calculation of the Pro Forma Net Current Assets, determined as of
the close of business on the Closing Date and in the same manner as set forth on
Exhibit 2.5, which will be prepared in a manner consistent with the Unaudited
Interim Balance Sheet and which applies GAAP in recognizing transactions
underlying the balances. In addition to the foregoing, the final calculation of
the Pro Forma Net Current Assets will incorporate the anticipated year-end
accounting adjustments set forth in Exhibit 2.5 to the extent actually recorded
on the Company's financial statements as of December 31, 2005 and consistent
with GAAP.
(b) If Pro Forma Net Current Assets as of the Closing Date, as finally
determined under this Section 2.5, is greater than One Million Dollars
($1,000,000.00), then Purchaser shall pay to Seller the amount of the difference
in immediately available funds (the "Positive Adjustment"). If Pro Forma Net
Current Assets as of the Closing Date, as finally determined under this Section
2.5, is less than One Million Dollars ($1,000,000.00), then Seller shall pay to
Purchaser the amount of the difference in immediately available funds (the
"Negative Adjustment"). The Positive Adjustment and the Negative Adjustment are
collectively referred to as the "Purchase Price Adjustment".
(c) The Positive Adjustment or the Negative Adjustment, as appropriate,
shall be paid by the Party required to pay such Positive Adjustment or Negative
Adjustment to the other Party within fifteen (15) days of final determination
pursuant to this Section 2.5. If the parties have not agreed upon the Positive
Adjustment or Negative Adjustment within sixty (60) days after the Closing Date,
the senior executives of each Party will meet (in person or by phone) to attempt
to resolve the dispute. In the event Seller and Purchaser are unable to agree on
a Positive Adjustment or Negative Adjustment prior to the ninetieth (90th) day
following the Closing Date, each Party shall prepare a single written memorandum
setting forth its arguments, points of disagreement with respect to the other
Party's position or computations (but only if and to the extent one Party is
aware of the other Party's position or computations), and all related facts and
computations with respect to what each Party believes to be the proper Positive
Adjustment or Negative Adjustment (a "Position Paper"), and will submit its
Position Paper to PricewaterhouseCoopers, LLC within one hundred and twenty
(120) days following the Closing, following which PricewaterhouseCoopers, LLC
shall review each Party's Position Paper and
11
prepare and then issue to the Parties, within thirty (30) days after the last
date on which a Party is entitled to submit its Position Paper (as described
above), PricewaterhouseCoopers, LLC's determination regarding the points of
disagreement and the resulting Positive Adjustment or Negative Adjustment, said
determination being agreed by the Parties to be final and binding upon them. The
fees and disbursements of PricewaterhouseCoopers, LLC acting under this Section
2.5 shall be apportioned between Purchaser and Seller as is determined by
PricewaterhouseCoopers, LLC, in its sole and absolute discretion, to be
reasonably proportionate to the differences, if any, between the Positive
Adjustment or Negative Adjustment described in that Party's Position Paper and
the Positive Adjustment or Negative Adjustment as prepared and issued by
PricewaterhouseCoopers, LLC.
(d) The Purchase Price as so adjusted is referred to herein as the "Final
Purchase Price". Notwithstanding anything to the contrary herein, Seller shall
not be obligated to indemnify Purchaser against any adverse consequences the
result of, or based upon or arising from, any claim or liability to the extent
such claim or liability is taken into account in determining the Purchase Price
Adjustment as finally determined pursuant to this Section 2.5.
Section 2.6 The Closing. Unless this Agreement has been terminated in
accordance with its terms, or unless another date, time or place is agreed to in
writing by the Parties, the closing of the transactions contemplated herein (the
"Closing") will take place at 10:00 a.m., local time, on the third business day
following satisfaction or waiver of the conditions set forth in Article 6 (the
"Closing Date"), at the offices of Hanson Bridgett, 425 Market Street, 26th
floor, San Francisco, CA 94105.
Section 2.7 Deliveries at the Closing. At the Closing, (i) Seller shall
deliver to Purchaser the various certificates, instruments, and documents
referred to in Section 6.1 below; (ii) Purchaser will deliver to Seller the
various certificates, instruments, and documents referred to in Section 6.2
below; (iii) Seller shall deliver to Purchaser evidence of the Units being
purchased by Purchaser from the Seller against payment by the Purchaser to the
Seller of the Purchase Price for such Units; (iv) Seller shall execute,
acknowledge (if appropriate), and deliver to Purchaser all other instruments of
sale, transfer, conveyance, and assignment as Purchaser and its counsel may
reasonably request; and (v) Purchaser will deliver to Seller the consideration
specified in Section 2.3 above.
Section 2.8 Allocation. The Company is intended to be a disregarded entity
for federal tax purposes and, in states that conform to the federal treatment,
state Income Tax purposes. Accordingly, the Parties shall treat the sale of the
Units hereunder as a sale of the Acquired Assets by the Seller to Purchaser for
all such tax purposes (including treatment as a sale of the assets of the
Company's Subsidiaries that are disregarded for tax purposes). Seller shall
prepare and deliver to Purchaser, within twenty (20) days after the Purchase
Price Adjustment is made pursuant to Section 2.5, an allocation (hereinafter
referred to as the "Allocation") of the Final Purchase Price (and all other
capitalized costs) among the Acquired Assets in accordance with Code Section
1060 and Treasury Regulations thereunder (and any similar provision of state,
local or foreign law, as appropriate). Seller shall deliver such allocation
(hereinafter referred to as the "Allocation") to Purchaser within forty-five
(45) days after the Closing Date. Purchaser shall review the Allocation and
negotiate in good faith with Seller to reach a mutually agreed upon allocation
(the "Final Allocation"). Seller and Purchaser
12
and its Affiliates shall report, act, and file Income Tax Returns (including,
but not limited to Internal Revenue Service Form 8594) in all respects and for
all purposes consistent with the Final Allocation. Purchaser shall timely and
properly prepare, execute, file, and deliver all such documents, forms, and
other information as Seller may reasonably request in preparing the Allocation.
Neither Seller nor Purchaser shall take any position for Income Tax purposes
(whether in audits, Tax Returns, or otherwise) that is inconsistent with the
Final Allocation unless required to do so by applicable law. In the event that
any Tax authority disputes the Final Allocation, Seller or Purchaser, as the
case may be, shall promptly notify the other party of the nature of such
dispute. In the event Seller and Purchaser are unable to agree on a Final
Allocation prior to the thirtieth (30th) day following the delivery of the
Allocation to Purchaser, they shall mutually select and retain a nationally
recognized valuation firm (the "Valuation Firm"), which may but need not be an
accounting firm, to resolve as promptly as feasible all disputed items and shall
submit to the Valuation Firm such information as it may request or they may
believe appropriate. Seller and Purchaser shall endeavor in good faith to reach
agreement on the Valuation Firm. The Valuation Firm's determination of the Final
Allocation shall be final and binding upon the Parties. Purchaser and Seller
shall each pay one half of the fees and disbursements of the Valuation Firm.
ARTICLE 3
SELLER'S REPRESENTATIONS AND WARRANTIES.
Seller represents and warrants to Purchaser that the statements contained
in this Article 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article 3), except as set forth in the disclosure schedule
accompanying this Agreement (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Article 3.
Section 3.1 Organization.
(a) The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware. Except as
set forth on Schedule 3.1(a) of the Disclosure Schedule, the Company is duly
qualified or licensed to do business as a foreign entity and is in good standing
in each jurisdiction in which the ownership or lease of its assets or the
operation of its business requires such qualification or license, except where
the failure to so qualify or be so licensed would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(b) Each of the Company and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each of the Company and the Subsidiaries is duly
qualified or licensed to do business as a foreign entity and is in good standing
in each jurisdiction in which the ownership or lease of its assets or the
operation of its business requires such qualification or license, except where
the failure to so qualify or be so licensed would not, individually or in the
aggregate, reasonably be expected to
13
have a Material Adverse Effect. Each of the Company and the Subsidiaries has all
requisite corporate power and authority to carry on the business currently
conducted by it.
Section 3.2 Authorization of Transaction. The Company has full power and
authority (including full corporate or other entity power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
Without limiting the generality of the foregoing, the Board of Managers of the
Company and Unitholder have duly authorized the execution, delivery, and
performance of this Agreement by the Company. This Agreement constitutes the
valid and legally binding obligation of the Company, enforceable in accordance
with its terms and conditions.
Section 3.3 Noncontravention; Consents.
(a) Except as set forth in Schedule 3.3(a) of the Disclosure Schedule
neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated hereby, will: (i) violate any applicable Laws to
which the Company is subject, except for violations that would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(ii) conflict with or result in a breach of any provision of the Certificate of
Formation of the Company; or (iii) constitute a violation of, be in conflict
with, constitute or create a breach, default, termination, cancellation or
acceleration of any obligation under any material contract, agreement or
commitment to which the Company or any of the Subsidiaries is a party.
(b) Except as set forth in Schedule 3.3(b) of the Disclosure Schedule and
except for compliance by Purchaser and Seller with the Hart-Scott-Rodino Act no
material notices, licenses, Permits, consents, approvals, authorizations,
qualifications or orders of Governmental Entities are required for the
consummation by the Parties of the transactions contemplated hereby.
Section 3.4 Financial Statements.
(a) Set forth on Schedule 3.4(a) of the Disclosure Schedule are correct and
complete copies of (i) the audited consolidated balance sheets of the Company
and its subsidiaries as of December 31, 2004, and the related consolidated
statements of income and cash flows for December 31, 2004 balance sheets, the
year then ended (the "Year-End Financial Statements"); (ii) the unaudited
consolidated balance sheet of the Company and Subsidiaries as of September 30,
2005 (the "Unaudited Interim Balance Sheet") and the related consolidated
statement of income for the nine month period then ended (the "Unaudited Interim
Statement of Income"), which collectively are referred to as the "Unaudited
Interim Financial Statements"; and (iii) the unaudited transport (excluding the
Tower Business) balance sheet of the Company as of September 30, 2005, and the
related unaudited transport (excluding the Tower Business) statement of revenue
and expenses for the nine month period then ended, which together are referred
to as the "Unaudited Interim Transport Statements". The Year-End Financial
Statements and the Unaudited Interim Financial Statements were prepared in
accordance with GAAP, and present fairly in all material respects the financial
position and results of operations of the Company and the subsidiaries as of the
dates and for the periods indicated therein, and in the case of the Unaudited
Interim Financial Statements, subject to normal year-end adjustments, any other
adjustments described therein, and the absence of footnotes and other disclosure
and
14
presentation items. The Unaudited Interim Transport Statements were prepared in
a manner which applied GAAP in recognizing the transactions underlying the
balances as described on Schedule 3.4(a) of the Disclosure Schedule, and present
fairly in all material respects the financial position and results of operations
of the Business as of the dates and for the periods indicated therein.
(b) Except as included on the Unaudited Interim Transport Statements, or as
set forth in Schedule 3.4(b) of the Disclosure Schedule, the Company does not
have any material debts, liabilities or obligations of any nature, other than
(i) debts, liabilities or obligations disclosed in any Disclosure Schedule; (ii)
liabilities or obligations under any agreements, contracts, instruments, other
similar arrangements that are included in the Acquired Assets; (iii) debts,
liabilities or obligations described in the Notes to the Year-End Financial
Statements; and (iv) liabilities incurred in the Ordinary Course of Business
since the date of the Unaudited Interim Balance Sheet.
(c) Schedule 3.4(c) of the Disclosure Schedule sets forth for January
through September 2005 (i) monthly New Bookings (net of change
order/breakage/other), (ii) monthly Renewal Price Erosion, (iii) monthly
Disconnects, and (iv) Net MRR Change (the "Monthly Financial Information"). The
Monthly Financial Information was (a) was prepared in good faith in the Ordinary
Course of Business for the internal use of the Company or Seller or in
connection with the transactions contemplated by this Agreement for the use of
Purchaser, and (b) presents fairly in all material respects the information
purported to be presented therein as of the respective dates and for the months
indicated therein.
Section 3.5 Brokers' Fees. The Company has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Purchaser could become
liable or obligated. None of the Subsidiaries has any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
Section 3.6 Title to Tangible Assets.
(a) Subject to the Permitted Encumbrances and as described in Schedule
3.6(a) of the Disclosure Schedule, Company and its Subsidiaries have good and
valid title, free and clear of any Liens, to, or a valid leasehold interest in,
the Acquired Assets. Except as set forth on Schedule 3.6(a), the Acquired Assets
consist of all assets which are used in the Business. The Acquired Assets are
adequate to conduct the operations of the Business in the manner currently
conducted by Company.
(b) Subject to the Permitted Encumbrances and as described in Schedule
3.6(b) of the Disclosure Schedule, (i) the optical fibers owned by the Company
that are transferred as part of the Acquired Assets are free and clear of any
liens or encumbrances which would impair Purchaser's ability to operate the
Business as it is currently operated by the Seller, and (ii)the IRU Agreement
between Progress Energy Florida, Inc. and Progress Energy Carolinas, Inc. and
Progress Telecom, LLC entered into effective December 19, 2003, as thereafter
amended or superceded (the "PGN IRU"), is a valid, binding and enforceable
agreement of PGN and the Company except as such enforceability may be limited by
applicable bankruptcy, insolvency,
15
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights.
Section 3.7 Subsidiaries. Schedule 3.7 of the Disclosure Schedule sets
forth for each Subsidiary (i) its name and jurisdiction of incorporation, (ii)
the number of authorized shares or membership interests for each class of its
equity capital, (iii) the number of issued and outstanding shares or membership
units for each class of capital stock or membership unit, the names of the
holders thereof, and the number of shares or membership interests held by each
such holder, (iv) any securities convertible into or exchangeable for any
capital stock or other ownership interests in such Subsidiary or any rights to
subscribe for or to purchase or any options for the purchase of any capital
stock of or other ownership interests in such Subsidiary, and (v) its directors,
managers and officers. Each Subsidiary is duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation or
organization. Each Subsidiary is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a Material
Adverse Effect. Each Subsidiary has full corporate or other entity power and
authority to carry on the business in which it is engaged and to own and use the
properties owned and used by it. All of the issued and outstanding equity
capital of each Subsidiary have been duly authorized and are validly issued,
fully paid, and non-assessable. The Company holds of record and owns
beneficially all of the equity capital of each Subsidiary, free and clear of any
Liens. Except for the Subsidiaries set forth in Schedule 3.7 of the Disclosure
Schedule, neither Company nor any of the Subsidiaries owns or has any right to
acquire, directly or indirectly, any outstanding capital stock of, or other
equity interests in, any Person.
Section 3.8 Absence of Changes. Since September 30, 2005, and through to
and including the Effective Date, there has not been any event which has had a
Material Adverse Effect on the Acquired Assets, liabilities, financial position,
condition, operations or results of operations of the Business. Since September
30, 2005, and through to and including the Effective Date, and except as set
forth in Schedule 3.8 of the Disclosure Schedule:
(a) the Company has not sold, leased, transferred, assigned or subjected to
any Lien any material tangible or intangible assets (including Company
Intellectual Property) other than the sale or lease of products or services in
the Ordinary Course of Business of the Company and the Subsidiaries;
(b) no party (including the Company) has accelerated, terminated or
cancelled (other than with respect to an agreement with a month-to-month term or
as a result of the expiration of the term of any agreement), or defaulted (other
than as a result of a past due account receivable in the Ordinary Course of
Business) on any of its material obligations under any agreement, contract,
lease or license (or series of related agreements, contracts, leases and
licenses) involving more than Two Hundred Fifty Thousand Dollars ($250,000)
annually to which the Company is a party or by which it is bound;
(c) the Company has not delayed, postponed or defaulted in the payment of
material accounts payable and other material liabilities or paid, discharged or
satisfied any material liability, debt or obligation outside the Ordinary Course
of Business;
16
(d) the Company has not cancelled, compromised, waived or released any
right or claim (or series of related rights and claims) involving more than Two
Hundred Fifty Thousand Dollars ($250,000) in any twelve (12) month period,
outside the Ordinary Course of Business;
(e) the Company has not granted any license or sublicense of any rights
under or with respect to any material Company Intellectual Property;
(f) the Company has not experienced any damage, destruction or loss (not
covered by insurance) to any of its property that has had a Material Adverse
Effect on the Company;
(g) the Company has not granted any increase in the compensation of any
officers or employees, or made any other material change in employment terms for
any such officers or employees outside the Ordinary Course of Business;
(h) the Company has made all material expenditures in connection with the
normal maintenance, repair and replacement of the assets and properties used in
the operations of the Company in accordance with its past custom and practice;
(i) the Company has not entered into any Prepaid Revenue Contracts other
than those shown on Schedule 3.8(i) of the Disclosure Schedule, with the term
"Prepaid Revenue Contract" defined to mean an agreement, contract, lease or
license for the sale of goods or services by the Company where there is no MRR
or where the prepayment is greater than (i) two hundred percent (200%) of the
MRR for that agreement, contract, lease or license, and (ii)Ten Thousand Dollars
($10,000).
(j) the Company has not materially changed any of its methods of accounting
or bookkeeping or any other accounting practices;
(k) the Company has not entered into any material agreement, contract,
lease, or license outside the Ordinary Course of Business;
(l) the Company has not made any material capital expenditures outside the
Ordinary Course of Business;
(m) the Company has not created, incurred, assumed, or guaranteed more than
One Hundred Thousand Dollars ($100,000.00) in aggregate indebtedness for
borrowed money and capitalized lease obligations;
(n) the Company has not declared, set aside, or paid any dividend or made
any distribution with respect to its equity securities (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its equity
securities;
(o) the Company has not made any loans or advances of money; and
(p) the Company has not committed to do any of the foregoing.
Section 3.9 Legal Compliance. Each of Seller and its Subsidiaries has
complied in all material respects with all applicable Laws (including rules,
regulations, codes, plans, injunctions,
17
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
hearing, charge, complaint, claim, notice or to Seller's Knowledge,
investigation, or demand has been filed or commenced against the Company or the
Subsidiaries alleging any failure to comply with any such Laws.
Section 3.10 Tax Matters. Except as set forth in Schedule 3.10 of the
Disclosure Schedule:
(a) (i) Each of the Company and the Subsidiaries has filed on or prior to
the due date (after giving effect to any extensions) all Tax Returns that it was
required by applicable Law to file, and has timely paid all Taxes shown thereon
as owing, (ii) all such Tax Returns were true, correct and complete in all
respects as of the time of such filing; (iii)all Taxes owed by the Company and
the Subsidiaries (whether or not shown on any Tax Return), if required to have
been paid, have been paid, including, without limitation, any use Taxes that
were required to be self assessed and Taxes that were or should have been
collected on the sale of services (except for Taxes which are being contested in
good faith, with adequate reserves being established in accordance with GAAP);
and (iv) any existing liability of the Company or any of the Subsidiaries for
Taxes not yet due and payable, or which are being contested in good faith, have
been provided for on the financial statements of the Company in accordance with
GAAP or the books and records of the Company in accordance with GAAP;
(b) The Company has made available to Purchaser correct and complete copies
of (i) all Income Tax Returns and other material Tax Returns filed by the
Company since December 31, 2003, and (ii) examination reports and statements of
deficiencies assessed against or agreed to by any of the Company and its
Subsidiaries since December 31, 2004;
(c) Since the Company's formation, no claim has been made by any Tax
authority in a jurisdiction where the Company or the Subsidiaries has not filed
a Tax Return that it is or may be subject to Tax by such jurisdiction, nor to
Seller's Knowledge, is any such assertion threatened;
(d) (i) there is no outstanding request for any extension of time for the
Company or the Subsidiaries to pay any Taxes or file any Tax Returns, (ii) there
has been no waiver or extension of any applicable statute of limitations for the
assessment or collection of any Taxes of the Company or the Subsidiaries that is
currently in force; and no power of attorney granted by or with respect to the
Company and its Subsidiaries for Taxes is currently in force, (iii) no statute
of limitation for Tax years concerning any material Tax or any material amount
of Tax of the Company and its Subsidiaries has closed, and (iv) neither the
Company nor the Subsidiaries is a party to or bound by any agreement (excluding
any agreement for the payment of Property Taxes by a lessee or similar user of
property), whether written or unwritten, providing for the payment of Taxes,
payment for Tax losses, entitlements to refunds or similar Tax matters;
(e) (i) Neither the Company nor either of its Subsidiaries is a party to
any Contract, arrangement or plan that would result, separately or in the
aggregate, in a payment by reason of the transactions contemplated by this
Agreement that would not be deductible under Section 280G of the Code (or any
corresponding provision of state, local or foreign Tax law), and (ii) the
disallowance of a deduction under Section 162(m) of the Code (or any
corresponding provision
18
of state, local or foreign Tax law) for employee remuneration will not apply to
any amount paid or payable by the Company through the Closing Date under any
Contract, benefit plan, program, arrangement or understanding currently in
effect;
(f) None of the assets, properties or rights of the Company and the
Subsidiaries include any lease made pursuant to former Section 168(f)(8) of the
Internal Revenue Code of 1954;
(g) Neither the Company nor either of the Subsidiaries has been a member of
an affiliated group (within the meaning of Code Section 1504(a)) filing a
consolidated federal income Tax Return;
(h) The Company and the Subsidiaries have neither (i) made, changed or
revoked, or permitted to be made, changed or revoked, any election or method of
accounting with respect to Taxes (other than Income Taxes) affecting or relating
to the Company and its Subsidiaries since the filing of the applicable Tax
Return relating to Tax periods ending on or before December 31, 2003, nor (ii)
entered into, or permitted to be entered into, any closing or similar agreement
or settlement with respect to Taxes affecting or relating to the Company and its
Subsidiaries;
(i) Neither the Company nor the Subsidiaries have a permanent establishment
in a jurisdiction outside the United States.
(j) The transactions contemplated by this Agreement are not subject to tax
withholding pursuant to the provisions of Section 3406 or Subchapter A of
Chapter 3 of the Code;
(k) There are no Liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of the Company or the Subsidiaries;
(l) Neither Seller nor Company is a Person other than a United States
Person within the meaning of the Code.
(m) There is neither any action, suit, proceeding, audit, claim or, to the
Seller's Knowledge, investigation now pending against the Company or the
Subsidiaries in respect of any Tax, nor, to the Seller's Knowledge, has any
claim for additional Tax been threatened by any Tax authority;
(n) The Company and the Subsidiaries have withheld, collected and paid all
Taxes related to the Business required to be withheld in connection with any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(o) None of the Acquired Assets are "tax-exempt use property" within the
meaning of Section 168(h) of the Code; and
(p) The Company is now and the Subsidiaries are and have always been
classified as entities disregarded as separate from their owner (within the
meaning of Treasury Regulations S301.7701-2(c)(2)) for U.S. federal Tax purposes
and, disregarding any change in law or action
19
taken or caused by Purchaser, will continue to be so classified up to and
including the Closing Date.
Section 3.11 Contracts.
(a) Seller has delivered or made available to Purchaser (by allowing
Purchaser to review and inspect the Company's books and records, in hard copy,
electronically via e-mail, or by accessing the Intralinks electronic data room
that was created to allow controlled access to various Company and transaction
related documents) copies of all of the following written agreements, contracts
or other binding commitments, and summaries of all of the following oral
agreements, contracts or other binding commitments, to which the Company or a
Subsidiary is a party or by which its properties or assets are bound as of the
date hereof or with respect to which Seller has guaranteed the obligations of
the Company or any Subsidiary, excepting such agreements, contracts and other
binding commitments that have expired or terminated (except as a result of a
breach by the Company), as set forth on Schedule 3.11(a) of the Disclosure
Schedule (collectively, the "Company Contracts"):
(i) material mortgages, loans, security agreements, indentures, promissory
notes or other instruments relating to the borrowing of money;
(ii) guarantees of any material third party obligations;
(iii) agreements for the sale or lease by the Company or a Subsidiary to
any Person of any material amount of its assets, other than (a) the retirement
or other disposition of assets no longer useful to the Company or a Subsidiary
or (b) the sale or lease of products and services in the Ordinary Course of
Business;
(iv) as of the Effective Date, agreements or purchase under a tariff
requiring the payment by the Company or a Subsidiary of more than Two Hundred
Fifty Thousand Dollars ($250,000) in any twelve (12) month period extending
beyond September 30, 2005 for communications services or the purchase or lease
of any machinery, equipment or other capital assets;
(v) employment, severance, retention or consulting agreements or agreements
providing for severance payments or other benefits by the Company or any
Subsidiary in the event of the sale or change of control of the Company or any
Subsidiary, excluding any such agreements that will be fully performed as of
December 31, 2005;
(vi) partnerships, joint ventures or teaming agreements;
(vii) licenses of patent, trademark or other material Company Intellectual
Property rights;
(viii) agreements between the Company or a Subsidiary or with any Affiliate
of the Company;
(ix) Intentionally Omitted;
20
(x) as of the Effective Date, Leases, excluding any network collocation
facility leases, subleases or similar rights of occupancy or use;
(xi) (A) contracts or agreements for the sale, license (as licensor) or
lease (as lessor) by the Company or any of the Subsidiaries of services,
products, company Intellectual Property or other assets to the twenty (20)
largest Major Customers, as defined in Section 3.23 and listed in Schedule
3.23(b) of the Disclosure Schedule; or (B) as of the Effective Date, contracts
or agreements relating to the sale, license or lease by or to the Company or any
of the Subsidiaries of any indefeasible rights of use of capacity or
infrastructure ("IRUs");
(xii) peering agreements of the Company or the Subsidiary;
(xiii) non-competition agreements or any other agreements or obligations
which purport to limit in any material respect (i) the manner in which, or the
localities in which, the Business may be conducted or (ii) the ability of either
of the Company or the Subsidiaries to provide any type of service;
(xiv) agreements containing any exclusivity clause, most-favored-nations
clause, benchmarking clause or marked-to-market pricing provision; (xv) as of
the Effective Date, any other agreement requiring the payment by the Company or
a Subsidiary to any Person (other than an Affiliate thereof) of more than Two
Hundred Fifty Thousand Dollars ($250,000.00) in any twelve (12) month period
extending beyond September 30, 2005; and
(xvi) any other material agreements not in the Ordinary Course of Business
of the Company and its Subsidiaries.
(b) Except as set forth in Schedule 3.11(b) of the Disclosure Schedule,
each Company Contract is a valid, binding and enforceable obligation of the
Company in accordance with its terms, and, to Seller's Knowledge, of the other
party or parties thereto except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar Laws of general applicability relating to or affecting
creditors' rights, or by general equity principles, including principles of
commercial reasonableness, good faith and fair dealing, and to Seller's
Knowledge, each Company Contract is in full force and effect.
(c) Neither Company nor, to Seller's Knowledge, any other party thereto,
except as set forth in Schedule 3.11(c) of the Disclosure Schedule, is in
material breach of or default (other than as a result of a past due account
receivable in the Ordinary Course of Business) under any term of any Company
Contract or has repudiated any term of any Company Contract.
Section 3.12 Real Property.
(a) Schedule 3.12(a) of the Disclosure Schedule describes in reasonable
detail each parcel of Owned Real Property of the Company and/or the
Subsidiaries. With respect to each such parcel of Owned Real Property, and
except as set forth on Schedule 3.12(a) of the Disclosure Schedule:
21
(i) the Company owns fee simple title to such parcel, free and clear of all
material Liens, other than Permitted Encumbrances;
(ii) there are no pending or, to Seller's Knowledge, threatened
condemnation proceedings relating to such property;
(iii) there are no outstanding options or rights of first refusal to
purchase such parcel, or any portion thereof or interest therein; and
(iv) there are no parties (other than the Company) in possession of such
parcel.
(b) Schedule 3.12(b) of the Disclosure Schedule lists all Leased Real
Property of the Company and/or the Subsidiaries. With respect to the Leased Real
Property:
(i) Such Leased Real Property, excluding, however, any IRUs and any network
collocation facility leases, subleases or similar rights of occupancy or use,
constitutes the entire agreement to which the Company or such Subsidiary is a
party with respect to said Leased Real Property;
(ii) except as set forth on Schedule 3.12(b) of the Disclosure Schedule,
and excluding any IRUs, the Company or such Subsidiary has not assigned, sublet,
transferred or conveyed any of its interest in such Leased Real Property (other
than grants of rights to third parties with respect to such Leased Real Property
in connection with the Ordinary Course of Business of the Company); and
(iii) except as set forth on Schedule 3.12(b) of the Disclosure Schedule
neither the Company nor any of the Subsidiaries is in receipt of any notice of
default pursuant to any Leased Real Property.
Section 3.13 Intellectual Property.
(a) The Company owns or has the right to use pursuant to license,
sublicense, agreement or permission all Company Intellectual Property. To
Seller's Knowledge, and other than as set forth in Schedule 3.13 of the
Disclosure Schedule, (i) the use by the Company and the Subsidiaries of the
Company Intellectual Property does not interfere with, infringe upon or
otherwise misappropriate any intellectual property rights of third parties. The
Company has not received any written charge, complaint, claim, demand or notice
alleging any such infringement or misappropriation (including any such claim
that the Company must license or refrain from using any intellectual property
rights of any third party).
(b) Schedule 3.13 of the Disclosure Schedule identifies each patent,
copyright registration, trademark and service mark registration, domain name,
pending patent application and application for registration with respect to any
material Company Intellectual Property and each material license, sublicense,
agreement or other permission that the Company or any of the Subsidiaries has
granted to any third party with respect to any Company Intellectual Property.
Company has delivered or made available to Purchaser copies of all such patents,
registrations, applications, licenses, sublicenses, agreements and permissions,
each as amended to date.
22
(c) Schedule 3.13 of the Disclosure Schedule identifies each material
license, sublicense, agreement or other permission pursuant to which the Company
or any of the Subsidiaries uses any material item of intellectual property owned
by a third party. Except as prohibited by Law, by the terms therein or under any
confidentiality agreement, Company has made available to Purchaser copies of all
such licenses, sublicenses, agreements and permissions, each as amended to date.
(d) Except as set forth in Schedule 3.13(d) of the Disclosure Schedule,
neither the Company nor the Subsidiaries have purchased or sold any material
telecommunications equipment without procuring or having the transferee procure
a software license for the imbedded software in such equipment.
Section 3.14 Litigation. Except as set forth in Schedule 3.14 of the
Disclosure Schedule, there are no legal, administrative, arbitration or other
proceedings or governmental investigations pending or, to Seller's Knowledge,
threatened, against the Company (i) that question the validity of this Agreement
or any action taken or to be taken by Company in connection with this Agreement
or (ii) that are material to the Company.
Section 3.15 Labor and Employment. With respect to the Company and the
Subsidiaries, except as set forth in Schedule 3.15 of the Disclosure Schedule:
(i) there are no strikes, work stoppages or material disputes pending, or to
Seller's Knowledge, threatened, that involve any Employees, (ii) none of the
Employees are currently represented by any labor union, and to Seller's
Knowledge, no union organization campaign is in progress with respect to the
Employees, and no question concerning representation exists respecting such
employees, (iii) there is no unfair labor practice charge or complaint against
the Company or any Subsidiary pending or, to Seller's Knowledge, threatened,
before the National Labor Relations Board or any similar Governmental Entity,
(iv) there is no pending or, to Seller's Knowledge, threatened grievance,
arbitration, demand letter or claim involving an Employee claiming damages in
excess of Ten Thousand Dollars ($10,000), (v) there is no discrimination charge
by any Employee with respect to or relating to the Company or any Subsidiary
pending before the Equal Employment Opportunity Commission or any other similar
Governmental Entity responsible for the prevention of unlawful employment
practices, (vi) the Company and each Subsidiary are in compliance with all laws,
regulations and orders relating to the employment of labor, including all such
laws, regulations and orders relating to wages, hours, collective bargaining,
discrimination, civil rights, safety and health, workers' compensation and the
collection and payment of withholding and/or social security taxes and any
similar employment tax except for immaterial non-compliance, and (vii) each
individual who renders services to the Company and the Subsidiaries who is
classified as having the status of an independent contractor or other
non-employee status for any purpose (including for purposes of taxation and tax
reporting and under the Company Benefit Plans) is properly so characterized.
Within the past two (2) years, neither Seller nor any of its Subsidiaries has
implemented any plant closing or layoff of employees that could implicate the
Worker Adjustment and Retraining Notification Act of 1988, as amended, or any
similar foreign, state or local law, regulation or ordinance (collectively, the
"WARN Act"), and no such action will be implemented prior to the Closing Date
with respect to the Employees without the advance written consent of the
Purchaser.
23
Section 3.16 Employee Benefits. Schedule 3.16 of the Disclosure Schedule
lists each Employee Benefit Plan that the Company or any Subsidiary sponsors or
maintains with respect to the current or former employees of the Business or to
which the Company or any Subsidiary contributes, or has an obligation to
contribute, with respect to the current or former employees of the Business
(each a "Company Benefit Plan"). With respect to each such Company Benefit Plan:
(a) Each Company Benefit Plan that is intended to meet the qualification
requirements of Section 401(a) of the Code has received a favorable
determination letter from the IRS and no amendment has been made nor has any
event occurred with respect to any such Company Benefit Plan which would
reasonably be expected to cause the loss or denial of such qualification under
Code Section 401(a);
(b) None of the Company Benefit Plans is a "multiemployer plan", as defined
in Section 3(37) of ERISA, and none of the Company, any Subsidiary or any ERISA
Affiliate has ever contributed to, or ever been obligated to contribute to, any
such multiemployer plan;
(c) None of the Company Benefit Plans is a "defined benefit plan", as
defined in Section 3(35) of ERISA, that is subject to Title IV of ERISA, and
none of the Company, any Subsidiary or any ERISA Affiliate has ever maintained
or contributed to, or ever been obligated to contribute to, any such defined
benefit plan;
(d) None of the Company Benefit Plans provide retiree health or life
benefits except as may be required by COBRA Coverage or similar state or local
Law;
(e) Except as set forth on Schedule 3.16 of the Disclosure Schedule, the
Company Benefit Plans provide benefits to, or on behalf of, any employee
employed by, or previously employed by, the Company or the Subsidiaries;
(f) Payment of all material amounts due, owing and required to be
contributed with respect to the Employees under the terms of each Company
Benefit Plan or required to be paid as expenses with respect to the Employees
under any such Company Benefit Plan through the Closing Date has been made by or
on behalf of the Company, or accrued on the Company's books in accordance with
GAAP and reflected in the Pro Forma Net Current Assets;
(g) There have been no material violations of ERISA or the Code with
respect to the filing of applicable reports, documents and notices regarding the
Company Benefit Plans with the Secretary of Labor or the IRS or the furnishing
of required reports, documents or notices to the participants or beneficiaries
of the Company Benefit Plans;
(h) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Company Benefit Plans, the assets of any of
the trusts under such plans or the plan sponsor or the plan administrator, or
against any fiduciary of the Company Benefit Plans with respect to the operation
of such plans (other than routine benefit claims), nor does Seller have
knowledge of facts which could form the basis for any such claim or lawsuit.
Except as set forth on Schedule 3.16 of the Disclosure Schedule, no stock or
other security issued by Seller or any Affiliate forms or has formed a material
part of the assets of any Company Benefit Plan. Neither the Company nor any
Subsidiary has received any communication from any government
24
agency questioning or challenging the compliance of any Company Benefit Plan
with applicable Laws. No Company Benefit Plan is currently being audited by a
governmental agency for compliance with applicable Laws or has been audited with
a determination by the governmental agency that the Company Benefit Plan failed
to comply with applicable Laws;
(i) The Company Benefit Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA and
the Code (including rules and regulations thereunder) and other applicable
federal and state Laws and regulations, and none of the Company, the
Subsidiaries, or any "party in interest" or "disqualified person" with respect
to the Company Benefit Plans has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or 4975 of the Code;
(j) All amendments and actions required to bring the Company Benefit Plans
into conformity in all material respects with all of the applicable provisions
of ERISA, the Code and other applicable Laws have been made or taken except to
the extent that such amendments or actions are not required by Law to be made or
taken until a date after the Closing;
(k) Except as set forth on Schedule 3.16 of the Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will, either alone or upon the occurrence of
subsequent events, (i) result in any payment becoming due to any employee
(current, former or retired) of the Company or the Subsidiaries, (ii) increase
any benefits otherwise payable under any Company Benefit Plan, (iii) result in
the acceleration of the time of payment or vesting of any benefits under any
Company Benefit Plan, or (iv) constitute a "change in control" or similar event
under any Company Benefit Plan; and
(l) True, correct and complete copies of the following documents, with
respect to each of the Company Benefit Plans, to the extent applicable, have
been made available to Purchaser by Seller: (i) all plans and related trust
documents, and amendments thereto; (ii) the most recent Forms 5500; (iii) the
last IRS determination letter; (iv) all summary plan descriptions; (v) all
summary of material modifications; (vi) all summary annual reports; (vii) the
most recent actuarial report relating to the Company Benefit Plans; and (viii)
written descriptions of all non-written agreements relating to the Company
Benefit Plans.
Section 3.17 Environmental Matters. Except as set forth in Schedule 3.17 of
the Disclosure Schedule:
(a) the Company and the Subsidiaries are in, and to the Knowledge of the
Seller have been, in material compliance with all applicable Environmental Laws
(b) no written notice of violation or potential liability from a
Governmental Authority or Person relating to any Environmental Law or health or
safety issue has been received by the Company or any of the Subsidiaries;
(c) the Company and the Subsidiaries have all material Permits required
under the Environmental Laws for the operations currently conducted at the Owned
Real Property and Leased Real Property;
25
(d) to the Seller's Knowledge, there has been no Release of Hazardous
Materials by the Company or Subsidiary at, on or under the Owned Real Property,
except for such Releases that would not be reasonably expected to have a
Material Adverse Effect;
(e) the Company has made available to the Buyer copies of all material
environmental studies, investigations, reports or assessments prepared by or for
the Company, or in the Company's possession, concerning the Company, its
Subsidiaries, the Owned Real Property, the Leased Real Property, and any real
property previously owned, operated or used for disposal by the Company or the
Subsidiaries or their predecessors, which are in the possession, custody or
control of the Company.
Section 3.18 Certain Business Relationships with the Company and its
Subsidiaries. Except as set forth on Schedule 3.18 of the Disclosure Schedule,
and excepting matters involving the Excluded Assets, neither the Company, nor
any of its Subsidiaries, is or has been a party to any agreement or arrangement
(other than employment agreements or arrangements) with any of the following:
Seller, Guarantor, any of the directors, officers, managers, members, partners
or holders of ownership units of the Seller, the Guarantors, the Company, the
Subsidiaries or any Affiliate (other than the Company or any Subsidiary); or any
immediate family member of any of the foregoing; under which agreement or
arrangement the Company: (i) leases any real or personal property (either to or
from such Person); (ii) licenses technology (either to or from such Person);
(iii) is obligated to purchase any tangible or intangible asset from or sell
such asset to such Person; (iv) purchases products or services from such Person;
(v) pays or receives commissions, rebates or other payments; or (vi)provides or
receives any other material benefit.
Section 3.19 Permits. The Company and the Subsidiaries have obtained or
applied for, and are in material compliance with, all material Permits that are
required by any Governmental Entity to permit the Company and the Subsidiaries
to conduct their respective operations as presently conducted. No suspension,
cancellation, termination or material violation of any of such Permits is
pending or, to Seller's Knowledge, threatened.
Section 3.20 Insurance. Schedule 3.20 of the Disclosure Schedule contains a
list of all policies of insurance of the Company and the Subsidiaries under
which the Company, the Subsidiaries or any of the Acquired Assets are insured.
All such policies are in full force and effect, and are sufficient for material
compliance by the Company and the Subsidiaries through the time of the Closing
with all applicable requirements of Law and all agreements to which the Company
or any of the Subsidiaries is a party or subject; provided, that Seller makes no
representations or warranties with respect to insurance coverage after the
Closing.
Section 3.21 Bank Accounts. Schedule 3.21 of the Disclosure Schedule lists
each bank, trust company, savings institution, brokerage firm, mutual fund or
other financial institution with which the Company or any of the Subsidiaries
has an account or safe deposit box relating to the Company or any of the
Subsidiaries and the names and identification of all Persons authorized to draw
thereon or to have access thereto.
Section 3.22 DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES. EXCEPT AS
EXPRESSLY SET FORTH IN THIS ARTICLE 3, SELLER MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY,
26
IN RESPECT OF ANY OF ITS ASSETS (INCLUDING, WITHOUT LIMITATION, THE ACQUIRED
ASSETS), LIABILITIES OR OPERATIONS, INCLUDING, WITHOUT LIMITATION, WITH RESPECT
TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND ANY SUCH OTHER
REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.
Section 3.23 Suppliers and Customers.
(a) Schedule 3.23(a) of the Disclosure Schedule sets forth a list of the
top twenty (20) suppliers of the Business by dollar amount paid during the
nine-month period ended September 30, 2005, from whom the Company or any
Subsidiary has purchased goods and/or services (the "Major Suppliers"). Except
as set forth on Schedule 3.23(a) of the Disclosure Schedule, as of the Effective
Date, no such supplier has expressed in writing, and, to the Seller's Knowledge,
no such supplier has expressed verbally, to the Company or any Subsidiary its
intention to cancel or otherwise terminate or materially reduce its relationship
with the Company or any Subsidiary.
(b) Schedule 3.23(b) of the Disclosure Schedule sets forth a list of the
top fifty (50) customers of the Business to whom the Company or any Subsidiary
has sold goods and/or services, listed according to revenue for the nine-month
period ended September 30, 2005 (the "Major Customers"). Except as set forth on
Schedule 3.23(b) of the Disclosure Schedule, as of the Effective Date, no such
Major Customer has expressed in writing, and, to the Seller's Knowledge, no such
Major Customer has expressed verbally, to the Company or any Subsidiary its
intention to (i) cancel or otherwise terminate its relationship with the Company
or any Subsidiary or (ii) reduce its contracted MRR to the Company or any
Subsidiary by the greater of (x) ten percent (10%) and (y) five thousand dollars
($5,000).
(c) During the twenty-four (24) month period ended prior to the Effective
Date, except as set forth on Schedule 3.23(c) of the Disclosure Schedule to
Seller's Knowledge there have been no claims for indemnification or other losses
against the Company or any of its Subsidiaries related to end-user claims with
respect only to the specific MCI and Verizon agreements described on Schedule
3.23(c) of the Disclosure Schedule.
Section 3.24 Network Operations. Schedule 3.24 of the Disclosure Schedule
sets forth a materially complete list of network outages, and materially
accurate summaries of network availability and customer service credits owed due
to network outages, during the twenty-four month period ending on December 31,
2005 and a materially complete list of all fiber segments replaced since 2000.
Except as set forth on Schedule 3.24 of the Disclosure Schedule, the Company's
network, taken as a whole is in good working condition and is without any
material defects for purposes of operating the Business as operated by Seller.
Section 3.25 Intentionally omitted.
Section 3.26 Acquisition of the Shares.
(a) The Seller is acquiring the Shares to be issued by Level 3 hereunder
for its own account for investment and without any present intention of
distributing such Shares in violation of applicable federal securities laws.
27
(b) The Seller has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of its investment
in Level 3 as contemplated by this Agreement, and is able to bear the economic
risk of such investment for an indefinite period of time. The Seller has been
afforded access to Level 3's Annual Report on Form 10-K for the fiscal year
ended December 31, 2004 and Level 3's Quarterly report on Form 10-Q for fiscal
quarters ended March 31, 2005, June 30, 2005, and September 30, 2005 ("Level 3
SEC Reports"), and has been afforded an opportunity to ask questions of and
receive answers from representatives of Level 3 and Purchaser concerning the
terms and conditions of this Agreement and the acquisition of such Shares.
(c) Seller is an "accredited investor" as such term is defined in Rule
501(a) promulgated under the Securities Act.
(d) Seller understands that the Shares have not been registered under the
Securities Act or any state securities law, by reason of their issuance in a
transaction exempt from the registration requirements of the Securities Act and
such state securities laws, which exemption depends upon, among other things,
the bona fide nature of Seller's investment intent as expressed herein. Seller
understands that such securities must be held indefinitely unless they are
subsequently registered under the Securities Act and such state securities laws
or a subsequent disposition thereof is exempt from registration. Seller
understands that the exemption from registration afforded by Rule 144 (the
provisions of which are known to Seller) promulgated under the Securities Act
depends upon the satisfaction of various conditions and that, if applicable,
Rule 144 may afford the basis for sales only in limited amounts. Seller
acknowledges that the certificates evidencing the Shares will bear a legend
reflecting such restriction on the transfer of such Shares.
Section 3.27 Representations and Warranties of Guarantors. Each Guarantor,
with respect to itself, represents and warrants to Purchaser that the statements
contained in this Section 3.27 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3.27), except as set forth in the Disclosure
Schedule.
(a) Organization.
(i) PTC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida. PTC is duly qualified or
licensed to do business as a foreign entity and is in good standing in each
jurisdiction in which the ownership or lease of its assets or the operation of
its business requires such qualification or license, except where the failure to
so qualify or be so licensed would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on the ability of such Guarantor to perform timely its obligations under
this Agreement.
(ii) Caronet is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina. Caronet is duly
qualified or licensed to do business as a foreign entity and is in good standing
in each jurisdiction in which the ownership or lease of its assets or the
operation of its business requires such qualification or
28
license, except where the failure to so qualify or be so licensed would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or a material adverse effect on the ability of such Guarantor to
perform timely its obligations under this Agreement.
(iii) EPIK is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. EPIK is duly qualified or
licensed to do business as a foreign entity and is in good standing in each
jurisdiction in which the ownership or lease of its assets or the operation of
its business requires such qualification or license, except where the failure to
so qualify or be so licensed would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on the ability of such Guarantor to perform timely its obligations under
this Agreement.
(iv) FPC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida. FPC is duly qualified or
licensed to do business as a foreign entity and is in good standing in each
jurisdiction in which the ownership or lease of its assets or the operation of
its business requires such qualification or license, except where the failure to
so qualify or be so licensed would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on the ability of such Guarantor to perform timely its obligations under
this Agreement.
(v) OT is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. OT is duly qualified or
licensed to do business as a foreign entity and is in good standing in each
jurisdiction in which the ownership or lease of its assets or the operation of
its business requires such qualification or license, except where the failure to
so qualify or be so licensed would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on the ability of such Guarantor to perform timely its obligations under
this Agreement.
(b) Authorization of Transaction. Guarantor has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the Board of Directors, or Board of Managers, as
applicable, of each Guarantor have duly authorized the execution, delivery, and
performance of this Agreement by each Guarantor. This Agreement constitutes the
valid and legally binding obligation of each Guarantor, enforceable in
accordance with its terms and conditions.
(c) Noncontravention; Consents.
(i) Except as set forth in Schedule 3.27(c) of the Disclosure Schedule
neither the execution and delivery of this Agreement by each such Guarantor, nor
the consummation of the transactions contemplated hereby, will: (i) violate any
applicable Laws to which such Guarantor is subject, except for violations that
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect; (ii) conflict with or result in a breach of any
provision of the Articles of Incorporation or Certificate of Incorporation, as
the case may be, of said Guarantor; or (iii) constitute a violation of, be in
conflict with, constitute or create a breach, default, termination, cancellation
or acceleration of any obligation under any material contract, agreement or
commitment to which said Guarantor is a party.
29
(ii) Except as set forth in Schedule 3.27(c) of the Disclosure Schedule and
except for compliance by Purchaser and Seller with the Hart-Scott-Rodino Act, no
material notices, licenses, Permits, consents, approvals, authorizations,
qualifications or orders of Governmental Entities are required for the
consummation by such Guarantor of the transactions contemplated hereby.
Section 3.28 Additional Representations and Warranties of Seller.
(a) Organization of Seller. Seller is duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation (or
other formation).
(b) Authorization of Transaction. Seller has full power and authority
(including full corporate or other entity power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Seller, enforceable
in accordance with its terms and conditions. Except as set forth in this
Agreement, and except for compliance by Purchaser and Seller with the HSR Act,
to Seller's knowledge, the Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement other than such of the foregoing that, if not obtained or made, would
not, individually or in the aggregate, reasonably be expected to have a material
and adverse effect on the ability of the Seller to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and all other agreements contemplated hereby have been duly authorized by the
Seller.
(c) Non-contravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will,
to the Knowledge of Seller (A) violate any Laws, except for violations that
would not, individually or in the aggregate, reasonably be expected to have a
material and adverse effect on the ability of Seller to consummate the
transactions contemplated hereby, and, any provision of its charter, bylaws, or
other governing documents, (B) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Seller is a party or by which it is bound or to which any of its assets is
subject, except to the extent that such violation, conflict, breach, default,
termination, cancellation or acceleration would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, (C)
constitute a violation of, be in conflict with, constitute or create a breach,
default, termination, cancellation or acceleration of any obligation under any
contract, agreement or commitment by which any of the Units is bound or subject,
except to the extent that such violation, conflict, breach, default,
termination, cancellation or acceleration would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, or (D)
result in the imposition or creation of a Lien upon or with respect to the
Units.
Section 3.29 Brokers' Fees. Seller has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
30
Section 3.30 Company Units. Seller holds of record and owns beneficially
all of the issued and outstanding membership interests of Company, or Units, as
is set forth in Schedule 3.30 of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than restrictions under the Company's Operating
Agreement, the Securities Act and state securities laws) or, Taxes, Liens,
options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands. Seller is not a party to any option, warrant, purchase right, or
other contract or commitment (other than this Agreement) that could require it
to sell, transfer, or otherwise dispose of any Units. Seller is not a party to
any voting trust, proxy, or other agreement or understanding with respect to the
voting of any Units. The Units are the sole outstanding securities of or
ownership interests in the Company; the Company does not have outstanding any
securities convertible into or exchangeable for any membership interests of the
Company, any rights to subscribe for or to purchase or any options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any other character
relating to the issuance of, any membership interests of the Company, or any
rights or securities convertible into or exchangeable for any membership
interests of the Company; and neither the Company nor any Affiliate of the
Company is subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire, or to register under the Securities Act, any
membership interests of the Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND LEVEL 3
Each of the Purchaser and Level 3, with respect to itself, represents and
warrants to Seller that the statements contained in this Article 4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 4), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the lettered and numbered paragraphs contained in
this Article 4.
Section 4.1 Organization of Purchaser. Purchaser and Level 3 are each duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Purchaser and Level 3 each has been duly qualified or licensed to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership or operation of its assets and properties requires such
qualification or license, except where the failure to so qualify or be so
licensed would not, individually or in the aggregate, reasonably be expected to
have a Purchaser Material Adverse Effect on the ability of Purchaser to
consummate the transactions contemplated hereby. Purchaser has all requisite
corporate power and authority to carry on its business as currently conducted.
Section 4.2 Authorization of Transaction. Purchaser has full power and
authority (including full corporate or other entity power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of
Purchaser, enforceable in accordance with its terms and conditions. The
execution, delivery and performance of this Agreement and all other agreements
contemplated hereby have been duly authorized by Purchaser.
31
Section 4.3 Non-contravention.
(a) Except as set forth in Schedule 4.3 of the Disclosure Schedule neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in Article 2 above), will (i) violate any applicable Laws to which
Purchaser is subject, except for violations that would not, individually or in
the aggregate, reasonably be expected to have a material and adverse effect on
Purchaser; (ii) conflict with or result in a breach of any provision of its
charter, bylaws, or other governing documents or (iii) constitute a violation
of, be in conflict with, constitute or create a breach, termination,
cancellation or acceleration of any obligation under any material contract,
agreement or commitment to which the Purchaser is a party.
(b) Except as set forth in Schedule 4.3 of the Disclosure Schedule, and
except for compliance by Purchaser and Seller with the Hart-Scott-Rodino Act, to
Purchaser's knowledge, no notices, licenses, Permits, consents, approvals,
authorizations, qualifications or orders of Governmental Entities are required
for the consummation by Purchaser of the transactions contemplated hereby, other
than such of the foregoing that, if not obtained or made, would not,
individually or in the aggregate, reasonably be expected to have a material and
adverse effect on, or prevent Purchaser from consummating, the transactions
contemplated hereby.
Section 4.4 Brokers' Fees. Neither Purchaser nor any of Purchaser's
Affiliates has any liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement for which Seller could become liable or obligated.
Section 4.5 Litigation. There are no legal, administrative, arbitration or
other formal proceedings or governmental investigations pending or, to
Purchaser's knowledge, threatened against Purchaser that question the validity
of this Agreement or any action taken or to be taken by Purchaser in connection
with this Agreement.
Section 4.6 Availability of Funds. Purchaser has sufficient funds available
to it to pay the Purchase Price and to perform its obligations pursuant to this
Agreement in accordance with the terms and conditions contained herein.
Section 4.7 Capitalization and Related Matters.
(a) As of the Effective Date, Level 3's capital stock consists of (a) 1.5
billion authorized shares of Purchaser Common Stock and (b) 10,000,000
authorized shares of preferred stock, par value $0.01 per share, of which no
shares of preferred stock are outstanding. As of January 23, 2006, there were
818,168,830 shares of Level 3 common stock outstanding. Except as set forth on
Schedule 4.7 of the Disclosure Schedule as of September 30, 2005, (i) neither
Level 3 nor any of its Subsidiaries has outstanding any stock or other
securities convertible into or exchangeable for any shares of capital stock of
Level 3, any rights to subscribe for or to purchase or any options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any other character
relating to the issuance of, any capital stock of Level 3, or any stock or
securities convertible into or exchangeable for any capital stock of Level 3
other than those issued under employee benefit
32
plans of Level 3; and (ii) neither Level 3 nor any of its Subsidiaries is
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of capital stock of Level 3. All of the outstanding
shares of Purchaser Common Stock have been duly and validly issued and are fully
paid and non-assessable. As of the Closing, the Shares will be duly authorized
and, upon issuance, sale and delivery as contemplated by this Agreement, the
Shares will be validly issued, fully paid and non-assessable securities of Level
3.
(b) All of the issued and outstanding membership interests of the Purchaser
are owned of record and beneficially by Level 3, directly or indirectly.
Section 4.8 SEC Filings.
(a) Purchaser has delivered or made available (via EDGAR) to Seller a
correct and complete copy of the Level 3 SEC Reports. The Level 3 SEC Reports
have been timely filed pursuant to the Exchange Act.
(b) The Level 3 SEC Reports complied as to form in all material respects
with the requirements of the Exchange Act in effect on the date of filing. The
Level 3 SEC Reports, when filed pursuant to the Exchange Act, did not contain
any untrue statement of a material fact or omit any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(c) Each of Level 3's financial statements (including the related notes)
included in the Level 3 SEC Reports present fairly in all material respects the
consolidated financial position and consolidated results of operations and cash
flows of Level 3 and its Subsidiaries as of the respective dates or for the
respective periods set forth therein, all in conformity with GAAP during the
period involved except as otherwise noted therein, and subject, in the case of
any unaudited interim financial statements included therein, to normal year-end
adjustments and to the absence of complete footnotes.
Section 4.9 No Material Adverse Effect. Since September 30, 2005, there has
not been any event that has had a Purchaser Material Adverse Effect on Level 3
and its Subsidiaries.
Section 4.10 Private Placement. The issuance of the Shares to Seller
pursuant to this Agreement will not require registration under the Securities
Act, assuming that (i) the representations and warranties of the Seller made to
Purchaser in connection with this Agreement and the transactions contemplated by
this Agreement are true, complete and accurate (upon which assumption Level 3
and the Purchaser have relied without independent investigation); and (ii) the
Seller complies with its representations and warranties set forth in Section
3.26 of this Agreement.
ARTICLE 5
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
Effective Date of this Agreement and the Closing and, unless otherwise provided
below:
33
Section 5.1 General. Subject to the terms and conditions of this Agreement,
each of the Parties will take all actions and do all things necessary, proper or
advisable to perform its respective obligations under this Agreement that are
required to be performed on or prior to the Closing, and use its respective
reasonable commercial efforts to consummate and make effective the transactions
contemplated by this Agreement as promptly as reasonably practical. None of the
Parties will, without the prior written consent of the other Party, take or fail
to take, or permit their respective Affiliates to take or fail to take, any
action that would reasonably be expected to prevent or materially impede,
interfere with or delay the prompt consummation of the transactions contemplated
by this Agreement.
Section 5.2 Notices and Consents. Seller will (and shall cause the Company
and the Subsidiaries to) (a) give all required notices to third parties and
Governmental Entities and will use its reasonable commercial efforts to obtain
all third party and governmental consents and approvals that it is required to
obtain in connection with the consummation of the transactions contemplated
hereby, and (b) use its respective reasonable commercial efforts to prevent any
preliminary or permanent injunction or other order by a Governmental Entity that
seeks to modify, delay or prohibit the consummation of the transactions
contemplated by this Agreement, including under the Hart-Scott-Rodino Act, and,
if issued, to appeal any such injunction or order through the appellate court or
body for the relevant jurisdiction. Within ten (10) business days following the
execution of this Agreement, each of the Parties will file any required
Notification and Report Form and related material with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
under the Hart-Scott-Rodino Act, will use its respective reasonable commercial
efforts to obtain early termination of any applicable waiting period under the
Hart-Scott-Rodino Act, and will take all further actions and make all further
filings pursuant to the Hart-Scott-Rodino Act that may be necessary, proper or
advisable. Nothing contained in this Agreement will be deemed to require Seller
or the Company to enter into any agreement, consent decree or other commitment
requiring Seller, the Company, Purchaser, or any of their respective Affiliates
to (x) divest or hold separately any assets of Seller, the Company or their
Affiliates, (y) litigate, pursue or defend any action or proceeding challenging
any of the transactions contemplated hereby as violative of the
Hart-Scott-Rodino Act, or (z) take any other action that would, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
the business, condition (financial or otherwise), assets, liabilities,
operations, results of operations or prospects of the Company or the
Subsidiaries. In connection with the foregoing, each Party will (i) promptly
notify the other Party of any written communication to that Party or its
Affiliates from any Governmental Entity regarding the transactions contemplated
hereby, and, subject to applicable Law, provide the other Party with a copy of
any written communication to any of the foregoing, and (ii) not participate in
any substantive meeting or discussion with any Governmental Entity in respect of
any filings, investigation or inquiry concerning the transactions contemplated
by this Agreement unless it consults with the other Party in advance, and to the
extent permitted by such Governmental Entity, give the other Party the
opportunity to attend and participate thereat. Seller and Purchaser shall each
be responsible for payment of one-half of the fees for filing any required
Notification and Report Form and related material under the Hart-Scott-Rodino
Act.
Section 5.3 Interim Conduct of the Company. Except as contemplated by this
Agreement or with the prior written consent of Purchaser (which consent shall
not be unreasonably withheld), during the period from the Effective Date of this
Agreement to the
34
Closing, Seller will cause the Company to conduct its Business in the Ordinary
Course of Business and will use all reasonable efforts consistent therewith to
preserve intact the Company's properties, assets and business organization, to
keep available the services of Company's officers and employees and to maintain
satisfactory relationships with customers, suppliers, distributors and others
having commercially beneficial business relationships with Company, in each case
in the Ordinary Course of Business. Without limiting the generality of the
foregoing, and except as otherwise provided in this Agreement, Seller will not
permit the Company to take any of the following actions, prior to the Closing,
without the prior written consent of Purchaser:
(a) (i) sell, transfer or otherwise dispose of any of the Acquired Assets,
(ii) mortgage or encumber any of the Acquired Assets, (iii) acquire any material
assets or properties other than in the Ordinary Course of Business, or (iv)
enter into any leases or subleases for equipment or personal property which
result in lease payments by the Company in excess of One Hundred Thousand
Dollars ($100,000.00) in the aggregate;
(b) enter into, terminate or materially modify, any material agreements,
commitments or contracts, except agreements, commitments or contracts made in
the Ordinary Course of Business and not otherwise prohibited by this Section
5.3;
(c) except in the Ordinary Course of Business, or with respect to capital
projects disclosed on Exhibit 5.11, enter into any agreement or commitment
involving an aggregate capital expenditure or commitment for any one agreement
exceeding One Hundred Thousand Dollars ($100,000.00) or for all such agreements
exceeding Five Hundred Thousand Dollars ($500,000.00) in the aggregate, or
create, incur, or guaranty any long-term or short-term indebtedness for money
borrowed;
(d) enter into any new (or amend any existing) Employee Benefit Plan (other
than the spin off of a portion of an Employee Benefit Plan in order to
facilitate the Reorganization) or any new (or amend any existing) employment,
severance, retention, change of control or consulting agreement, grant any
general increase in compensation of officers or employees of the Business
(including any such increase pursuant to any bonus, pension, profit-sharing or
other plan or commitment) or grant any increase in compensation payable or to
become payable to any employee of the Business, except in accordance with
pre-existing contractual arrangements or consistent with past practice;
(e) Intentionally Omitted;
(f) enter into any Prepaid Revenue Contract (as defined in Section 3.8(i)
above) or enter into agreements, contracts, leases or licenses for the sale of
goods or services by the Company with an aggregate non-recurring revenue as
reported on the Company's income statement in accordance with past practices in
excess of One Hundred Seventy-Five Thousand Dollars ($175,000.00);
(g) make or change any Tax election, adopt or change any method of Tax
accounting or Tax accounting periods, file any amended Tax Returns (unless such
election, accounting method or period, or amended Tax Returns relate to Income
Taxes), enter into any closing
35
agreement, settle any material Tax claim or assessment relating to the Company
or the Subsidiaries, surrender any material right to claim a refund of Taxes,
consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment relating to the Company or the Subsidiaries, or fail to
timely file all Tax Returns required to be filed and timely pay all Taxes due;
(h) after the Reorganization, make any change in any organizational
document of the Company; issue any additional membership interests or other
ownership interests or equity securities of the Company or grant any option,
warrant or right to acquire any membership interests or ownership interests or
other equity securities or issue any security convertible into or exchangeable
for such interests or securities or alter in any way any of its outstanding
interests or securities or make any change in outstanding membership interests
or other ownership interests or equity securities or its capitalization, whether
by reason of a reclassification, recapitalization, split or combination,
exchange or readjustment of interest or otherwise.
(i) redeem, retire, purchase or otherwise acquire, directly or indirectly,
any shares of membership interests or other ownership interests or equity
securities of the Company and its Subsidiaries or declare, set aside or pay any
dividends or other distribution in respect of such interests (other than
distributions to Seller of Excluded Assets);
(j) enter into any peering agreements, IRU agreements or Leases;
(k) pay, lend, or advance any amount to, or sell, transfer or lease any
properties or assets to, or enter into any agreement or arrangement with, any of
its Affiliates other than the Company and any Subsidiary, except as disclosed on
Schedule 5.3(k) of the Disclosure Schedule or in connection with the
Reorganization, provided, that the Reorganization does not create any obligation
of the Company with respect to the foregoing that shall survive the Closing; or
(l) agree in writing to take any of the foregoing actions.
Section 5.4 Full Access. Subject to the Confidentiality and/or
Non-Disclosure Agreement dated September 21, 2005, and as amended thereafter,
between OT and Purchaser (the "Confidentiality Agreement"), Seller will permit
representatives of Purchaser, upon reasonable prior written notice to Seller, to
have access during normal business hours and under reasonable circumstances to
the premises, properties (other than those leased, subleased or licensed to
third parties), assets, books, records and contracts of the Company and the
Subsidiaries. Seller will furnish Purchaser with all financial and other
material information in its possession relating to Company and the Subsidiaries
as Purchaser may from time to time reasonably request. Notwithstanding anything
in this Section 5.4 to the contrary, without the prior written consent of Seller
(which consent shall not be unreasonably withheld), Purchaser will not have the
right to perform or conduct any environmental sampling or testing at, in, on,
around or underneath the assets and properties of the Company, and Seller will
not be required to provide such access or information which is otherwise
prohibited by Law.
Section 5.5 Notice of Developments. Seller shall promptly notify Purchaser
in writing of any development or information causing a potential or actual
breach of any of Seller's representations and warranties set forth in any of
Article 3. No notification pursuant to this
36
Section 5.5 shall qualify any representation or warranty of Seller or the
conditions to the obligation of Purchaser.
Section 5.6 Negotiations. From and after the date hereof and until the
earlier to occur of the Closing Date or the termination of this Agreement
pursuant to Article 9 hereof, neither the Guarantors nor the Sellers shall, and
they shall cause any Persons acting on their behalf not to, encourage, solicit,
engage in discussions or negotiations with, or provide any information to, any
Person or group (other than Purchaser or its representatives) concerning any
merger, sale of substantial assets, sale of membership units or similar
transaction involving the Company and/or the Subsidiaries (other than with
respect to the Excluded Assets and Excluded Liabilities).
Section 5.7 Employment and Employee Benefit Matters.
(a) Prior to and effective as of the Closing Date, Seller shall update the
Employees identified on Schedule 5.7 of the Disclosure Schedule by deleting
those individuals no longer employed by the Company or the Subsidiaries and
adding any individuals who have become so employed since the schedule was first
prepared or the last revision thereto, and within ten (10) business days after
the date hereof, Seller shall provide a schedule to Purchaser setting forth the
current position, date of hire, base salary or wage rate, and 2005 and 2006
target bonus and/or commission compensation of each Employee. Effective as of
the Closing Date, the Employees shall continue their employment with the Company
and the Subsidiaries without interruption at the same base annual salary or
hourly wage rate, as applicable, and with a comparable position and comparable
bonus incentives (excluding any equity based compensation opportunity) as
pertain to the Employees immediately prior to the Closing Date. Except as may be
specifically required by applicable Law or the terms of any employment agreement
relating to the Employees, the Company and the Subsidiaries shall have no
obligation to continue any employment relationship with any Employee for any
specific period of time after the Closing Date. Anything herein to the contrary
notwithstanding, excepting, however, any written employment agreements with any
such Employee, in the event the employment of any Employee shall be terminated,
prior to the first anniversary of the Closing Date, (i) by the Company or any
Subsidiary without cause, or (ii) by Employee because the Company or a
Subsidiary requires said Employee to report to and perform a majority of his/her
employment responsibilities at an office or other primary place of work that is
more than fifty (50) miles from the facility/office that Employee reported to
and worked at immediately prior to the Closing, then (iii) the Company shall
provide such Employee with severance benefits that are at least equivalent to
the severance benefits to which such Employee would have been entitled under the
Company's severance policy (or, if greater, the amount determined under any
employment agreement pertaining to such Employee).
(b) Prior to and effective as of the Closing Date, the Seller shall take
such actions as are necessary to transfer the employment of the Excluded
Employees who are employed by the Company or any Subsidiary immediately prior to
the Closing Date to Seller or an Affiliate of Seller. Seller shall be
responsible for and thereafter pay, perform and discharge any and all
employment, compensation and employee benefit liabilities, responsibilities and
obligations of the Company and the Subsidiaries with respect to the Excluded
Employees, including, without limitation, any and all claims for severance or
any unlawful employment practice under any local, state, or federal Law or
ordinance, including, without limitation, Title VII of the Civil
37
Rights Act of 1964, as amended; the Civil Rights Act of 1991; the American with
Disabilities Act of 1990; the Age Discrimination in Employment Act of 1967, as
amended by the Older Workers Benefit Protection Act of 1990; Section 510 of
ERISA; the WARN Act; and the Civil Rights Act of any state, as applicable.
(c) As of the Closing Date, Purchaser shall cause the Company and the
Subsidiaries to honor and satisfy all obligations and liabilities that have
accrued as of the Closing Date under the Company Benefit Plans that are
sponsored by the Company and the Subsidiaries. Subject to the foregoing, the
Company may amend or terminate any of such Company Benefit Plans at any time
following the Closing Date in accordance with their respective terms and
applicable Law. To the extent that any such Company Benefit Plan is terminated
or amended at any time after the Closing Date so as to reduce the benefits that
are then being provided with respect to participants thereunder, Purchaser shall
arrange for each individual who is then a participant in such terminated or
amended arrangement to participate in a comparable benefit arrangement
maintained by Purchaser for similarly situated employees; provided, however,
that (i) such participants shall receive full credit for all service with the
Company and the Subsidiaries for purposes of eligibility, vesting and for
benefit calculation purposes (but not for benefit accrual purposes under any
pension, other qualified retirement plan, or nonqualified deferred compensation
plan) but only to the extent such service was taken into account under any
similar Company Benefit Plan, (ii) such participants shall participate in
Purchaser's benefit arrangements on terms that are no less favorable than
offered to similarly situated employees of Purchaser and its Affiliates, (iii)
Purchaser shall waive, or cause its insurance carriers to waive, all limitations
as to pre-existing and at-work conditions, if any, with respect to participation
and coverage requirements under Purchaser's welfare plans (except for
limitations or waiting periods that are already in effect and that have not been
satisfied with respect to such participants), and (iv) shall provide equitable
credit for any co-payments and deductibles paid by such participants under the
Company Benefit Plans during the year in which such change occurs.
(d) Purchaser shall specifically assume any Employee related liabilities
and obligations (i) of Company and its Subsidiaries as of the Closing Date to
the extent reflected on the Pro Forma Net Current Assets, or (ii) arising or
pertaining to periods after Closing. Except as otherwise provided in this
Section 5.7, Seller shall be responsible for and thereafter pay, perform and
discharge any and all employment, compensation and employee benefit liabilities,
responsibilities and obligations of Company and the Subsidiaries with respect to
the Employees and such obligations shall be deemed Excluded Liabilities.
(e) Employees who are on disability leave, authorized leave of absence, or
military leave as of the Closing Date shall be identified in Schedule 5.7(e) of
the Disclosure Schedule.
(f) Prior to the Closing Date, Seller and its Affiliates shall comply in
all material respects with the requirements of, and shall indemnify and hold
Purchaser and its Affiliate harmless from and against any and all losses that
Purchaser or its Affiliates may incur by reason of any noncompliance with the
WARN Act. Prior to the Closing Date, Seller shall notify Purchaser in writing of
every employment termination from all single sites of employment at which the
Business is conducted which may under the WARN Act be a basis for imposing WARN
Act liability against Purchaser and its Affiliates. On and after the Closing
Date, Purchaser and its Affiliates shall comply in all material respects with
the WARN Act and shall
38
indemnify and hold Seller and its Affiliates harmless from and against any and
all losses that Seller or its Affiliates may incur by reason of any
noncompliance with the WARN Act that is attributable to Purchaser and its
Affiliates and not to Seller. Purchaser and Seller shall cooperate with each
other in making any notices required by the WARN Act or other applicable Federal
or state Laws relating to the employment of employees.
(g) Seller shall retain and be responsible for all liabilities in
connection with claims incurred prior to the Closing Date by Employees and other
current and former employees of Seller associated with the Business prior to the
Closing Date and their eligible dependents under any of Seller's employee
welfare benefit plans (as described in Section 3(1) of ERISA), including claims
filed following the Closing Date and continued COBRA Coverage for former
employees associated with the Business who were eligible for COBRA Coverage
prior to the Closing Date. Purchaser shall be responsible for all liabilities in
connection with claims incurred on and after the Closing Date by Employees under
any of Company Benefit Plans maintained by the Company and the Subsidiaries on
and after the Closing Date and Purchaser's employee welfare benefit plans (as
defined in Section 3(1) of ERISA) covering such Employees on and after the
Closing Date. For purposes of this section, a claim shall be incurred on the
date treatment or service is first rendered.
(h) Intentionally Omitted
(i) Nothing in this Agreement is intended to confer on any entity or
individual who is not a party to this Agreement (including Employees) any rights
whatsoever.
Section 5.8 Audited Financial Statements. Promptly following the completion
of the audit for the year-ended December 31, 2005, Seller shall deliver to
Purchaser the audited consolidated balance sheets of the Company and the
Subsidiaries as of December 31, 2005, and the related consolidated statements of
income and cash flows for the period ended December 31, 2005 (the "2005
Financial Statements").
Section 5.9 Intentionally Omitted.
Section 5.10 Reorganization. The transfer of the Excluded Assets, the
Excluded Subsidiaries and the Excluded Affiliate in the Reorganization shall be
on an "as is, where is" basis, and the Company and the Subsidiaries will make no
representations or warranties, either express or implied, with respect to the
Excluded Assets, the Excluded Subsidiaries or the Excluded Affiliate, and the
Seller will have no recourse against the Company and the Subsidiaries with
respect to the Excluded Assets, the Excluded Subsidiaries, the Excluded
Affiliate or the Excluded Liabilities. In addition, following its assignment of
the excluded liabilities in the Reorganization, the Seller shall pay, perform,
settle and discharge when due the Excluded Liabilities.
Section 5.11 Capital Projects. Prior to the Closing, Seller shall cause the
Company to pay or accrue for capital expenditure projects listed on Exhibit
5.11.
Section 5.12 Suppliers and Customers. Seller shall promptly notify
Purchaser if any Major Customer or Major Supplier expresses to the Company or
any Subsidiary, verbally or in
39
writing, its intention to cancel or otherwise terminate or materially reduce its
relationship with the Company or any Subsidiary.
ARTICLE 6
CONDITIONS TO OBLIGATION TO CLOSE
Section 6.1 Conditions to Purchaser's Obligation. Purchaser's obligation to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a) each of the representations and warranties set forth in Article 3 above
(read without any materiality qualifications) shall be true and correct as of
the Effective Date and as of the Closing Date (except as to the extent such
representations and warranties speak as of an earlier date) other than such
failures to be true and correct that, individually or in the aggregate, would
not reasonably be expected to result in a Material Adverse Effect;
(b) Seller shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(c) there shall not be any injunction, judgment, order, decree, ruling, or
charge in effect preventing consummation of any of the transactions contemplated
by this Agreement;
(d) Seller shall have delivered to Purchaser a non-foreign affidavit dated
as of the Closing Date, made under penalty of perjury and in form and substance
required under the Treasury Regulations issued pursuant to Section 1445 of the
Code stating that Seller is not a "Foreign Person" as defined in Section 1445 of
the Code (the "FIRPTA Affidavit");
(e) Seller shall have delivered to Purchaser a certificate dated as of the
Closing Date to the effect that each of the conditions specified above in
Section 6.1(a)-(c) is satisfied in all respects;
(f) except with respect to any representations or warranties relating to
obtaining required consents of customers of Company, which is addressed in, and
subject to Section 6.1(f), all consents, waivers, authorizations and approvals
of any Governmental Entity or other Person required in connection with the
execution, delivery and performance of this Agreement shall have been duly
obtained and shall be in full force and effect on the Closing Date;
(g) during the period from the date hereof to the Closing Date, there shall
not have been any Material Adverse Effect;
(h) Intentionally Omitted;
(i) Seller shall have executed the registration rights and transfer
restriction agreement in the form attached hereto as Exhibit 6.1(i) (the
"Registration Rights Agreement");
40
(j) employment agreements in place as of the Effective Date between the
Company and the Employees whose names are set forth on Schedule 6.1(j) of the
Disclosure Schedule shall be in full force and effect;
(k) all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated and
Seller, the Company and its Subsidiaries, and Purchaser, shall have received all
other authorizations, consents, and approvals of governments and governmental
agencies referred to in Exhibit 6.1(k);
(l) all actions to be taken by Seller in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
Purchaser;
(m) Seller shall have obtained consent from those of its customers whose
contracts represent at least eighty percent (80%) of monthly recurring revenue
("MRR") (measured with respect to the month of September 2005) and require that
consent be obtained in order to consummate the transactions contemplated by this
Agreement (the "80% MRR Customers"). For purposes of determining eighty percent
(80%) of MRR, there shall be excluded, from both the numerator and denominator
of such computation, all contracts with Progress Energy Corporation or its
Affiliates and all contracts with Level 3 and its Affiliates. Notwithstanding
anything contained in this Article 6 to the contrary, Seller shall not be
required to obtain prior to the Closing Date as a condition to Purchasers
obligation to consummate the transactions to be performed by it, consent from
customers other than from those of the 80% MRR Customers whose consent is
required by the terms of such customer's respective contract with Company;
(n) Seller shall have provided to Purchaser copies of the organizational
documents of the Company, with all amendments thereto to the date hereof, and
such copies are accurate and complete as of the date thereof;
(o) Seller shall have delivered to Purchaser evidence of the resignation of
each member of the Company's Board of Managers and Audit Committee, with each
such resignation to be effective on or before the Closing Date;
(p) Seller shall have taken all actions, or caused its Affiliates to take
all actions, necessary to effect and consummate the Reorganization effective on
or before the Closing Date in accordance with Section 5.10;
(q) Seller shall have taken all actions, or caused its Affiliates to take
all actions, necessary to either (i) terminate the Company's 2004 Senior
Executive Equity Incentive Plan (including any agreements to purchase or receive
Units, or profits interests in such Units thereunder), with such termination to
be effective on or before the Closing Date or, (ii) assume, on or before the
Closing Date all liabilities, obligations and responsibilities arising out of or
as a result of the Company's 2004 Senior Executive Equity Incentive Plan and any
grants made thereunder, which assumption shall be in form and substance
reasonably satisfactory to Purchaser. Seller shall provide Purchaser with
evidence reasonably satisfactory to Purchaser that
41
no Person other than Purchaser shall have an equity interest or any rights to
acquire an equity interest in the Company or any voting rights in the Company as
of the Closing Date;
(r) the Affiliate Agreement between Progress Telecom LLC and PT Wireless,
Inc., dated September 30, 2005, shall be terminated on or prior to Closing;
(s) the Transitional Trademark License, in substantially the form attached
as Exhibit 7.5 hereto, shall be fully executed and in full force and effect; and
(t) the consents of the Sellers and Guarantors to the transfer of Affiliate
agreements that are included in the Acquired Assets, in substantially the form
attached as Exhibit 6.1(t) hereto, shall be fully executed and in full force and
effect.
Purchaser may waive any condition specified in this Section 6.1 if it
executes a writing so stating at or prior to the Closing.
Section 6.2 Conditions to Seller's Obligation. Seller's obligation to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Article 4 above (read
without any materiality qualifications) shall be true and correct as of the
Effective Date and as of the Closing Date (except to the extent that such
representations and warranties speak as of an earlier date) other than such
failures to be true and correct that, individually or in the aggregate, would
not reasonably be expected to result in a Purchaser Material Adverse Effect
Notwithstanding the foregoing, Section 4.9 shall be disregarded for purposes of
the prior sentence if Purchaser exercises its Cash Substitution Right in full
accordance with Section 2.4;
(b) Purchaser shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(c) there shall not be any injunction, judgment, order, decree, ruling, or
charge in effect preventing consummation of any of the transactions contemplated
by this Agreement;
(d) Purchaser shall have delivered to Seller a certificate dated as of the
Closing Date to the effect that each of the conditions specified above in
Section 6.2(a)-(c) is satisfied in all respects;
(e) during the period from the Effective Date to the Closing Date, there
shall not have been any Purchaser Material Adverse Effect; provided, however,
that this closing condition shall be void and be of no further force and effect
if the Purchaser exercises its Cash Substitution Right in full in accordance
with the time periods set forth in Section 2.4;
(f) Purchaser shall have executed the Registration Rights Agreement;
(g) the Shares issued hereunder, if any, shall have been admitted for
listing on the NASDAQ Stock Market;
42
(h) all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated;
(i) the Transitional Trademark License, in substantially the form attached
as Exhibit 7.5 hereto, shall be fully executed and in full force and effect; and
(j) all actions to be taken by Purchaser in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
Seller.
Seller may waive any condition specified in this Section 6.2 if it executes
a writing so stating at or prior to the Closing.
ARTICLE 7
POST-CLOSING COVENANTS
Purchaser and Seller agree that with respect to the period following the
Closing:
Section 7.1 General. In case at any time after the Closing Date any further
action is reasonably necessary to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other Party
reasonably may request, at the sole cost and expense of the requesting Party
(unless otherwise specified herein).
Section 7.2 Litigation Support. In the event and for so long as either
Party is actively contesting or defending against any third-party charge,
complaint, action, suit, proceeding, hearing, investigation, claim or demand in
connection with any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction involving the Company or any of the Subsidiaries, the other Party
will reasonably cooperate with the contesting or defending Party and its counsel
in the contest or defense, make available its personnel and provide such
testimony and access to its books and records as may be reasonably requested in
connection with the contest or defense, at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Article 8).
Section 7.3 Agreements Regarding Tax Matters.
(a) Seller shall assume full liability for any and all Taxes that result
from, or are incurred in connection with, the Reorganization.
(b) Seller shall prepare and file, or cause to be prepared and filed, when
due all Income Tax Returns that are required to be filed by or with respect to
the Company and the Subsidiaries for all Pre-Closing Tax Periods. Seller shall
be solely responsible for any Income Taxes due in respect of all such
Pre-Closing Tax Periods. Subject to the last sentence of Section 7.3(c)
(relating to certain amended Tax Returns and refund claims), Purchaser shall
prepare and file, or cause to be prepared and filed, when due all other Tax
Returns that are required to be
43
filed by or with respect to the Company and the Subsidiaries, including for
Pre-Closing Tax Periods (other than those Tax Returns required to be filed on or
prior to the Closing Date after giving effect to any extensions) and Straddle
Periods, and shall timely pay or cause the Company and the Subsidiaries to
timely pay the Taxes due with respect to such Tax Returns. Seller shall promptly
reimburse Purchaser for the amount of Taxes due for the Pre-Closing Tax Period
(including the portion of a Straddle Period ending on the Closing Date), to the
extent not paid before Closing or taken into account in the determination of the
Purchase Price Adjustment; provided, however, that Seller shall not reimburse
Purchaser for any interest, penalty or addition to Tax attributable to any
negligence or willful misconduct of Purchaser or its Affiliates, including
(after Closing) the Company and the Subsidiaries. Such Tax Returns for any
Pre-Closing Tax Period or Straddle Period for which Purchaser is responsible
hereunder shall use the same Tax accounting methods and Tax elections as
currently used by the Company and the Subsidiaries (as applicable), except as
may otherwise be agreed by Purchaser and Seller or required by a change in Laws.
For purposes of determining the amount of Tax for a Straddle Period that is
allocable to the Pre-Closing Tax Period, a closing-of the-books (as of the close
of business on the Closing Date) method shall be used, except for Property
Taxes, which shall be allocated equally to each day in the applicable Straddle
Period. In the case of Property Taxes, Purchaser shall deliver to Seller on or
about November 30, 2006, a statement showing the aggregate amount, if any, of
all Property Taxes to be reimbursed by Seller under this Section 7.3(b) or, if
the sum of the amount of Property Taxes paid before Closing or taken into
account in the determination of the Purchase Price Adjustment exceeds the total
amount of such Property Taxes allocable to Pre-Closing Tax Periods, reimbursed
by Purchaser to Seller, with detailed information supporting the determination
of such amount. Such aggregate amount shall be paid to Purchaser or Seller, as
appropriate, within thirty (30) days after delivery of such statement to Seller,
unless Seller notifies Purchaser within such 30-day period that Seller disagrees
with the amount determined by Purchaser. If there is a disagreement, the Parties
shall proceed in good faith to resolve it, and payment shall be made promptly
after they have done so.
(c) Purchaser shall, following the Closing, allow Seller such access to the
books and records of the Company and the Subsidiaries as Seller may reasonably
require in order to enable Seller to timely prepare and file all required Tax
Returns of, or consolidated, combined or unitary returns which include the
Company or the Subsidiaries with respect to any Pre-Closing Tax Period. Seller
shall have the sole right to amend and/or file refund claims with respect to any
Tax Return described in the preceding sentence, and any such refunds shall be
promptly transmitted and distributed to or for the benefit of the Seller.
(d) (i) Purchaser shall retain all of the Company's Property Tax Returns,
sales Tax Returns and use Tax Returns ("Business Tax Returns"), along with
supporting work papers and other related records of the Company and the
Subsidiaries for tax periods ending on or before the Closing that were filed by
Purchaser or the Company, for a period of not less than seven (7) years after
the last day each such return could have been filed, and (ii) Seller shall be
entitled to copies of all Business Tax Returns, supporting work schedules or
other records retained by Purchaser under this Section 7.3(c) within thirty (30)
days after Seller sends a notice requesting such information, to the extent
reasonably related to the Business before or on the Closing Date.
(e) Purchaser and/or the Seller shall promptly notify each other in writing
as soon as it becomes aware of any audit, administrative or judicial proceeding
involving any Tax Return of
44
the Company or the Subsidiaries for a Pre-Closing Tax Period (a "Tax
Controversy"). Seller hall have the absolute right to control the conduct of any
such Tax Controversy; provided, however, that Seller's right to control a Tax
Controversy will be limited to amounts in dispute which would be paid by Seller
or for which Seller would be liable.
(f) Seller and Purchaser will provide each other with such assistance and
information relating to the Company or the Subsidiaries as may reasonably be
requested in connection with a Party's preparation of any Tax Returns, or
participation in any Tax Controversy, and will each retain and provide to the
other Party all records and other information which may be relevant thereto.
(g) Neither Purchaser nor Seller will settle, nor will Purchaser permit the
Company or any Subsidiary to settle any Tax liability or compromise any Tax
claim relating to the Company or the Subsidiaries, which may affect the
liability for Taxes hereunder of the other Party, without the other Party's
consent, which consent will not be unreasonably withheld or delayed.
(h) All transfer, documentary, sales, use, registration, value-added and
other similar Taxes (including all applicable real estate transfer Taxes) and
related fees (including any penalties, interest and additions to Tax ("Transfer
Taxes") incurred in connection with the transactions expressly contemplated
hereby shall be paid equally by Purchaser and Seller; provided, however, that
neither party shall be liable for any interest, penalties, fines or additions
attributable to the negligence or willful misconduct of the other party. The
Parties shall cooperate to minimize the amount of Transfer Taxes to the extent
reasonably feasible, including seeking such rulings or advice from state and
local tax authorities as the Parties may agree.
Section 7.4 Records and Documents. Purchaser will preserve and keep all
books and records purchased hereunder that relate to the Business and the
periods prior to or including the Closing Date that were part of the Acquired
Assets, pursuant to and in compliance with the Level 3 Communications, Inc.
Records Retention Policy, a copy of which is attached hereto as Exhibit 7.4 (the
"Records Retention Policy"), Purchaser will provide the Seller (or any of the
Seller's members who may be designated by the Seller in the future) with at
least sixty (60) days prior written notice of its intent to dispose of any such
books and records, and the Seller or its members will be given the opportunity,
at its or their cost and expense, to remove and retain all or any part of such
books or records as it or they may determine. Duly authorized representatives of
Seller or its members will, upon reasonable notice, have access to all records
and documents retained pursuant to the Records Retention Policy, during normal
business hours to examine, inspect and copy such books and records.
Notwithstanding anything herein to the contrary, Purchaser agrees to retain all
such information for seven years, provided Purchaser shall retain all such
information for longer than seven years if Seller has notified Purchaser in
writing prior to the end of such seventh year that any tax year (including any
portion of any tax year) prior to and including the Closing Date has not been
closed, provided, further, that if Seller has made such notification to
Purchaser, Seller shall notify Purchaser promptly after such tax years in
question have been closed.
Section 7.5 Use of Company Trademarks. Pursuant to and in accordance with
the terms and conditions of the Transitional Trademark License attached as
Exhibit 7.5 hereto (the "Transitional Trademark License"), Purchaser shall have
the right to use the "Progress" name in
45
connection with the Acquired Assets. Neither Purchaser nor its Affiliates will
in any way use any trademark, trade name, service mark, brand name, trade dress
or logo that is likely to cause confusion after the Closing Date with any
trademark, trade name, service mark, brand name, trade dress or logo of Progress
Energy, Inc. or its Affiliates.
Section 7.6 Non-Solicitation of Employees. For a period commencing on the
Closing Date and terminating three hundred sixty-five (365) days after the
Closing, (a) Purchaser will not, and will cause its Affiliates not to, employ:
(i) any of the Excluded Employees without the prior written consent of Seller;
(ii) employees of OT, Caronet, EPIK or the Excluded Affiliate without the prior
written consent of OT; or (iii) employees of Progress Energy Service Company,
LLC who are assigned to perform information and communications technology
related services (including management services) and are listed on Schedule
7.6(a) of the Disclosure Schedule without the prior written consent of said
Progress Energy Service Company, LLC, and (b) Seller will not, and will cause
its Affiliates not to, employ: (i) any of the Employees without the prior
written consent of Purchaser; or (ii) employees of Purchaser and its Affiliates
and subsidiaries who have been directly involved in the structuring and
negotiating of this Agreement or Purchaser's due diligence review and evaluation
of the transactions contemplated by this Agreement and are listed on Schedule
7.6(b) of the Disclosure Schedule.
Section 7.7 Employment and Employee Benefits Matters. As between Purchaser
and Seller, except as provided in Section 5.7, Seller shall be responsible for
and thereafter pay, perform and discharge any and all employment, compensation
and employee benefit liabilities, responsibilities and obligations of Company
with respect to the Employees, including, without limitation, any and all claims
of employment discrimination under any local, state, or federal Law or
ordinance, including, without limitation, Title VII of the Civil Rights Act of
1964, as amended; the Civil Rights Act of 1991; the American with Disabilities
Act of 1990; the Age Discrimination in Employment Act of 1967, as amended by the
Older Workers Benefit Protection Act of 1990; Section 510 of ERISA and the
Arizona Civil Rights Act, to the extent such liabilities, responsibilities and
obligations are incurred as the result of incidents occurring before the Closing
or in connection with a termination of employment prior to the Closing Date. In
the event that Seller or any of its Affiliates directly or indirectly incurs any
costs, liabilities, obligations or legal expenses related to any such incidents
occurring on or after Closing, Purchaser shall reimburse and indemnify Seller
for any and all such costs, liabilities, obligations and expenses.
Section 7.8 Insurance Matters. Effective as of the end of the day on which
the Closing occurs: (a) Seller will terminate or cause its Affiliates to
terminate all insurance coverage relating to the Company, the Subsidiaries and
the Acquired Assets under the general corporate policies of insurance maintained
by Seller or its Affiliates; provided, however, that no such termination of
insurance policies shall be effected so as to prevent Seller from recovering
under such policies, and retaining for its own use, insurance proceeds related
to or for losses from events occurring through the date on which the Closing
occurs, and (b) Purchaser shall become solely responsible for all insurance
coverage and related risk of loss based on events occurring on and after the
date following the date on which the Closing occurs with respect to the Company,
the Subsidiaries and the Acquired Assets.
46
Section 7.9 Other Customer Consents. Each of the Parties will take such
further action (including the execution and delivery of such further instruments
and documents) as either Party shall deem necessary or appropriate to obtain the
consents of any customer of Company whose consent is required in connection with
the consummation of the transactions contemplated by this Agreement. Purchaser
and Level 3 shall cooperate with Seller and shall provide Seller, or cause the
Company to provide to Seller, within five (5) days of Seller's written notice
requesting the same, access to such books, records, accounts and information of
the Company as Seller may reasonably determine to be necessary in order to
obtain such consents.
Section 7.10 Stock Certificate Legend. The certificates evidencing the
Shares will bear substantially the following legend reflecting the foregoing
restrictions on the transfer of such shares:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT, AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO LEVEL 3 COMMUNICATIONS, INC. QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
SUCH SECURITIES ARE ALSO SUBJECT TO THE AGREEMENTS, COVENANTS AND RESTRICTIONS
IN REGARD TO THE TRANSFER OF SUCH SECURITIES AS PROVIDED IN THAT CERTAIN
REGISTRATION RIGHTS AGREEMENT, DATED AS OF [THE CLOSING DATE], AMONG LEVEL 3
COMMUNICATIONS, INC., PROGRESS ENERGY, INC. PROGRESS TELECOM, LLC AND ODYSSEY
TELECORP, INC., A COPY OF WHICH REGISTRATION RIGHTS AGREEMENT IS ON FILE AT THE
OFFICE OF THE SECRETARY OF LEVEL 3 COMMUNICATIONS, INC."
ARTICLE 8
REMEDIES FOR BREACHES OF THIS AGREEMENT
Section 8.1 Indemnification by Seller.
(a) Subject to the terms and conditions of this Article 8, as Purchaser's
sole and exclusive remedy (in contract, tort or otherwise but excluding claims
related to fraud) in connection with the transactions contemplated by this
Agreement, and notwithstanding the Closing and regardless of any investigation
at any time made by or on behalf of Purchaser or of any knowledge or information
that Purchaser may have, Seller agrees to indemnify and hold Purchaser and its
present Affiliates (each, a "Purchaser Indemnified Party") harmless from,
against and in respect of all damages, losses, liabilities, claims, deficiencies
or expenses resulting from, or arising out of, any of the following
(collectively, "Purchaser Claims"):
47
(i) any breach of the representations and warranties made by Seller in this
Agreement or in any certificate delivered to Purchaser in connection with the
Closing;
(ii) the nonfulfillment of any covenant or agreement of Seller pursuant to
this Agreement, other than the Seller's obligations under Article 7 or Article
10;
(iii) the Seller's obligations under Article 7 or Article 10 of this
Agreement;
(iv) any Excluded Liabilities, Excluded Assets or Excluded Subsidiary or as
a result of the Reorganization;
(v) any Consent Event as set forth in part (e) of this Section 8.1; and
(vi) together with any and all actions, suits, claims, proceedings,
investigations, audits, demands, assessments, fines, judgments, costs and other
expenses (including, without limitation, reasonable audit and legal fees)
incurred by a Purchaser Indemnified Party in connection therewith.
(b) The obligations of Seller pursuant to this Section 8.1 shall: (i) in
the case of Purchaser Claims under Section 8.1(a)(i), terminate on the one-year
anniversary of the Closing Date; provided, however, that any Purchaser Claims
pursuant to Section 8.1(a)(i) with respect to breaches of Section 3.10, 3.16 or
3.17 shall survive until sixty (60) days after the closing of the applicable
statute of limitations related to the matter which is the subject of the
indemnification (but no longer than three years in connection with any Purchaser
Claims related to Section 3.16 and Section 3.17) and, provided further, however,
that any Purchaser Claims pursuant to Section 8.1(a)(i) with respect to breaches
of Section 3.30 shall survive indefinitely; (ii) not apply to any Purchaser
Claims under Section 8.1(a)(i) or the costs of defense thereof, until the
aggregate of all losses, liabilities, damages and expenses actually incurred by
all Purchaser Indemnified Parties resulting therefrom total an aggregate amount
of Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000.00) (the
"Deductible"), in which event this indemnity shall apply to all subsequent
Purchaser Claims under Section 8.1(a)(i) in excess of the Deductible provided
further, however, that any Purchaser Claims pursuant to Section 8.1(a)(i) with
respect to breaches of Section 3.6(b), Section 3.10 and Section 3.30 shall not
be subject to the Liability Cap (as defined below), but shall in no event exceed
the Purchase Price; (iii) in the case of Purchaser Claims under Section
8.1(a)(i) be limited to, and shall not, exceed, the aggregate amount of Thirty
Million Dollars ($30,000,000.00) (the "Liability Cap"). Notwithstanding the
foregoing, any Purchaser Claims with respect to Section 8.1(a)(i) made in
accordance with Section 8.3 prior to the applicable termination date set forth
in clause (i) of this Section 8.1(b) shall survive until resolved.
(c) Notwithstanding anything herein to the contrary:
(i) Seller shall not have a right to contribution against either of the
Company or the Subsidiaries or any similar right in respect of any amounts paid
by the Seller to the Purchaser Indemnified Parties pursuant to the provisions of
this Section 8.1; and
(ii) Except for Section 3.24, in all cases in determining whether there has
been a breach of a representation or warranty by Seller for purposes of this
Section 8.1, or in
48
determining the amount of any losses with respect to such breach, such
representations and warranties shall be read without regard to any materiality
qualifier (including, without limitation, any reference to Material Adverse
Effect) contained therein.
(d) Guarantors hereby jointly, but not severally, guarantee Seller's timely
performance under Section 8.1. For purposes of the foregoing, the Parties agree
that the term "jointly, but not severally," shall require Purchaser to Assert
(as defined below) all claims for indemnification against each and every
Guarantor, and under no circumstances shall Purchaser Assert any such
indemnification claims against less than all Guarantors; provided, however, that
with respect to any Asserted indemnification claim with respect to which
Purchaser is entitled to indemnification, Purchaser shall be entitled to payment
from each Guarantor, without any further action on the part of Purchaser, of (i)
the full amount of each such claim, less (ii) the amounts Purchaser has
recovered on such claim from any of the other Guarantors. For purposes of this
Section 8.1(d) the term "Assert" shall mean that Purchaser must name and file
against each and every Guarantor in any legal proceeding (including arbitration,
mediation, or lawsuit) commenced by Purchaser for claims for indemnification
against Guarantors.
(e) Notwithstanding anything contained in this Article 8 or elsewhere
herein to the contrary, the Parties agree that if any one or more of the
entities whose names are set forth on Schedule 8.1(e) of the Disclosure Schedule
(the "Designated Entities"), within the one hundred eighty (180) day period
following the Closing: (1) gives Purchaser written notice that such Designated
Entity is terminating one or more of the agreements set forth on Schedule 8.1(e)
of the Disclosure Schedule because the consummation or closing of the
transaction contemplated herein has, under an specific/express provision
contained in any one or more agreements entered into by and between the Company
and such Designated Entity, either (A) given rise to a right of termination that
is exercisable by said Designated Entity under the terms of said agreement
or (B) breached an express provision contained therein that requires the
consent, approval or permission of such Designated Entity to the transaction
contemplated herein, and (2) such Designated Entity also ceases to make payments
to the Company under each agreement with respect to which such a notice is given
(a "Consent Event"), then any Purchaser Claims pursuant to this Section 8 which
are based on a Consent Event shall not be subject to the Deductible; it being
further agreed, however, with respect to each agreement with a Designated
Entity, that if a Consent Event does not occur within the one hundred eighty
(180) day period following the Closing, each Designated Entity shall be deemed
(as between the Parties hereto) to have given any and all consents, approvals or
permissions as may be required of such Designated Entity under that agreement,
and Purchaser shall not be entitled to indemnification hereunder.
Section 8.2 Indemnification by Purchaser.
(a) Subject to the terms and conditions of this Article 8, as Seller's sole
and exclusive remedy (in contract, tort or otherwise but excluding claims
relating to fraud) in connection with the transactions contemplated by this
Agreement, and notwithstanding the Closing and regardless of any investigation
at any time made by or on behalf of Seller or of any knowledge or information
that Seller may have, Purchaser agrees to indemnify and hold the Seller and its
present and future Affiliates (collectively, the "Seller Indemnified Parties")
harmless from, against and in respect of any and all damages, losses,
liabilities, claims, deficiencies or expenses
49
resulting from, or arising out of, any of the following (collectively "Seller
Claims," and together with the Purchaser Claims, the "Claims"):
(i) any breach of the representations and warranties made by Purchaser in
this Agreement or in any certificate delivered to Seller in connection with the
Closing;
(ii) the nonfulfillment of any covenant or agreement of Purchaser pursuant
to this Agreement, other than Purchaser's obligations under Article 7 or Article
10; and
(iii) Purchaser's ownership and operation of the Acquired Assets or the
Business after the Closing Date or Purchaser's obligations under Article 7 or
Article 10 of this Agreement;
(iv) together with any and all actions, suits, claims, proceedings,
investigations, audits, demands, assessments, fines, judgments, costs and other
expenses (including, without limitation, reasonable audit and legal fees)
incurred by a Seller Indemnified Party in connection therewith.
(b) Purchaser's obligations pursuant to this Section 8.2 shall, in the case
of Seller Claims under Section 8.2(a)(i), terminate on the one-year anniversary
of the Closing Date. Notwithstanding the preceding sentence, but subject to the
remainder of Section 8.2, any Seller Claim under Section 8.2(a)(i) made in
accordance with Section 8.3 prior to the expiration of such survival period
shall survive until resolved.
(c) Level 3 guarantees Purchaser's timely performance under Section 8.2.
Section 8.3 Procedure for Indemnification. Seller, Purchaser, Guarantors
and Level 3 shall not be liable for any Claim for indemnification under this
Article 8 unless written notice of a Claim for indemnification is delivered by
the person seeking indemnification (the "Indemnitee") to the person from whom
indemnification is sought (the "Indemnitor") which notice shall be given prior
to the expiration of the applicable survival period, if any, set forth in
Sections 8.1 and 8.2 and shall be given promptly, but in no event more than
thirty (30) days following such Indemnitee's receipt of such claim or demand;
provided, however, that the Indemnitee's failure to provide such notice within
thirty (30) days shall not preclude the Indemnitee from being indemnified for
such claim or demand, except to the extent that the failure to give timely
notice results in the forfeiture of substantive defenses by the Indemnitor. All
notices given pursuant to this Section shall set forth with reasonable
specificity the basis of the Claims for indemnification and the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim or demand). In case of any claim by a third
party, any suit, any claim by any Governmental Entity, or any legal,
administrative or arbitration proceeding with respect to which Seller or
Purchaser may have liability under the indemnity agreements contained in this
Article 8, the Indemnitor shall be entitled to participate therein, and, to the
extent desired, to assume the defense thereof, and after notice of its election
to assume the defense thereof, the Indemnitor will not be liable to the
Indemnitee for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof, other than reasonable costs
of investigation, unless the Indemnitor does not actually assume the defense
thereof following notice of such election. The
50
Indemnitee and the Indemnitor shall make available to each other and their
attorneys and representatives at all reasonable times, all books and records
relating to such Claim, and will render to each other such assistance as may
reasonably be requested in order to ensure proper and adequate defense of any
such Claim. Neither the Indemnitee nor the Indemnitor will make any settlement
of any Claim that might give rise to liability of the other under the indemnity
agreements contained in this Article 8 without the consent of the other, which
consent shall not be unreasonably withheld. If the Indemnitor elects to settle
any such Claim and the Indemnitee refuses to consent to such compromise or
settlement, then the liability of the Indemnitor to the Indemnitee shall be
limited to the amount offered by the Indemnitor in compromise or settlement. The
Parties agree that with respect to future claims for indemnification pursuant to
this Article 8, any Claims by Purchaser against Seller shall be net of any
recoveries directly associated with any such Claims, including, but not limited
to, mandatory counterclaims and cross-claims.
Section 8.4 Certain Limitations. In no event shall an Indemnitor be liable
for any Claim for indemnification under this Article 8 with respect to
incidental, special, punitive or consequential damages of any kind, including
consequential damages resulting from business interruption or lost profits.
Section 8.5 Certain Benefits. The amount of any indemnification payable
under this Article 8 shall be net of any tax benefits and net of the receipt of
any insurance proceeds paid to the Indemnitee under any policies of insurance
covering the loss giving rise to the Claim. The Indemnitee will use reasonable
commercial efforts to collect any such insurance and will account to the
Indemnitor therefor. The Parties agree to respond within a reasonable time to
any inquiry by the other Party as to the status of any such insurance payment.
Section 8.6 Treatment of Indemnity Payments. All indemnification payments
made pursuant to this Agreement will be treated by the Parties as adjustments to
the Purchase Price.
ARTICLE 9
TERMINATION
Section 9.1 Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(a) Purchaser and Seller may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(b) Purchaser may terminate this Agreement by giving written notice to
Seller, at any time prior to the Closing if (i) the Closing has not occurred on
or before June 15, 2006, by reason of the failure of any closing condition under
Section 6.1 or (ii) Seller has breached any material representation, warranty,
or covenant contained in this Agreement in any material respect, Purchaser has
notified Seller of the breach, and the breach has continued without cure for a
period of thirty (30) days after the notice of breach;
(c) Seller may terminate this Agreement by giving written notice to
Purchaser at any time prior to the Closing if (i) the Closing has for any reason
not occurred on or before June 15,
51
2006, or (ii) Purchaser has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, Seller has
notified Purchaser of the breach, and the breach has continued without cure for
a period of thirty (30) days after the notice of breach; and
(d) Either Party may terminate this Agreement by giving written notice to
the other at any time prior to the Closing in the event that any order from any
Governmental Entity, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement shall have become final and nonappealable.
Section 9.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 9.1, all obligations of the Parties hereunder will terminate
without liability of any Party to the other Party except (i) as may have
occurred prior to such termination including but not limited to any liability or
indemnity obligations of any Party then in breach, (ii) as set forth in the
Confidentiality Agreement, and (iii) as otherwise specifically set forth in this
Agreement.
ARTICLE 10
MISCELLANEOUS
Section 10.1 Survival. The representations and warranties of the Parties
contained in this Agreement shall survive until the applicable time as provided
in Section 8.1 or 8.2 of this Agreement.
Section 10.2 Public Announcements. No Party shall issue any press release
or public announcement relating to the subject matter of this Agreement prior to
the Closing without the prior written approval of the other Party, provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable Law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable commercial efforts to advise the other Party prior to making the
disclosure).
Section 10.3 Expenses. Except as provided in Section 5.2, each of Purchaser
and Seller will bear its own costs and expenses (including legal and investment
banking fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby, whether or not such transactions are
consummated, and Seller will bear any such costs and expenses incurred by the
Company by paying for such costs and expenses prior to the Closing or properly
accruing for such costs and expenses as a liability in the Pro Forma Net Current
Assets as of the Closing. This Section 10.3 shall survive the termination of
this Agreement in accordance with Article 10 above or otherwise.
Section 10.4 Disclosure Schedule. The representations and warranties of the
Seller and Guarantors set forth in this Agreement are made and given subject to
the disclosures contained in the Disclosure Schedule. Neither Seller nor any
Guarantor shall be, or be deemed to be, in breach of any such representations
and warranties (and no claim shall lie in respect thereof) in respect of any
such matter so disclosed in the Disclosure Schedule. Where only brief
particulars of a matter are set out or referred to in the Disclosure Schedule or
a reference is made only to a particular part of a disclosed document, full
particulars of the matter and the full contents of the document are deemed to be
disclosed. The specific disclosures set forth in the Disclosure
52
Schedule have been organized to correspond to section references in this
Agreement to which the disclosure may be most likely to relate, but such
disclosure shall apply to and shall be deemed to be disclosed for the purposes
of this Agreement generally, and shall be deemed to be exceptions to or
modifications or qualifications of all representations and warranties contained
herein so long as the relevance of such disclosure to such other representations
and warranties is readily apparent. In the event that there is any inconsistency
between this Agreement and matters disclosed in the Disclosure Schedule,
information contained in the Disclosure Schedule shall prevail and shall be
deemed to be the relevant disclosure.
Section 10.5 Specific Performance. The Parties agree that irreparable
damage would occur in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms. It is accordingly agreed that
the Parties will be entitled to specific performance of the terms of this
Agreement, without posting a bond or other security, this being in addition to
any other remedy to which they are entitled at law or in equity.
Section 10.6 Amendment; Successors and Assigns. This Agreement may be
amended by the execution and delivery of a written instrument by or on behalf of
Seller and Purchaser. Neither this Agreement nor any of the rights, interests or
obligations provided by this Agreement may be assigned by any of the Parties
(whether by operation of Law or otherwise) without the prior written consent of
the other Party. Subject to the preceding sentence, this Agreement will be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns.
Section 10.7 Extension of Time; Waiver. At any time prior to the Closing,
the Parties may but shall not be obligated to extend the time for performance of
or waive compliance with any of the covenants, agreements or conditions of the
other Parties to this Agreement, and may but shall not be obligated to waive any
breach of the representations or warranties of such other Parties. No agreement
extending or waiving any provision of this Agreement will be valid or binding
unless it is in writing and is executed and delivered by or on behalf of the
Party against which it is sought to be enforced.
Section 10.8 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable Law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
Section 10.9 Counterparts.; Facsimile. This Agreement may be executed in
two or more counterparts, each of which will be deemed an original, but all such
counterparts taken together will constitute one and the same Agreement. Any
facsimile copies hereof or signature hereon shall, for all purposes, be deemed
originals.
Section 10.10 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and will not constitute a part of
this Agreement.
Section 10.11 Notices. Any notice, request, instruction or other document
to be given hereunder shall be in writing and delivered personally or sent by
registered or certified mail,
53
postage prepaid, by reputable national express courier, shipping cost prepaid,
or by facsimile, according to the instructions set forth below. Such notices
shall be deemed given: at the time delivered by hand, if personally delivered;
three business days after having been sent by registered or certified mail; one
business day after having been sent by express courier; and at the time when
receipt is confirmed by the receiving facsimile machine if sent by facsimile.
If to Seller: PT Holding Company LLC
c/o Odyssey Telecorp, Inc.
444 High Street, Suite 400
Palo Alto, CA 94301
Attn: Joe Stockwell
Fax: 650-470-7512
With copies (which will not constitute notice) to:
Odyssey Telecorp, Inc.
444 High Street, Suite 400
Palo Alto, CA 94301
Attn: Richard A. Saffir, General Counsel
rsaffir@odysseytel.com
Fax: 650-470-7512
Progress Telecommunications Corporation
Legal Department
Progress Energy Service Co., LLC
410 South Wilmington Street, PEB 17
Raleigh, NC 27601
Attn: David B. Fountain, Legal Counsel
Fax: 919/546-3805
Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP
425 Market Street, Suite 2600
San Francisco, CA 94105
Attn: Teresa V. Pahl, Esq.
Fax: 415-541-9366
If to Purchaser: Level 3 Communications, Inc.
1025 Eldorado Blvd.
Building 2000
Broomfield, CO 80021
Attn: General Counsel
With a copy (which shall not constitute notice) to:
54
Willkie Farr & Gallagher LLP
787 Seventh Ave.
New York, New York 10019
Attn: David K. Boston
Fax: (212) 728-8111
If to Guarantors:
EPIK Communications Incorporated
Caronet, Inc.
c/o Odyssey Telecorp, Inc.
444 High Street, Suite 400
Palo Alto, CA 94301
Attn: Richard A. Saffir, General Counsel
rsaffir@odysseytel.com
650-470-7512 (Fax)
Progress Telecommunications Corporation
Legal Department
Progress Energy Service Co., LLC
410 South Wilmington Street, PEB 17
Raleigh, NC 27601
Attn: David B. Fountain, Deputy General Counsel
Fax: 919/546-3805
Florida Progress Corporation
410 South Wilmington Street, PEB 17
Raleigh, NC 27601
Attn: David B. Fountain, General Counsel
Fax: 919/546-3805
With a copy (which will not constitute notice) to:
Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP
425 Market Street, Suite 2600
San Francisco, CA 94105
Attn: Teresa V. Pahl, Esq.
Fax: 415-541-9366
or to such other address or to the attention of such other Party that the
recipient Party has specified by prior written notice to the sending Party in
accordance with the preceding.
Section 10.12 No Third-Party Beneficiaries. The terms and provisions of
this Agreement will not confer third-party beneficiary rights or remedies upon
any Person or entity other than the Parties hereto and their respective
successors and permitted assigns.
Section 10.13 Confidentiality. Seller agrees that for a period commencing
on the Closing Date and terminating one year after the Closing Date, it will
keep confidential and will
55
use its reasonable commercial efforts to cause its Affiliates and
representatives to keep confidential (except as may be disclosed to Seller's
attorneys, accountants, financial advisors or other representatives, or as
required by Law) all confidential information relating directly to the Business
or the Acquired Assets that remains in the possession of Seller or its
Affiliates after the Closing. Notwithstanding the foregoing, the term
"Confidential Information" will not be deemed to include any information that
(a) is or becomes generally known by the public (other than as a result of a
breach of this Agreement) or is a recognized standard industry practice, (b) was
or becomes available to Seller on a non-confidential basis from a Person who is
not known to Seller to be legally prohibited from transmitting the information
to Seller, or (c) was or is developed by Seller independently of and without
reference to any confidential information. Following the Closing, Seller agrees
to treat any of the Company's Confidential Information as it treats its own and
will in no such instance use less than a commercially reasonable degree of care.
Section 10.14 Entire Agreement. This Agreement, together with the
Disclosure Schedule, and the Confidentiality Agreement, each of which is
incorporated herein by this reference, collectively constitute the entire
agreement between the Parties and supersede any prior and contemporaneous
understandings, agreements or representations by or among the Parties, written
or oral, that may have related in any way to the subject matter hereof.
Section 10.15 Construction. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual intent
and no rule of strict construction will be applied against any Party. The use of
the word "including" in this Agreement means "including without limitation" and
is intended by the Parties to be by way of example rather than limitation.
Section 10.16 Schedules and Exhibits. The Schedules and Exhibits attached
to this Agreement are made a part of this Agreement as if set forth in full
herein.
Section 10.17 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY LAW OR RULE THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK TO BE APPLIED.
56
IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered
this Agreement as of the date first written above.
SELLER:
PT HOLDING COMPANY LLC,
a Delaware limited liability company
By: /s/ Joseph Stockwell
Name: Joseph Stockwell
Title: President
PURCHASER
LEVEL 3 COMMUNICATIONS, LLC,
a Delaware limited liability company
By: /s/ Thomas C. Stortz
Name: Thomas C. Stortz
Title: Executive Vice President
For Purposes of Articles 4 and 8 of this Agreement only:
LEVEL 3:
LEVEL 3 COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ James Q. Crowe
Name: James Q. Crowe
Title: Chief Executive Officer
57
For Purposes Article 8 and Section 3.27 of this Agreement only:
GUARANTORS:
PTC:
Progress Telecommunications Corporation
By: /s/ Don K. Davis
Name: Don K. Davis
Title: President
CARONET:
Caronet, Inc.
By: /s/ Sean P. Doherty
Name: Sean P. Doherty
Title: President
EPIK:
EPIK Communications, Incorporated
By: /s/ Joseph Stockwell
Name: Joseph Stockwell
Title: President
FPC:
Florida Progress Corporation
By: /s/ Peter M. Scott, III
Name: Peter M. Scott, III
Title: Chief Financial Officer
58
OT:
Odyssey Telecorp, Inc.
By: /s/ Sean P. Doherty
Name: Sean P. Doherty
Title: Chief Executive Officer
59