Exhibit 10.1
Execution Copy
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AGREEMENT AND PLAN OF MERGER
among
LEVEL 3 COMMUNICATIONS, INC.,
LEVEL 3 SERVICES, LLC,
LEVEL 3 COLORADO, INC.
and
BROADWING CORPORATION
Dated as of October 16, 2006
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TABLE OF CONTENTS
Page
ARTICLE I. THE MERGER...................................................................................2
Section 1.1. The Merger.............................................................................2
Section 1.2. Subsequent Merger......................................................................2
Section 1.3. Closing................................................................................3
Section 1.4. Effective Time.........................................................................3
Section 1.5. Effects of the Merger..................................................................3
Section 1.6. Certificate of Formation...............................................................3
Section 1.7. Operating Agreement....................................................................3
Section 1.8. Managers; Officers.....................................................................3
Section 1.9. Effect on Capital Stock................................................................4
Section 1.10. Treatment of Options, Warrants and Other Stock Awards..................................5
ARTICLE II. EXCHANGE OF CERTIFICATES.....................................................................6
Section 2.1. Exchange Fund..........................................................................6
Section 2.2. Exchange Procedures....................................................................6
Section 2.3. Distributions with Respect to Unexchanged Shares.......................................7
Section 2.4. No Further Ownership Rights in Company Common Stock....................................7
Section 2.5. No Fractional Shares of Parent Common Stock............................................7
Section 2.6. Termination of Exchange Fund...........................................................8
Section 2.7. No Liability...........................................................................8
Section 2.8. Investment of the Exchange Fund........................................................8
Section 2.9. Lost Certificates......................................................................8
Section 2.10. Withholding Rights.....................................................................8
Section 2.11. Further Assurances.....................................................................9
Section 2.12. Stock Transfer Books...................................................................9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................9
Section 3.1. Corporate Organization.................................................................9
Section 3.2. Qualification to Do Business...........................................................9
Section 3.3. No Conflict or Violation..............................................................10
Section 3.4. Consents and Approvals................................................................10
Section 3.5. Authorization and Validity of Agreement...............................................10
Section 3.6. Capitalization and Related Matters....................................................11
Section 3.7. Subsidiaries and Equity Investments...................................................12
Section 3.8. Company SEC Reports...................................................................13
Section 3.9. Absence of Certain Changes or Events..................................................13
Section 3.10. Tax Matters...........................................................................15
Section 3.11. Absence of Undisclosed Liabilities....................................................16
Section 3.12. Company Property......................................................................16
(i)
Section 3.13. Assets of the Company and its Subsidiaries............................................17
Section 3.14. Intellectual Property.................................................................18
Section 3.15. Software..............................................................................19
Section 3.16. Licenses and Permits..................................................................19
Section 3.17. Compliance with Law...................................................................20
Section 3.18. Litigation............................................................................21
Section 3.19. Contracts.............................................................................21
Section 3.20. Employee Plans........................................................................23
Section 3.21. Insurance.............................................................................25
Section 3.22. Affiliate Transactions................................................................25
Section 3.23. Vendors and Customers.................................................................25
Section 3.24. Labor Matters.........................................................................25
Section 3.25. Environmental Matters.................................................................26
Section 3.26. No Brokers............................................................................27
Section 3.27. Network Operations....................................................................27
Section 3.28. State Takeover Statutes...............................................................28
Section 3.29. Opinions of Financial Advisors........................................................28
Section 3.30. Information Supplied..................................................................28
Section 3.31. Board Approval........................................................................29
Section 3.32. Vote Required.........................................................................29
Section 3.33. No Other Representations or Warranties................................................29
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.....................................29
Section 4.1. Organization..........................................................................29
Section 4.2. Qualification to Do Business..........................................................29
Section 4.3. No Conflict or Violation..............................................................29
Section 4.4. Consents and Approvals................................................................30
Section 4.5. Authorization and Validity of Agreement...............................................30
Section 4.6. Capitalization and Related Matters....................................................30
Section 4.7. SEC Filings...........................................................................31
Section 4.8. No Brokers............................................................................32
Section 4.9. Tax Matters...........................................................................32
Section 4.10. Compliance with Law...................................................................32
Section 4.11. Board Approval........................................................................32
Section 4.12. Sufficiency of Funds..................................................................32
Section 4.13. No Parent Material Adverse Effect.....................................................32
Section 4.14. No Other Representations or Warranties................................................32
ARTICLE V. COVENANTS OF THE COMPANY....................................................................33
Section 5.1. Conduct of Business Before the Closing Date...........................................33
Section 5.2. Notice of Breach......................................................................35
Section 5.3. Affiliate Letter......................................................................36
Section 5.4. Convertible Debentures................................................................36
Section 5.5. CIII Merger...........................................................................36
(ii)
Section 5.6. Consent Solicitation..................................................................36
Section 5.7. Credit Facility.......................................................................37
ARTICLE VI. COVENANTS OF PARENT AND MERGER SUB..........................................................37
Section 6.1. Employee Benefits.....................................................................37
Section 6.2. Indemnification Continuation..........................................................39
Section 6.3. Notice of Breach......................................................................40
ARTICLE VII. ADDITIONAL COVENANTS OF THE PARTIES.........................................................40
Section 7.1. Preparation of Proxy Statement and Registration Statement; Company Stockholders Meeting40
Section 7.2. Access to Information.................................................................41
Section 7.3. HSR Act and Regulatory Matters........................................................41
Section 7.4. Reorganization........................................................................43
Section 7.5. Acquisition Proposals.................................................................43
Section 7.6. Stockholder Litigation................................................................46
Section 7.7. Maintenance of Insurance..............................................................46
Section 7.8. Public Announcements..................................................................46
Section 7.9. No Shareholder Rights Plan............................................................46
Section 7.10. Stock Exchange Listing................................................................46
ARTICLE VIII. CONDITIONS PRECEDENT........................................................................47
Section 8.1. Conditions to Each Party's Obligation to Effect the Merger............................47
Section 8.2. Additional Conditions to Obligations of Parent and Merger Sub.........................47
Section 8.3. Additional Conditions to Obligations of the Company...................................48
ARTICLE IX. TERMINATION.................................................................................49
Section 9.1. Termination...........................................................................49
Section 9.2. Effect of Termination.................................................................50
Section 9.3. Amendment.............................................................................51
Section 9.4. Extension; Waiver.....................................................................52
ARTICLE X. MISCELLANEOUS...............................................................................52
Section 10.1. Non-Survival of Representations, Warranties and Agreements............................52
Section 10.2. Disclosure Schedules..................................................................52
Section 10.3. Successors and Assigns................................................................52
Section 10.4. Governing Law; Jurisdiction...........................................................52
Section 10.5. Expenses..............................................................................53
Section 10.6. Severability; Construction............................................................53
Section 10.7. Notices...............................................................................53
Section 10.8. Entire Agreement......................................................................54
Section 10.9. Parties in Interest...................................................................54
Section 10.10. Section and Paragraph Headings........................................................54
(iii)
Section 10.11. Counterparts..........................................................................54
Section 10.12. Definitions...........................................................................55
EXHIBITS
Exhibit 8.2(c)(1)...................Form of Tax Opinion of Parent's Counsel
Exhibit 8.2(c)(2)...................Form of Representation Letter of Parent
Exhibit 8.2(c)(3)...................Form of Representation Letter of the Company
Exhibit 8.3(c)(1)...................Form of Tax Opinion of the Company's Counsel
(iv)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 16, 2006
(this "Agreement"), among LEVEL 3 COMMUNICATIONS, INC., a Delaware corporation
("Parent"), LEVEL 3 SERVICES, LLC, a Delaware limited liability company and a
direct wholly owned Subsidiary of Parent ("Merger Sub"), LEVEL 3 COLORADO, INC.,
a Delaware corporation and a direct wholly owned Subsidiary of Parent ("Sister
Subsidiary"), and BROADWING CORPORATION, a Delaware corporation (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of Parent and the
Company and the Board of Managers of Merger Sub have each approved and declared
advisable the merger of the Company with and into Merger Sub (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement,
pursuant to which each outstanding share of common stock, par value $0.01 per
share, of the Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time, other than Dissenting Shares, will be
converted into the right to receive a combination of cash and shares of common
stock, par value $0.01 per share, of Parent ("Parent Common Stock");
WHEREAS, as a condition to Parent entering into this Agreement
and incurring the obligations set forth herein, concurrently with the execution
and delivery of this Agreement, Parent is entering into a Voting Agreement with
certain affiliated stockholders of the Company (the "Voting Agreement") pursuant
to which, among other things, each of those stockholders has agreed, subject to
the terms thereof, to vote all shares of Company Common Stock owned by such
stockholder in accordance with the terms of the Voting Agreement;
WHEREAS, Parent, Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the transactions contemplated hereby and also to prescribe various conditions to
the transactions contemplated hereby; and
WHEREAS, for federal income tax purposes, Parent, Merger Sub
and the Company intend that the merger shall qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations promulgated thereunder ("Treasury
Regulations"), and, by approving resolutions authorizing this Agreement, to
adopt this Agreement as a plan of reorganization within the meaning of Section
368(a) of the Code and the Treasury Regulations.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time, the Company shall be merged with and into Merger
Sub and the separate existence of the Company shall thereupon cease, and Merger
Sub, as the surviving entity in the Merger (the "Surviving Company"), shall by
virtue of the Merger continue its existence under the laws of the State of
Delaware. If the Requisite Consent has not been obtained on or prior to the
Conversion Date, the "Merger" shall instead be a merger (upon the terms and
subject to the conditions set forth in this Agreement) of Merger Sub with and
into the Company at the Effective Time, in which case, the separate existence of
Merger Sub shall cease upon the Merger and the Company, as the surviving entity
in the Merger, shall continue as the Surviving Company. Such change to the terms
of the Merger on the Conversion Date in accordance with the prior sentence shall
be referred to as a "Conversion Event." If there is a Conversion Event, Parent
shall cause Merger Sub, prior to the Effective Time, to be converted into a
corporation pursuant to Section 265 of the DGCL.
Section 1.2. Subsequent Merger.
(a) If there is a Conversion Event, (i) Parent, Merger Sub, Sister
Subsidiary and the Company shall, promptly after the Conversion Date, amend this
Agreement to include representations, warranties and covenants of Sister
Subsidiary which are substantially equivalent to the representations, warranties
and covenants of Merger Sub and such other changes to this Agreement as may be
reasonably necessary to effect the Merger following the Conversion Event and the
Subsequent Merger discussed below and (ii) immediately following the Effective
Time and in accordance with the DGCL, Parent shall cause the Surviving Company
to merge with and into Sister Subsidiary and the separate corporate existence of
the Surviving Company shall thereupon cease (the "Subsequent Merger") and Sister
Subsidiary, as the surviving corporation in the Subsequent Merger, shall by
virtue of the Subsequent Merger continue its existence under the laws of the
State of Delaware. At the effective time of the Subsequent Merger and without
any further action on the part of the Surviving Company, Parent, Sister
Subsidiary or any holder of any capital stock of the Surviving Company, Parent
or Sister Subsidiary, each share of common stock, par value $0.0001 per share,
of the Surviving Company issued and outstanding immediately prior to the
effective time of the Subsequent Merger shall be converted into one share of
common stock, par value $0.0001 per share, of Sister Subsidiary.
(b) In the event of the Subsequent Merger, references herein to the
"Surviving Company" shall refer after the effective time of the Subsequent
Merger, to Sister Subsidiary.
(c) If there is a Conversion Event, this Agreement is intended to
constitute a "plan of reorganization" with respect to the Merger and Subsequent
Merger, taken together, for United States federal income tax purposes pursuant
to which, for such purposes, the Merger and the Subsequent Merger, taken
together, are to be treated as a "reorganization" under Section 368(a) of the
Code (to which each of Parent, Sister Subsidiary and the Company are to be
parties under Section 368(b) of the Code) in which the Company is to be treated
as merging directly
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with and into Sister Subsidiary with the Company Common Stock converted in such
merger into the right to receive the consideration provided for hereunder.
Section 1.3. Closing. Unless this Agreement shall have been terminated
pursuant to the provisions of Section 9.1, the closing of the Merger (the
"Closing") will take place on the third Business Day after the satisfaction or
waiver (subject to applicable law) of the conditions (excluding conditions that,
by their terms, cannot be satisfied until the Closing Date, but subject to the
satisfaction or, where permitted, waiver of those conditions as of the Closing)
set forth in Article VIII, unless another time or date is agreed to in writing
by the parties hereto (the date of the Closing, the "Closing Date"). The Closing
shall be held at the offices of Willkie Farr & Gallagher LLP, 787 Seventh
Avenue, New York, New York 10019, unless another place is agreed to in writing
by the parties hereto.
Section 1.4. Effective Time. Upon the Closing, the parties shall file
with the Secretary of State of the State of Delaware a certificate of merger
(the "Certificate of Merger"). The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Secretary of State of the State
of Delaware or at such subsequent time as Parent and the Company shall agree and
as shall be specified in the Certificate of Merger (the date and time the Merger
becomes effective being the "Effective Time").
Section 1.5. Effects of the Merger. The Merger shall have the effects
set forth in the LLCA or, if there is a Conversion Event, the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers, and franchises of the
Company and Merger Sub shall vest in the Surviving Company, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Company.
Section 1.6. Certificate of Formation. Unless there is a Conversion
Event, the certificate of formation of Merger Sub shall be the certificate of
formation of the Surviving Company after the Effective Time, and thereafter may
be amended as provided therein or by law, except that the certificate of
formation of the Surviving Company shall be amended to provide that the name of
the Surviving Company is "Broadwing LLC." If there is a Conversion Event, the
certificate of incorporation of Merger Sub shall be the certificate of
incorporation of the Surviving Company after the Effective Time, and thereafter
may be amended as provided therein or by law, except that the certificate of
incorporation of the Surviving Company shall be amended to provide that the name
of the Surviving Company is "Broadwing Corporation."
Section 1.7. Operating Agreement. Unless there is a Conversion Event,
the operating agreement of Merger Sub as in effect at the Effective Time shall
be the operating agreement of the Surviving Company, and thereafter may be
amended as provided therein or by law. If there is a Conversion Event, the
bylaws of Merger Sub as in effect at the Effective Time shall be the bylaws of
the Surviving Company, and thereafter may be amended as provided therein or by
law.
Section 1.8. Managers; Officers. Unless there is a Conversion Event,
the managers and officers of Merger Sub immediately prior to the Effective Time
shall be the managers and officers of the Surviving Company until their
respective successors are duly
3
elected and qualified or until their death, resignation or removal in accordance
with the LLCA and the certificate of formation and operating agreement of the
Surviving Company. If there is a Conversion Event, the directors and officers of
Merger Sub immediately prior to the Effective Time shall be the directors and
officers of the Surviving Company until their respective successors are duly
elected and qualified or until their death, resignation or removal in accordance
with the DGCL and the certificate of incorporation and bylaws of the Surviving
Company.
Section 1.9. Effect on Capital Stock. At the Effective Time by virtue
of the Merger and without any action on the part of the holder thereof:
(a) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than any Dissenting Shares), shall be
converted into the right to receive (i) 1.3411 (the "Exchange Ratio") fully paid
and nonassessable shares of Parent Common Stock, subject to Section 2.5 with
respect to fractional shares (the "Stock Consideration"), and (ii) $8.18 in cash
(the "Cash Consideration" and, together with the Stock Consideration, the
"Merger Consideration").
(b) All shares of Company Common Stock (other than shares referred to in
Section 1.9(d)) shall cease to be outstanding and shall be canceled and retired
and shall cease to exist, and each holder of a certificate which immediately
prior to the Effective Time represented any such shares of Company Common Stock
(a "Certificate") shall thereafter cease to have any rights with respect to such
shares of Company Common Stock, except the right to receive the applicable
Merger Consideration and any dividends or other distributions to which holders
become entitled all in accordance with Article II upon the surrender of such
Certificate.
(c) Unless there is a Conversion Event, each membership interest of Merger
Sub issued and outstanding immediately prior to the Effective Time shall remain
issued, outstanding and unchanged as a membership interest of the Surviving
Company. If there is a Conversion Event, each share of common stock, par value
$0.0001 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into one share of common stock, par value
$0.0001 per share, of the Surviving Company.
(d) Notwithstanding anything in this Agreement to the contrary, shares of
Company Common Stock that are issued and outstanding immediately prior to the
Effective Time and that are owned by stockholders that have properly perfected
their rights of appraisal within the meaning of Section 262 of the DGCL (the
"Dissenting Shares") shall not be converted into the right to receive the Merger
Consideration, unless and until such stockholders shall have failed to perfect
any available right of appraisal under applicable law, but, instead, the holders
thereof shall be entitled to payment of the appraised value of such Dissenting
Shares in accordance with Section 262 of the DGCL. If any such holder shall have
failed to perfect or shall have effectively withdrawn or lost such right of
appraisal, the shares of Company Common Stock held by such stockholder shall not
be deemed Dissenting Shares for purposes of this Agreement and shall thereupon
be deemed to have been converted into the Merger Consideration at the Effective
Time in accordance with Section 1.9(a). The Company shall give Parent (A) prompt
notice of any demands for appraisal filed pursuant to Section 262 of the DGCL
received by the Company, withdrawals of such demands and any other instruments
served or delivered in
4
connection with such demands pursuant to the DGCL and received by the Company
and (B) the opportunity to participate in all negotiations and proceedings with
respect to demands made pursuant to Section 262 of the DGCL. The Company shall
not, except with the prior written consent of Parent, (x) make any payment with
respect to any such demand, (y) offer to settle or settle any such demand or (z)
waive any failure to timely deliver a written demand for appraisal or timely
take any other action to perfect appraisal rights in accordance with the DGCL.
(e) If prior to the Effective Time, Parent or the Company, as the case may
be, should split, combine or otherwise reclassify the Parent Common Stock or the
Company Common Stock, or pay a stock dividend or other stock distribution in
Parent Common Stock or Company Common Stock, as applicable, or otherwise change
the Parent Common Stock or Company Common Stock into any other securities, or
make any other such stock dividend or distribution in capital stock of Parent or
the Company in respect of the Parent Common Stock or the Company Common Stock,
respectively, then any number or amount contained herein which is based upon the
price of the Parent Common Stock or the number of shares of Company Common Stock
or Parent Common Stock, as the case may be, will be appropriately adjusted to
reflect such split, combination, dividend or other distribution or change.
Section 1.10. Treatment of Options, Warrants and Other Stock Awards.
(a) The Company shall take all actions necessary and appropriate to provide
that upon the Effective Time, each outstanding employee, director or consultant
stock option to purchase Company Common Stock (collectively, "Company Options")
granted under any Company Stock Plan whether or not then exercisable or vested,
shall be cancelled and, in exchange therefor, each holder of such Company Option
shall receive: (i) an amount in cash in respect thereof, if any, equal to the
product of (x) the Cash Percentage, (y) the excess, if any, of the Deemed Value
of Merger Consideration over the per share exercise price thereof and (z) the
number of shares of Company Common Stock subject to such Company Option (such
cash payment to be net of applicable withholding taxes); and (ii) a number of
shares of Parent Common Stock in respect thereof, if any, equal to the quotient
of (A) the product of (x) the Stock Percentage, (y) the excess, if any, of the
Deemed Value of Merger Consideration over the per share exercise price thereof
and (z) the number of shares of Company Common Stock subject to such Company
Option divided by (B) the Parent Common Stock Price, provided, that any
fractional shares that would otherwise be issuable pursuant to this Section
1.10(a) shall be rounded up to the nearest whole number.
(b) All shares of restricted Company Common Stock granted under the Company
Stock Plans (and any other shares of Company Common Stock subject to vesting or
future issuance under the Company Stock Plans) (collectively, "Other Stock
Awards") outstanding immediately prior to the Effective Time, whether or not
then vested, shall be treated in the same manner as all other shares of Company
Common Stock outstanding immediately prior to the Effective Time pursuant to
Section 1.9 of this Agreement and all such Other Stock Awards shall be fully
vested as of the Effective Time.
(c) At the Effective Time, each unexercised warrant to purchase shares of
Company Common Stock (the "Company Warrants") then outstanding will be assumed
by Parent, in accordance with the terms of such Company Warrants. Each such
outstanding
5
Company Warrant so assumed by Parent under this Agreement will continue to have,
and be subject to, the same terms and conditions set forth in such Company
Warrants immediately prior to the Effective Time, except as modified as a result
of the Merger pursuant to the terms of such Company Warrants.
(d) With respect to the Company's Employee Stock Purchase Plan (the
"ESPP"), the Company shall take all actions necessary to (i) cause the current
Offering Period (within the meaning of the ESPP) to terminate at the Effective
Time (if the Effective Time is earlier than the date the current Offering Period
would otherwise terminate); (ii) prevent any further contributions to the
current Offering Period after the date hereof, and (iii) refrain from commencing
any new Offering Periods under the ESPP thereafter.
(e) Unless there is a Conversion Event, the Surviving Company shall, upon
the Effective Time, succeed to and be substituted for the Company under the
Indenture. Following the Effective Time, the Convertible Debentures will
thereafter be convertible upon the terms and subject to the conditions set forth
in the Indenture after giving effect to the Merger and any notice delivered by
the Company pursuant to Section 5.4 of this Agreement.
(f) The Company and Parent shall take all such steps as may be required to
cause the transactions contemplated by this Section 1.10 and any other
dispositions of Company equity securities (including derivative securities) or
acquisitions of Parent equity securities (including derivative securities) in
connection with this Agreement by each individual who (i) is a director or
officer of the Company or (ii) at the Effective Time will become a director or
officer of Parent to become exempt under Rule 16b-3 promulgated under the
Exchange Act.
ARTICLE II.
EXCHANGE OF CERTIFICATES
Section 2.1. Exchange Fund. At or prior to the Effective Time, Parent
shall deposit with Wells Fargo Bank, N.A. or such other bank or trust company as
Parent shall determine and who shall be reasonably satisfactory to the Company
(the "Exchange Agent"), in trust for the benefit of holders of shares of Company
Common Stock, for exchange in accordance with Section 1.9, (i) certificates
representing the number of shares of Parent Common Stock sufficient to deliver,
and Parent shall instruct the Exchange Agent to timely deliver, in accordance
with the terms of Section 2.2 of this Agreement, the aggregate Stock
Consideration, and (ii) immediately available funds equal to the aggregate Cash
Consideration and Parent shall instruct the Exchange Agent to timely pay the
Cash Consideration subject to and in accordance with the terms of Section 2.2 of
this Agreement. Parent agrees to make available to the Exchange Agent from time
to time as needed, cash sufficient to pay any dividends and other distributions
pursuant to Section 2.3. Any cash and certificates of Parent Common Stock
deposited with the Exchange Agent shall hereinafter be referred to as the
"Exchange Fund."
Section 2.2. Exchange Procedures. As promptly as practicable after the
Effective Time, the Exchange Agent will send to each record holder of a
Certificate other than Certificates in respect of Dissenting Shares, (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon
6
delivery of the Certificates to the Exchange Agent and shall be in a form and
have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. As soon as reasonably practicable after the
Effective Time, each holder of a Certificate, upon surrender of a Certificate to
the Exchange Agent together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, shall
be entitled to receive in exchange therefor a certificate or certificates
representing the number of full shares of Parent Common Stock and the amount of
cash (including amounts to be paid pursuant to Section 1.9(a) and in respect of
any dividends or other distributions to which holders are entitled pursuant to
Section 2.3, if any), into which the aggregate number of shares of Company
Common Stock previously represented by such Certificate shall have been
converted pursuant to this Agreement. The Exchange Agent shall accept such
Certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. No interest will be paid or will accrue on any
cash payable pursuant to Section 1.9(a) or 2.3. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of the Company, one or more shares of Parent Common Stock evidencing, in
the aggregate, the proper number of shares of Parent Common Stock, a check in
the proper amount of cash pursuant to Section 1.9(a) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.3, may be
issued with respect to such Company Common Stock to such a transferee only if
the Certificate representing such shares of Company Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have been
paid.
Section 2.3. Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made with respect to shares of
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock that such holder would be entitled to receive upon surrender of
such Certificate. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to such holder of shares of Parent
Common Stock issuable in exchange therefor, without interest, (a) promptly after
the time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock, and (b) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to such
surrender payable with respect to such shares of Parent Common Stock.
Section 2.4. No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued and cash paid upon conversion of shares of
Company Common Stock in accordance with the terms of Article I and this Article
II (including any cash paid pursuant to Section 2.3) shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to the shares
of Company Common Stock.
Section 2.5. No Fractional Shares of Parent Common Stock. No
certificates or scrip representing less than one share of Parent Common Stock
shall be issued upon the surrender for exchange of Certificates representing
Company Common Stock pursuant to Section
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1.9 hereof. Any fractional shares that would otherwise be issuable pursuant to
Section 1.9 hereof shall be rounded up to the nearest whole number.
Section 2.6. Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to the Surviving Company or
otherwise on the instruction of the Surviving Company, and any holders of
Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Company and Parent (subject to abandoned
property, escheat or other similar laws) for the Merger Consideration with
respect to the shares of Company Common Stock formerly represented thereby to
which such holders are entitled pursuant to Section 1.9 and any dividends or
distributions with respect to shares of Parent Common Stock to which such
holders are entitled pursuant to Section 2.3.
Section 2.7. No Liability. None of Parent, Merger Sub, the Company,
the Surviving Company or the Exchange Agent shall be liable to any Person in
respect of any Merger Consideration from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
Section 2.8. Investment of the Exchange Fund. Any funds included in
the Exchange Fund may be invested by the Exchange Agent, as directed by Parent;
provided that such investments shall be in obligations of or guaranteed by the
United States of America and backed by the full faith and credit of the United
States of America or in commercial paper obligations rated A-1 or P-1 or better
by Moody's Investors Services, Inc. or Standard & Poor's Corporation,
respectively. Any interest and other income resulting from such investments
shall promptly be paid to Parent.
Section 2.9. Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Company, the posting by such Person of a bond in such
reasonable amount as the Surviving Company may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed Certificate
the applicable Merger Consideration with respect to the shares of Company Common
Stock formerly represented thereby, and any unpaid dividends and distributions
on shares of Parent Common Stock deliverable in respect thereof, pursuant to
this Agreement.
Section 2.10. Withholding Rights. Each of the Surviving Company and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock and any holder of Company Options such amounts as it is required to deduct
and withhold with respect to the making of such payment under the Code and the
rules and regulations promulgated thereunder, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by the Surviving
Company or Parent, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Company or Parent, as the case may be.
8
Section 2.11. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Company will be authorized to execute
and deliver, in the name and on behalf of the Company or Merger Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of the Company or Merger Sub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Company any and all
right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by the Surviving Company as a result of, or in
connection with, the Merger.
Section 2.12. Stock Transfer Books. At the close of business, New York
time, on the day the Effective Time occurs, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
of shares of Company Common Stock thereafter on the records of the Company. From
and after the Effective Time, the holders of Certificates shall cease to have
any rights with respect to such shares of Company Common Stock formerly
represented thereby, except as otherwise provided herein or by law. On or after
the Effective Time, any Certificates presented to the Exchange Agent or Parent
for any reason shall be converted into the Merger Consideration with respect to
the shares of Company Common Stock formerly represented thereby, and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.3.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company SEC Reports filed since January 1, 2006
and prior to the date hereof (but excluding matters disclosed in the sections of
such reports entitled "Risk Factors" and "Information Regarding Forward-Looking
Statements") or on the Company's Disclosure Schedule (provided, that, any item
set forth in the Company's Disclosure Schedule with respect to a particular
representation or warranty will be deemed to be disclosed with respect to all
other applicable representations and warranties to the extent any description of
facts regarding the event, item or matter is disclosed in such a way as to make
readily apparent from such description or specified in such disclosure that such
item is applicable to such other representations or warranties or covenants
whether or not such item is so numbered), the Company hereby represents and
warrants to Parent and Merger Sub as follows:
Section 3.1. Corporate Organization. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has all requisite corporate,
limited liability company or limited partnership power (as the case may be) to
own its properties and assets and to conduct its business as now conducted.
Copies of the Company Organizational Documents and the organizational documents
of each material Subsidiary of the Company, with all amendments thereto to the
date hereof, have been made available to Parent or its representatives, and such
copies are accurate and complete as of the date hereof.
Section 3.2. Qualification to Do Business. Each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation, limited
liability company or partnership (as the case may be) and is in good standing in
every jurisdiction in which the character of the properties owned or leased by
it or the nature of the business conducted by it
9
makes such qualification necessary, except where the failure to be so qualified
or in good standing would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 3.3. No Conflict or Violation. The execution, delivery and
performance by the Company of this Agreement does not and will not (i) violate
or conflict with any provision of any Company Organizational Document or any of
the organizational documents of the Subsidiaries of the Company, (ii) assuming
that the Company makes the filings specified in Sections 3.4(i), (ii) and (iii)
and obtains the consents, waivers and approvals specified on Schedule 3.4 (and
assuming compliance by Parent with Sections 4.3 and 4.4), violate in any
material respect any provision of law, or any order, judgment or decree of any
Governmental Entity, (iii) except as set forth on Schedule 3.3, violate or
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any Contract or result in the creation or imposition of any Lien
(other than any Permitted Lien) upon any of the assets, properties or rights of
either of the Company or any of its Subsidiaries or result in or give to others
any rights of cancellation, modification, amendment, acceleration, revocation or
suspension of any of the Contracts or obligations thereunder, or Licenses and
Permits or (iv) violate or result in a breach of or constitute (with due notice
or lapse of time or both) a default under any contract, agreement or instrument
to which the Company or any of its Subsidiaries is a party or by which it is
bound or to which any of its properties or assets is subject except in each case
with respect to clauses (iii) and (iv), for any such violations, breaches or
defaults that would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 3.4. Consents and Approvals. No consent, waiver, authorization
or approval of any Governmental Entity, and no declaration or notice to or
filing or registration with any Governmental Entity, is required in connection
with the execution and delivery of this Agreement by the Company or the
performance by the Company or its Subsidiaries of their obligations hereunder or
thereunder, except for: (i) the filing of a certificate of merger with respect
to the Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which the
Company or any Subsidiary is qualified to do business; (ii) the filing of a
Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended (the "HSR Act"); (iii) the filing of an application
jointly by the parties with the FCC for approval of transfer of control of
Company's licenses pursuant to Section 214 of the Communications Act of 1934 as
amended by the Telecommunications Act of 1996, and receipt of an order from the
FCC approving the transfer; (iv) applicable requirements of the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act") and of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "Exchange Act") and any
applicable state securities laws; (v) the consents, waivers, authorizations or
approvals of any Governmental Entity set forth on Schedule 3.4; and (vi) such
consents, waivers, authorizations, approvals, declarations, notices, filings or
registrations, which if not obtained or made would not have, a Company Material
Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
Section 3.5. Authorization and Validity of Agreement. The Company has
the requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
performance by the Company of its
10
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of the Company and
all other necessary corporate action on the part of the Company, other than the
adoption of this Agreement by the stockholders of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Company and, assuming due execution
and delivery by Parent and Merger Sub, shall constitute a legal, valid and
binding obligation of the Company, enforceable against it in accordance with its
terms, subject to (i) the effect of bankruptcy, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting the
enforcement of creditors' rights generally, (ii) general equitable principles
(whether considered in a proceeding in equity or at law) and (iii) an implied
covenant of good faith and fair dealing.
Section 3.6. Capitalization and Related Matters.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 1,600,000,000 shares of Company Common Stock and 200,000,000 shares
of Company Preferred Stock. As of the date hereof:
(i) 89,954,431 shares of Company Common Stock are issued and
outstanding, and there are no shares of Company Preferred Stock issued or
outstanding;
(ii) 4,807,071 shares of Company Common Stock are reserved for
issuance and issuable upon or otherwise deliverable under the Company's
Second Amended 1997 Stock Option Plan, 2000 Long Term Incentive Plan and
Employee Stock Purchase Plan (collectively, the "Company Stock Plans") in
connection with the exercise of outstanding Company Options and the vesting
of outstanding Other Stock Awards. Schedule 3.6(a)(ii) sets forth the
exercise prices for the Company Options;
(iii) 13,638,600 shares of Company Common Stock are reserved for
issuance and issuable as of the date hereof upon conversion of the
Company's 3.125% Convertible Senior Debentures due 2006 (the "Convertible
Debentures"); and
(iv) 3,820,980 shares of Company Common Stock are reserved for
issuance and 3,820,980 shares of Company Common Stock are issuable upon
exercise of the Company Warrants. Schedule 3.6(a)(iv) sets forth the names
of all holders of Company Warrants, the number of shares of Company Common
Stock purchasable thereunder and the exercise price(s) therefor.
(b) The outstanding shares of Company Common Stock (i) have been duly
authorized and validly issued and are fully paid and nonassessable and (ii) were
issued in compliance with all applicable federal and state securities laws. All
grants of Company Options and Other Stock Awards were validly issued and
properly approved by the Company's Board of Directors in accordance with all
applicable law and no such grants involved any "backdating" or
11
similar practices with respect to the effective date of grant. Except as set
forth above in Section 3.6(a), as of the date hereof, no shares of capital stock
of the Company are outstanding. Except as set forth above in Section 3.6(a) or
as required pursuant to Section 5.5 of this Agreement, the Company does not have
outstanding any securities convertible into or exchangeable for any shares of
capital stock, including Company Options, 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 known claims
of any other character relating to the issuance of, any capital stock, or any
stock or securities convertible into or exchangeable for any capital stock; and
the Company is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire, or to register under the Securities
Act, any shares of capital stock. Except as set forth above in Section 3.6(a),
the Company does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter. True and complete copies of the Company Warrants have
been made available to Parent or its representatives.
(c) Except as set forth on Schedule 3.6(c), all of the outstanding shares
of capital stock, or membership interests or other ownership interests of, each
Subsidiary of the Company, as applicable, is validly issued, fully paid and
nonassessable and is owned of record and beneficially by the Company, directly
or indirectly. The Company has, as of the date hereof and shall have on the
Closing Date, valid and marketable title to all of the shares of capital stock
of, or membership interests or other ownership interests in, each Subsidiary of
the Company, free and clear of any Liens other than Permitted Liens. Such
outstanding shares of capital stock of, or membership interests or other
ownership interests in, the Subsidiaries of the Company, as applicable, are the
sole outstanding securities of such Subsidiaries; the Subsidiaries of the
Company do not have outstanding any securities convertible into or exchangeable
for any capital stock of, or membership interests or other ownership interests
in, such Subsidiaries, 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, or membership interests or
other ownership interests in, such Subsidiaries, or any stock or securities
convertible into or exchangeable for any capital stock of, or membership
interests or other ownership interests in, such Subsidiaries; and except as
required pursuant to Section 5.5 of this Agreement, neither the Company or any
of its Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire, or to register under the Securities
Act, any capital stock of, or membership interests or other ownership interests
in, any Subsidiary of the Company. The Company has made available to Parent or
its representatives true and correct copies of the organizational documents of C
III Communications, LLC ("CIII") and all other agreements between the Company or
its Subsidiaries on the one hand and BCSI Inc. ("BCSI") or its Subsidiaries on
the other hand, with respect to CIII or BCSI's interest therein. BCSI and its
Affiliates hold in the aggregate the interest in CIII set forth on Schedule
3.6(c) and no other Person (other than the Company and its Subsidiaries) owns
any equity interest in CIII.
Section 3.7. Subsidiaries and Equity Investments. Except as set forth
on Schedule 3.7, the Company and its Subsidiaries do not directly or indirectly
own, or hold any rights to acquire, any capital stock or any other securities,
interests or investments in any other Person other than investments that
constitute cash, cash equivalents or marketable securities.
12
Section 3.8. Company SEC Reports.
(a) The Company and its Subsidiaries have filed each report and definitive
proxy statement (together with all amendments thereof and supplements thereto)
required to be filed by the Company or any of its Subsidiaries pursuant to the
Exchange Act with the SEC since January 1, 2004 (as such documents have since
the time of their filing been amended or supplemented, the "Company SEC
Reports"). As of their respective dates, after giving effect to any amendments
or supplements thereto filed prior to the date hereof, the Company SEC Reports
(i) complied as to form in all material respects with the requirements of the
Exchange Act, and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The audited consolidated financial statements and unaudited interim
consolidated financial statements (including, in each case, the notes, if any,
thereto) included in the Company SEC Reports complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the unaudited
interim financial statements included therein, to normal year-end adjustments
and the absence of complete footnotes) in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended.
Section 3.9. Absence of Certain Changes or Events.
(a) Except as set forth on Schedule 3.9(a), since December 31, 2005, there
has not been:
(i) any Company Material Adverse Effect;
(ii) any loss, damage, destruction or other casualty to the assets or
properties of either of the Company or any of its Subsidiaries (other than
any for which insurance awards have been received or guaranteed) that has
had, individually or in the aggregate, a Company Material Adverse Effect;
or
(iii) any change in any method of accounting or accounting practice of
either of the Company or any of its Subsidiaries except for any such change
required by reason of a concurrent change in GAAP or Regulation S-X under
the Securities Act.
(b) Since December 31, 2005, each of the Company and each of its
Subsidiaries has operated in the ordinary course of its business and consistent
with past practice and, except as set forth on Schedule 3.9(b) or, with respect
to actions taken after the date hereof, otherwise as permitted by Section 5.1,
has not:
13
(i) incurred any material obligation or liability (whether absolute,
accrued, contingent or otherwise) in excess of $5,000,000 except in the
ordinary course of business and consistent with past practice;
(ii) failed to discharge or satisfy any material Lien or pay or
satisfy any material obligation or liability (whether absolute, accrued,
contingent or otherwise) in excess of $5,000,000, other than Permitted
Liens and liabilities being contested in good faith and for which adequate
reserves have been provided;
(iii) mortgaged, pledged or subjected to any Lien (other than
Permitted Liens) any of its assets, properties or rights other than in
connection with letters of credit for amounts less than $500,000 incurred
in the ordinary course of business;
(iv) (A) sold or transferred any of its material assets, including any
sale, license or lease of any indefeasible rights of use of capacity or
infrastructure ("IRUs"), (B) cancelled any material debts, or (C) settled
any material claims or waived any material rights (other than with respect
to disputes with customers and vendors in the ordinary course of business);
(v) disposed of any material patents, trademarks or copyrights or any
material patent, trademark or copyright applications;
(vi) defaulted on any material obligation;
(vii) entered into any transaction material to its business, except in
the ordinary course of business;
(viii) granted any material increase in the compensation or benefits
of its senior executives other than increases in accordance with past
practice not exceeding 20% of the senior executive's annual base
compensation then in effect or entered into any employment, change of
control, retention or severance agreement or arrangement with any of them;
(ix) contractually committed to make any capital expenditure for any
periods after the date hereof or additions to property, plant and equipment
used in its operations other than ordinary repairs and maintenance in
excess of $25,000,000 in the aggregate;
(x) laid off any significant number of its employees;
(xi) discontinued the offering of any material line of business or
significant product line;
(xii) incurred any material obligation or liability for the payment of
severance benefits;
14
(xiii) declared, paid, or set aside for payment any dividend or other
distribution in respect of shares of its capital stock, membership
interests or other securities, or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of its capital stock,
membership interests or other securities, or agreed to do so; or
(xiv) entered into any agreement or made any commitment to do any of
the foregoing.
Section 3.10. Tax Matters. Except as set forth on Schedule 3.10.
(a) (i) the Company and each of its Subsidiaries have filed when due all
material Tax Returns required by applicable law to be filed with respect to the
Company and each of its Subsidiaries; (ii) all such Tax Returns were true,
correct and complete in all material respects as of the time of such filing;
(iii) all material Taxes owed by the Company and each of its Subsidiaries, if
required to have been paid, have been paid (except for Taxes which are being
contested in good faith); and (iv) any liability of the Company or any of its
Subsidiaries for Taxes not yet due and payable, or which are being contested in
good faith, has been provided for on the financial statements of the Company in
accordance with GAAP;
(b) there is no material action, suit, proceeding, investigation, audit or
claim now pending with respect to the Company or any of its Subsidiaries in
respect of any Tax, nor has any material claim for additional Tax been asserted
in writing by any taxing authority;
(c) since January 1, 2000, no claim has been made in writing by any taxing
authority in a jurisdiction where the Company or any of its Subsidiaries has not
filed a Tax Return that it is or may be subject to Tax by such jurisdiction;
(d) (i) there is no outstanding request for any extension of time for the
Company or any of its 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 any
of its Subsidiaries that is currently in force; (iii) the federal statute of
limitations for tax years of the Company and its Subsidiaries has closed for all
years ending prior to December 31, 2002; and (iv) neither the Company nor any of
its Subsidiaries is a party to or bound by any agreement, whether written or
unwritten, providing for the payment of Taxes, payment for Tax losses,
entitlements to refunds or similar Tax matters;
(e) the Company and each of its Subsidiaries have withheld and paid all
material Taxes required to be withheld in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party;
(f) the Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code;
(g) neither the Company nor any of its Subsidiaries has distributed stock
of another Person, or has had its stock distributed by another Person, in a
transaction that was
15
purported or intended to be governed in whole or in part by Section 355 or
Section 361 of the Code;
(h) there is no Lien, other than a Permitted Lien, affecting any of the
assets, properties or rights of the Company and its Subsidiaries that arose in
connection with any failure or alleged failure to pay any Tax;
(i) neither the Company nor any of its Subsidiaries (i) has been a member
of an affiliated group (within the meaning of Code ss. 1504(a)) filing a
consolidated federal income Tax Return (other than a group the common parent of
which is the Company) or (ii) has any liability for the Taxes of any Person
(other than any of the Company and its Subsidiaries) under Treasury Regulations
ss. 1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise;
(j) the Company and its Subsidiaries have neither (i) made, changed or
revoked, or permitted to be made, changed or revoked, any material election or
method of accounting with respect to Taxes affecting or relating to the Company
and its Subsidiaries, nor (ii) entered into, or permitted to be entered into,
any closing or other agreement or settlement with respect to Taxes affecting or
relating to the Company and its Subsidiaries;
(k) neither the Company nor any of its Subsidiaries has taken or agreed to
take any action, or is aware of any fact or circumstance, that would prevent the
Merger, or, if there is a Conversion Event, the Merger and the Subsequent
Merger, taken together, from qualifying as a reorganization within the meaning
of Section 368(a) of the Code; and
(l) neither the Company nor any of its Subsidiaries has a permanent
establishment in a foreign jurisdiction.
Section 3.11. Absence of Undisclosed Liabilities. Except as set forth
on Schedule 3.11(a), there are no material liabilities or obligations of the
Company or any Subsidiary thereof of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances that could be reasonably
expected to result in such a liability or obligation, other than (A) liabilities
or obligations disclosed and provided for in the consolidated balance sheet of
the Company as of June 30, 2006 included in the Company SEC Reports filed prior
to the date hereof or referred to in the notes thereto, (B) liabilities or
obligations incurred in the ordinary course of business consistent with past
practice since June 30, 2006 or (C) liabilities or obligations under this
Agreement.
Section 3.12. Company Property.
(a) Schedule 3.12(a) contains a true and complete description of all
material real property owned by the Company and its Subsidiaries (the "Owned
Real Property") as of the date hereof. The Company has made available at its
premises to Parent copies of any title insurance policies (together with copies
of any documents of recorded listed as exceptions to title on such policies)
currently insuring each Owned Real Property and copies of the most recent
surveys of the same. The Company and its Subsidiaries have good and valid title
to all of the Owned Real Property free and clear of Liens other than Permitted
Liens.
16
(b) Schedule 3.12(b) sets forth a list of all real property leases,
licenses, permits, subleases and occupancy agreements, together with all
material amendments thereto, in which either of the Company or its Subsidiaries
has a leasehold interest or similar occupancy rights, whether as lessor or
lessee, and (i) are material to the operation of the Company and its
Subsidiaries, taken as a whole, or (ii) involve payments of base rent by the
Company or its Subsidiaries in excess of $500,000 per year (each, a "Lease" and
collectively, the "Leases"; the property covered by Leases under which either of
the Company or its Subsidiaries is a lessee is referred to herein as the "Leased
Real Property"; the Leased Real Property, together with the Owned Real Property,
collectively being the "Company Property"). The Company or its Subsidiaries
enjoys peaceful and undisturbed possession of, the Leased Real Property pursuant
to the Leases. No option has been exercised under any of such Leases, except
options whose exercise has been evidenced by a written document, a true,
complete and accurate copy of which has made available to Parent with the
corresponding Lease.
(c) Since June 30, 2006, no Lease has been modified or amended in writing
in any way materially adverse to the business of the Company and its
Subsidiaries except as set forth on Schedule 3.12(c) and no party to any Lease
has given either of the Company or its Subsidiaries written notice of or, to the
Knowledge of the Company, made a claim with respect to any breach or default.
(d) Except as set forth on Schedule 3.12(d) and other than with respect to
IRUs, co-location, cross-connection, interconnection, entrance facilities,
gateways, racks, routers or other rights incidental to the provision of services
established in the ordinary course of business, none of the Company Property is
subject to any option, lease, sublease, license or other agreement that involves
payments of base rent by the Company or its Subsidiaries in excess of $500,000
per year granting to any Person or entity any right to the use, occupancy or
enjoyment of such property or any portion thereof or to obtain title to all or
any portion of such property.
(e) All material improvements, systems and fixtures on the Company Property
owned by the Company are in good operating condition and repair and generally
are adequate and suitable in all material respects for the present and continued
use, operation and maintenance thereof as now used, operated or maintained
ordinary wear and tear excepted. All improvements on the Company Property
constructed by or on behalf of the Company or any Subsidiary were constructed,
to the Knowledge of the Company, in compliance in all material respects with
applicable laws, ordinances and regulations affecting such Company Property.
Section 3.13. Assets of the Company and its Subsidiaries.
(a) The assets, properties and rights of each of the Company and its
Subsidiaries constitute all of the assets, properties and rights which are used
in the operation their business as currently conducted. Except as set forth on
Schedule 3.13(a) or as a result of any divestitures after the date hereof as
permitted by Section 5.1, there are no material assets, properties, rights or
interests of any kind or nature that either of the Company or any of its
Subsidiaries has been using, holding or operating in their business prior to the
Closing that will not be used, held or owned by each of the Company or its
Subsidiaries immediately following the Closing.
17
(b) The material assets, properties and rights of the Company and its
Subsidiaries are free and clear of any Liens other than Permitted Liens.
Section 3.14. Intellectual Property.
(a) The Company and its Subsidiaries own all right, title and interest in
and to, or have licenses (which licenses are, to the Knowledge of the Company,
valid and enforceable except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding at law or in equity) to use, all the Intellectual Property, and
such Intellectual Property represents all intellectual property rights necessary
for the conduct of their business as and where conducted on the date hereof and
on the Closing. The Company and its Subsidiaries are in compliance in all
material respects with all licenses relating to the protection of such of the
Intellectual Property as it uses pursuant to license or other agreement. To the
Knowledge of the Company, there are no conflicts with or infringements of any
Intellectual Property by any third party. To the Knowledge of the Company, the
conduct of the business of the Company and its Subsidiaries does not conflict
with, violate, misappropriate, misuse or infringe any proprietary or
intellectual property right of any third party. There is no claim, suit, action
or proceeding pending or, to the Knowledge of the Company, threatened against
the Company or its Subsidiaries: (i) alleging any such conflict, violation,
misappropriation, misuse or infringement with any third party's proprietary or
intellectual property rights; or (ii) challenging the Company's or its
Subsidiaries' ownership or use of, or the validity or enforceability of any
Intellectual Property.
(b) Schedule 3.14(b)(i) sets forth a complete and current list of all
registrations, certificates, applications, filings or other document issued by,
filed with, or recorded by, any Governmental Entity pertaining to the
Intellectual Property ("Registered Intellectual Property") as of the date hereof
and the owner of record, date of application or issuance, and relevant
jurisdiction as to each. All Registered Intellectual Property is owned by the
Company and/or its Subsidiaries, free and clear of all Liens other than
Permitted Liens. All Registered Intellectual Property is valid, subsisting and
unexpired, and all renewal fees and other maintenance fees that have fallen due
on or prior to the Closing have been paid. The consummation of the transactions
contemplated by this Agreement will not alter or impair in any material respect
any Intellectual Property.
(c) Schedule 3.14(c)(i) sets forth a complete list of all license
agreements pertaining to Intellectual Property material to the conduct of the
Company's business as of the date hereof, except for agreements pertaining to
commercially available, off-the-shelf software. Except as set forth on Schedule
3.14(c)(ii), the Company and its Subsidiaries are in compliance in all material
respects with all agreements pertaining to the Intellectual Property and are not
under any obligation to pay royalties or other payments in connection with any
agreement, nor restricted from assigning its rights respecting Intellectual
Property, such rights including the right to sue and obtain damages for past and
future infringements thereof, nor will the Company or its Subsidiaries otherwise
be, as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in breach of any agreement
relating to
18
the Intellectual Property. Neither the Company nor its Subsidiaries is in
material default of any such agreement.
(d) Except as set forth on Schedule 3.14(d)(i), neither the Company nor any
of its Subsidiaries has made any claim of a violation, infringement, misuse or
misappropriation by any third party (including any employee or former employee
of the Company or its Subsidiaries) of its rights to, or in connection with, any
Intellectual Property, which claim is pending. Neither the Company nor any of
its Subsidiaries has entered into any agreement to indemnify any other Person
against any charge of infringement of any Intellectual Property, other than
indemnification provisions contained in employment policies and agreements,
customer agreements, purchase orders or license agreements arising in the
ordinary course of business.
Section 3.15. Software.
(a) To the Knowledge of the Company, none of the operating and applications
computer software programs and databases used by the Company and its
Subsidiaries that are material to the conduct of their business (collectively,
the "Software"), nor any use thereof, conflicts with, infringes upon or violates
any intellectual property or other proprietary right of any other Person and, no
claim, suit, action or other proceeding with respect to any such infringement or
violation is pending, or to the Knowledge of the Company, threatened.
(b) The Company and its Subsidiaries have not purchased any material amount
of telecommunications equipment for which a software license and right to use
the embedded software in such equipment have not been obtained, nor is the
Company or its Subsidiaries subject to any written claim for failing to procure
such a license and right to use.
Section 3.16. Licenses and Permits.
(a) The Company and its Subsidiaries own or possess all right, title and
interest in and to each of their respective material licenses, permits,
franchises, registrations, authorizations and approvals issued or granted to any
of the Company or its Subsidiaries by any Governmental Entity (the "Licenses and
Permits") and has taken all necessary action to maintain such Licenses and
Permits. Each License and Permit has been duly obtained, is valid and in full
force and effect, and is not subject to any pending or, to the Knowledge of the
Company, threatened administrative or judicial proceeding to revoke, cancel,
suspend or declare such License and Permit invalid in any respect. The Licenses
and Permits are sufficient and adequate in all material respects to permit the
continued lawful conduct of the business of the Company and its Subsidiaries,
and none of the operations of the Company or its Subsidiaries are being
conducted in a manner that violates in any material respects any of the terms or
conditions under which any License and Permit was granted.
(b) The operations of the Company and its Subsidiaries are in compliance in
all material respects with the terms and conditions of the Communications Act of
1934, as amended, applicable state law and the published rules, regulations, and
policies promulgated by any Governmental Entity, and neither the Company nor its
Subsidiaries has done anything or failed to do anything which reasonably could
be expected to cause the loss of any of the Licenses and Permits.
19
(c) Other than those listed on Schedule 3.16, no petition, action,
investigation, notice of violation or apparent liability, notice of forfeiture,
order to show cause, complaint, or proceeding seeking to revoke, reconsider the
grant of, cancel, suspend, or modify any of the Licenses and Permits of the
Company or its Subsidiaries is pending or, to the Knowledge of the Company,
threatened before any Governmental Entity. No notices have been received by and,
no claims have been filed against the Company or its Subsidiaries alleging a
failure to hold any requisite permits, regulatory approvals, licenses or other
authorization.
Section 3.17. Compliance with Law.
(a) Except as set forth on Schedule 3.17, the operations of the business of
the Company and its Subsidiaries have been conducted in accordance in all
material respects with all material laws, regulations, orders and other
requirements of all Governmental Entities having jurisdiction over such entity
and its assets, properties and operations. Except as set forth on Schedule 3.17,
since January 1, 2004, none of the Company or its Subsidiaries has received
written notice of any material violation (or any investigation with respect
thereto) of any such law, regulation, order or other legal requirement, and none
of the Company or its Subsidiaries is in default with respect to any order,
writ, judgment, award, injunction or decree of any national, state or local
court or governmental or regulatory authority or arbitrator, domestic or
foreign, applicable to any of its assets, properties or operations.
(b) The Company and each of its officers are in compliance in all material
respects with (i) the applicable provisions of the Sarbanes-Oxley Act of 2002
and the related rules and regulations promulgated under such act or the Exchange
Act (the "Sarbanes-Oxley Act") and (ii) the applicable listing and corporate
governance rules and regulations of the Nasdaq Global Market System. The Company
has previously disclosed to Parent the information required to be disclosed by
the Company and certain of its officers to the Company's Board of Directors or
any committee thereof pursuant to the certification requirements contained in
Form 10-K and Form 10-Q under the Exchange Act. Except as permitted by the
Exchange Act, including, without limitation, Sections 13(k)(2) and (3), since
the enactment of the Sarbanes-Oxley Act, neither the Company nor any of its
Affiliates has made, arranged or modified (in any material way) personal loans
to any executive officer or director of the Company.
(c) The management of the Company has (i) implemented (x) disclosure
controls and procedures to ensure that material information relating to the
Company, including its consolidated Subsidiaries, is made known to the
management of the Company by others within those entities and (y) a system of
internal control over financial reporting sufficient to provide reasonable
assurances regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP, and (ii)
has disclosed, based on its most recent evaluation prior to the date hereof, to
the Company's auditors and the audit committee of the Company's Board of
Directors (A) any significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls and (B) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the Company's internal controls. The Company has made
available to Parent a summary of any such disclosure made by management to the
Company's auditors and audit committee.
20
Section 3.18. Litigation. Except as set forth on Schedule 3.18, there
are no material claims, actions, suits, proceedings, subpoenas or, to the
Knowledge of the Company, investigations (each, an "Action") pending or, to the
Knowledge of the Company, threatened, before any Governmental Entity, or before
any arbitrator of any nature, brought by or against any of the Company or its
Subsidiaries or any of their officers or directors involving or relating to the
Company or its Subsidiaries, the assets, properties or rights of any of the
Company and its Subsidiaries or the transactions contemplated by this Agreement.
There is no material judgment, decree, injunction, rule or order of any
Governmental Entity or before any arbitrator of any nature outstanding, or to
the Knowledge of the Company, threatened, against either of the Company or its
Subsidiaries.
Section 3.19. Contracts.
(a) Schedule 3.19(a) sets forth a complete and correct list of all
Contracts as of the date hereof.
(b) Each Contract is valid, binding and enforceable (in accordance with its
terms) against the Company or its Subsidiaries and, to the Knowledge of the
Company, against the other parties thereto in accordance with its terms, and in
full force and effect except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding at law or in equity. Each of the Company and its Subsidiaries has
performed all material obligations required to be performed by it to date under,
and is not in material default or delinquent in performance, status or any other
respect (claimed or actual) in connection with, any Contract. To the Knowledge
of the Company, no other party to any Contract is in material default in respect
thereof, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default. The Company has made available to Parent
or its representatives true and complete originals or copies of all the
Contracts.
(c) A "Contract" means any agreement, contract or commitment, oral or
written, to which either of the Company or any of its Subsidiaries is a party or
by which it or any of its assets are bound constituting:
(i) A contract or agreement (A) with one of the top (i) 20 carrier
customers, (ii) 20 enterprise customers, or (iii) 10 "dark fiber"
customers, in each case by revenue derived by the Company and its
Subsidiaries (taken together), for the eight (8) months ended August 31,
2006, pursuant to which the Company or any of its Subsidiaries has sold
goods and/or services or (B) with any customer that contains "most-favored
nation" or non-compete clauses, pursuant to which the Company or any of its
Subsidiaries has sold goods and/or services (the Contracts set forth in
subsection (A) and (B) collectively, the "Customer Contracts");
(ii) a contract or agreement with one of the top (A) 20 "right-of-way"
vendors, (B) 10 "dark fiber" vendors, (C) 10 off-net services vendors, (D)
five network equipment vendors and (E) five software maintenance vendors,
in each
21
case, by dollar amount paid to such vendors by the Company and its
Subsidiaries (taken together), for the eight (8) months ended August 31,
2006 (the "Vendor Contracts");
(iii) a settlement-free peering agreement of the Company and its
Subsidiaries;
(iv) a mortgage, indenture, security agreement, guaranty, pledge or
other agreement or instrument relating to the borrowing of money or
extension of credit (other than accounts receivable or accounts payable in
the ordinary course of business and consistent with past practice);
(v) an employment, change of control, retention or severance
agreement;
(vi) a joint venture, partnership or limited liability company
agreement with third parties, other than sharing agreements with respect to
non-material assets;
(vii) a non-competition agreement or any other agreement or obligation
which purports to limit in any material respect (i) the manner in which, or
the localities in which, the business of the Company or its Subsidiaries
may be conducted or (ii) the ability of either of the Company or its
Subsidiaries to provide any type of service presently conducted by the
Company or its Subsidiaries;
(viii) an agreement containing any exclusivity clause,
most-favored-nations clause in favor of a customer or vendor, or a Customer
Contract containing any benchmarking clause or marked-to-market pricing
provision;
(ix) a Lease;
(x) an agreement limiting or restricting the ability of either of the
Company or its Subsidiaries to make distributions or declare or pay
dividends in respect of its capital stock or membership interests, as the
case may be;
(xi) an agreement with a vendor requiring capital expenditures in
excess of $2,000,000 after the date hereof;
(xii) an agreement in effect or offer pending to acquire all or a
substantial portion of the capital stock or business of any other Person;
or
(xiii) any other material agreement not in the ordinary course of the
business of the Company and its Subsidiaries.
(d) To the Knowledge of the Company, all of the settlement-free peering
arrangements or agreements of the Company and its Subsidiaries are terminable by
the Company or its Subsidiaries on 90 days' prior notice without liability or
obligation to the Company or its Subsidiaries.
22
Section 3.20. Employee Plans.
(a) Schedule 3.20(a) sets forth: (i) all "employee benefit plans", as
defined in Section 3(3) of ERISA, and all other material employee benefit
programs, policies, arrangements or payroll practices, including, without
limitation, any such programs, policies, arrangements or payroll practices
providing severance pay, sick leave, vacation pay, salary continuation for
disability, retirement benefits, deferred compensation, bonus pay, incentive
pay, stock options, hospitalization insurance, medical insurance, life
insurance, cafeteria benefits, dependent care reimbursements, prepaid legal
benefits, scholarships or tuition reimbursements, maintained by the Company or
any of its Subsidiaries or to which the Company or any of its Subsidiaries is
obligated to contribute thereunder for current or former employees the Company
and its Subsidiaries (the "Employee Benefit Plans"), and (ii) all "employee
pension plans", as defined in Section 3(2) of ERISA, maintained or sponsored by
the Company or any trade or business (whether or not incorporated) which is
under control or treated as a single employer with the Company under Section
414(b), (c), (m), or (o) of the Code (an "ERISA Affiliate") or to which the
Company or any ERISA Affiliate has contributed or has been obligated to
contribute thereunder (the "Pension Plans").
(b) True, correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans and Pension Plans, have been made
available, or promptly following the date hereof but in any event prior to the
Closing Date, will be made available, to Parent, to the extent applicable: (i)
all plans and related trust documents, and amendments thereto; (ii) Forms 5500
filed for the three most recent plan years; (iii) the most recent IRS
determination letter; (iv) the most recent summary plan descriptions, annual
reports and material modifications; (v) the most recent actuarial report, if
any; and (vi) written descriptions of all non-written agreements relating to the
Employee Benefit Plans.
(c) None of the Employee Benefit Plans or Pension Plans is a multiemployer
plan, as defined in Section 3(37) of ERISA ("Multiemployer Plan") or subject to
Title IV of ERISA or Section 412 of the Code.
(d) Each Pension Plan that is intended to qualify under Section 401 of the
Code and the trust maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code, and to the Knowledge of the Company,
nothing has occurred with respect to the operation of any such Pension Plan that
would reasonably be expected to cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code.
(e) All contributions (including all employer contributions and employee
salary reduction contributions) and all premiums required to have been paid
under any of the Employee Benefit Plans or Pension Plans or by law (without
regard to any waivers granted under Section 412 of the Code) to any funds or
trusts established thereunder or in connection therewith have been made by the
due date thereof (including any valid extension).
(f) To the Knowledge of the Company, there has been no material violation
of ERISA or the Code with respect to the filing of applicable reports, documents
and notices regarding the Employee Benefit Plans with the Secretary of Labor or
the Secretary of the
23
Treasury or the furnishing of required reports, documents or notices to the
participants or beneficiaries of the Employee Benefit Plans.
(g) Except as set forth on Schedule 3.20(g), there are no pending actions,
claims or lawsuits which have been asserted or instituted against the Employee
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 Employee
Benefit Plans with respect to the operation or administration of such plans or
the investment of plan assets (other than routine benefit claims), nor does the
Company have Knowledge of facts which could form the basis for any such claim or
lawsuit. No Employee Benefit Plan has been the subject of an audit,
investigation or examination by any Governmental Entity to the Knowledge of the
Company.
(h) The Employee 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. None of the Company, its Subsidiaries,
or, to the Knowledge of the Company, any "party in interest" or "disqualified
person" with respect to the Employee Benefit Plans has engaged in a non-exempt
"prohibited transaction" within the meaning of Section 406 of ERISA or 4975 of
the Code pursuant to which the tax or penalty could be material. Except as set
forth on Schedule 3.20(h), no stock or other security issued by the Company or
any Affiliate forms or has formed a part of the assets of any Employee Benefit
Plan.
(i) Except as set forth on Schedule 3.20(i), none of the Employee Benefit
Plans provide retiree life or retiree health benefits except as may be required
under COBRA or any similar state or local law.
(j) Except as set forth on Schedule 3.20(j) or as required pursuant to this
Agreement, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will, either alone or
together with the occurrence of subsequent events (i) increase any benefits
otherwise payable under any Employee Benefit Plan; (ii) result in the
acceleration of the time of payment or vesting of any benefits under any
Employee Benefit Plan or Contract to any current or former employee; or (iii)
fail to be deductible by reason of Section 280G of the Code.
(k) Except as set forth on Schedule 3.20(k), no Contract, Employee Benefit
Plan, warrant or other compensatory or equity-based arrangement with any
employee, officer or director of the Company contains any provision requiring
the Company to pay on behalf of, or otherwise reimburse, any such individual for
any income or excise taxes due by such individual upon payment of any benefits
by the Company, other than any such obligations as required by applicable laws
or regulations and payment and reimbursement of income taxes related to the
payment of moving expenses in the ordinary course of business.
(l) As of September 30, 2006, the Company had accrued an aggregate
liability with respect to its obligations under the 2006 Bonus Plan as set forth
on Schedule 3.20(l).
24
Section 3.21. Insurance. All material policies of title, liability,
fire, casualty, business interruption, workers' compensation and other forms of
insurance and bonds insuring each of the Company and its Subsidiaries and their
assets, properties and operations are in full force and effect. None of the
Company or its Subsidiaries is in material default under any provisions of any
such policy of insurance nor has any of the Company or its Subsidiaries received
notice of cancellation of or cancelled any such insurance. For all material
claims made under such policies, the Company and its Subsidiaries have timely
complied with any applicable notice provisions.
Section 3.22. Affiliate Transactions. Except as set forth in the
Company SEC Reports filed prior to the date hereof or as set forth on Schedule
3.22, there are no transactions, agreements, arrangements or understandings
between the Company or any of its Subsidiaries, on the one hand, and any
director or executive officer of the Company, on the other hand, that would be
required to be disclosed under Item 404 of Regulation S-K under the Securities
Act other than ordinary course of business employment agreements and similar
employee arrangements otherwise set forth on Schedule 3.24 to the extent
required to be set forth therein (or any such ordinary course employment
agreements and similar arrangements not required to be set forth on Schedule
3.24 by the limitations contained in the representation and warranty set forth
in Section 3.24 of this Agreement).
Section 3.23. Vendors and Customers.
(a) Schedule 3.23(a) sets forth a list of the vendors that are parties to
the Vendor Contracts. No such vendor has expressed in writing or, to the
Knowledge of the Company, verbally to the Company or any of its Subsidiaries its
intention to cancel or otherwise terminate or materially reduce or modify its
relationship with the Company or any of its Subsidiaries.
(b) Schedule 3.23(b) sets forth a list of the customers that are parties to
the Customer Contracts. No customer under any such Customer Contract has
expressed in writing or, to the Knowledge of the Company, verbally to the
Company or any of its Subsidiaries its intention to cancel or otherwise
terminate or materially reduce or modify its relationship with the Company or
any of its Subsidiaries.
Section 3.24. Labor Matters.
(a) Except as set forth on Schedule 3.24(a): (i) neither the Company nor
any of its Subsidiaries is a party to any outstanding employment agreements or
contracts with officers, managers or employees of either of the Company or its
Subsidiaries that are not terminable at will; (ii) neither the Company nor any
of its Subsidiaries is a party to any agreement, policy or practice that
requires it to pay termination, change of control or severance pay to salaried,
non-exempt or hourly employees of such company (other than as required by law);
and (iii) neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to its
employees nor does the Company have Knowledge of any activities or proceedings
of any labor union to organize any such employees.
25
(b) Except as set forth on Schedule 3.24(b): (i) each of the Company and
its Subsidiaries is in compliance in all material respects with all applicable
laws relating to employment and employment practices, the classification of
employees, wages, hours, collective bargaining, unlawful discrimination, civil
rights, safety and health, workers' compensation and terms and conditions of
employment; (ii) there are no material charges with respect to or relating to
either of the Company or its Subsidiaries pending or, to the Knowledge of the
Company, threatened before the Equal Employment Opportunity Commission or any
state, local or foreign agency responsible for the prevention of unlawful
employment practices; and (iii) neither the Company nor any of its Subsidiaries
has received any written notice from any national, state, local or foreign
agency responsible for the enforcement of labor or employment laws of an
intention to conduct a material investigation of either of the Company or its
Subsidiaries and no such investigation is in progress.
(c) Since December 31, 2004, except as set forth on Schedule 3.24(c), there
has been no "mass layoff" or "plant closing" as defined by the Worker Adjustment
and Retraining Notification Act or any similar state or local "plant closing"
law ("WARN") with respect to the current or former employees of the Company or
its Subsidiaries.
(d) Except as set forth on Schedule 3.24(d), neither the Company nor any of
its Subsidiaries has adopted any severance plan or severance obligation with
respect to its employees.
Section 3.25. Environmental Matters.
(a) Except as would not have a Company Material Adverse Effect, each of the
Company and its Subsidiaries is, and has been, prior to that date was, in
compliance with all applicable laws, regulations, common law and other
requirements of governmental or regulatory authorities relating to pollution, to
the protection of the environment or to natural resources ("Environmental
Laws"). Except as would not have a Company Material Adverse Effect, each of the
Company and its Subsidiaries has in effect all licenses, permits and other
authorizations required under all Environmental Laws and is in compliance with
all such licenses, permits and authorizations.
(b) Except as would not have a Company Material Adverse Effect, the Company
and its Subsidiaries have not received any notice of violation or potential
liability under any Environmental Laws from any Person or any Governmental
Entity inquiry, request for information, or demand letter under any
Environmental Law relating to operations or properties of the Company or its
Subsidiaries which would be reasonably expected to result in the Company or any
of its Subsidiaries incurring liability under Environmental Laws. Except as
would not have a Company Material Adverse Effect, none of the Company or its
Subsidiaries is subject to any orders arising under Environmental Laws nor are
there any administrative, civil or criminal actions, suits, proceedings or
investigations pending or, to the Knowledge of the Company, threatened, against
the Company or its Subsidiaries under any Environmental Law which would
reasonably be expected to result in the Company or any of its Subsidiaries
incurring liability under Environmental Laws. Except as would not have a Company
Material Adverse Effect, none of the Company or its Subsidiaries has entered
into any agreement pursuant to which the Company or its Subsidiaries has assumed
or will assume any liability under
26
Environmental Laws, including without limitation, any obligation for costs of
remediation, of any other Person.
(c) Except as would not have a Company Material Adverse Effect, to the
Knowledge of the Company, there has been no release or threatened release of a
hazardous substance, hazardous waste, contaminant, pollutant, toxic substance or
petroleum and its fractions, the presence of which requires investigation or
remediation under any applicable Environmental Law ("Hazardous Material"), on,
at or beneath any of the Company Property or other properties currently or
previously owned or operated by the Company or its Subsidiaries or any surface
waters or groundwaters thereon or thereunder which requires any disclosure,
investigation, cleanup, remediation, monitoring, abatement, deed or use
restriction by the Company, or which would be expected to give rise to any other
liability or damages to the Company or its Subsidiaries under any Environmental
Laws.
(d) Except as would not have a Company Material Adverse Effect, none of the
Company or its Subsidiaries has arranged for the disposal of any Hazardous
Material, or transported any Hazardous Material, in a manner that has given, or
reasonably would be expected to give, rise to any liability for any damages or
costs of remediation.
(e) The Company has made available to Parent copies of all environmental
studies, investigations, reports or assessments concerning the Company, its
Subsidiaries, the Company Property and any owned real property currently or
previously owned or operated by the Company or its Subsidiaries.
Section 3.26. No Brokers. No broker, finder or similar intermediary has
acted for or on behalf of, or is entitled to any broker's, finder's or similar
fee or other commission from the Company or its Subsidiaries in connection with
this Agreement or the transactions contemplated hereby other than Thomas Weisel
Partners LLC ("TWP"). The Company has heretofore furnished to Parent a complete
and correct copy of all agreements between the Company and TWP pursuant to which
TWP would be entitled to any payment relating to the transactions contemplated
hereby.
Section 3.27. Network Operations.
(a) Except as set forth on Schedule 3.27(a), the network of the Company and
its Subsidiaries, taken as a whole, is in good working condition and is without
any material defects for purposes of operating the business of the Company and
its Subsidiaries as operated by the Company and its Subsidiaries.
(b) Except as set forth on Schedule 3.27(b), the Company and its
Subsidiaries have indefeasible rights to use (or lease) approximately 1,016
route-miles and approximately 19,014 fiber-miles of fiber in each of the
metropolitan areas set forth on Schedule 3.27(b).
(c) The Company and its Subsidiaries have good and valid title to
approximately 9,389 route-miles and approximately 693,902 fiber-miles of fiber
between the city pairs set forth on Schedule 3.27(c), and have indefeasible
rights to use approximately 11,830 route-miles and approximately 720,677
fiber-miles of fiber between the city pairs set forth on Schedule 3.27(c)
(including the names of the respective fiber vendors).
27
(d) The Company and its Subsidiaries have good and valid title to the
switches listed on Schedule 3.27(d) and each such switch is in good operating
condition and repair, free from all material defects, subject only to normal
wear and tear.
Section 3.28. State Takeover Statutes. The Board of Directors of the
Company has taken all action necessary to ensure that any restrictions on
business combinations contained in the DGCL, including Section 203 of the DGCL,
or in the Company Organizational Documents will not apply to the Merger, the
Voting Agreement and the transactions contemplated by this Agreement or the
Voting Agreement. No other "fair price", "moratorium", "control share
acquisition" or other similar anti-takeover statute or regulation or any
anti-takeover provision in the Company's Organizational Documents is, or at the
Effective Time will be, applicable to the Company, the Company Common Stock, the
Merger or the other transactions contemplated by this Agreement or the Voting
Agreement.
Section 3.29. Opinions of Financial Advisors.
(a) The Board of Directors of the Company has received the opinion of TWP,
dated as of the date hereof, to the effect that, as of such date, the Merger
Consideration to be received by the holders of the Company Common Stock pursuant
to the Merger is fair to such shareholders from a financial point of view. A
written copy of such opinion has been delivered to Parent.
(b) Goldman, Sachs & Co. ("Goldman, Sachs") has delivered to the Board of
Directors of the Company its opinion, dated as of the date hereof, to the effect
that, as of such date, the Merger Consideration to be received by holders of
shares of Company Common Stock, taken in the aggregate, pursuant to this
Agreement is fair from a financial point of view to such holders.
Section 3.30. Information Supplied. The written information supplied or
to be supplied by the Company specifically for inclusion or incorporation in the
registration statement on Form S-4 or any amendment or supplement thereto
pursuant to which shares of Parent Common Stock issuable in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The written
information supplied or to be supplied by the Company specifically for inclusion
in the proxy statement/prospectus or any amendment or supplement thereto (the
"Proxy Statement") to be included in the Registration Statement and to be sent
to the stockholders of the Company in connection with the Company stockholders
meeting to adopt this Agreement and the Merger (the "Company Stockholders
Meeting") shall not, on the date the Proxy Statement is first mailed to the
stockholders of the Company or at the time of the Company Stockholders Meeting
or at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Proxy Statement will, at the time of the
Company Stockholders Meeting, comply as to form in all material respects with
the requirements of the Exchange Act.
28
Section 3.31. Board Approval. The Board of Directors of the Company, at
a meeting duly called and held, by unanimous vote (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
advisable and fair to, and in the best interests of, the Company and its
stockholders, (ii) approved this Agreement, the Voting Agreement (for purposes
of Section 203 of the DGCL) and the transactions contemplated hereby and
thereby, including the Merger, and (iii) resolved, subject to Section 7.5, to
recommend that the holders of the shares of Company Common Stock approve and
adopt this Agreement and the transactions contemplated hereby, including the
Merger. The Company hereby agrees to the inclusion in the Proxy Statement of the
recommendation of the Board of Directors of the Company described in this
Section 3.31 (subject to the right of the Board of Directors of the Company to
withdraw, amend or modify such recommendation in accordance with Section 7.5).
Section 3.32. Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote
thereon (the "Required Company Vote") is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve and adopt
this Agreement and the transactions contemplated hereby, including the Merger.
Section 3.33. No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither the
Company nor any other Person on behalf of the Company makes any other express or
implied representation or warranty.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
Parent and Merger Sub hereby jointly and severally represent and warrant to
the Company as follows:
Section 4.1. Organization. Each of Parent and Merger Sub is duly
formed, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate or company power to own its properties
and assets and to conduct its businesses as now conducted.
Section 4.2. Qualification to Do Business. Each of Parent and Merger
Sub is duly qualified to do business as a foreign corporation or limited
liability company and is in good standing in every jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified or in good standing would not, individually or in the aggregate,
have a Parent Material Adverse Effect.
Section 4.3. No Conflict or Violation. The execution, delivery and
performance by Parent and Merger Sub of this Agreement do not and will not (i)
violate or conflict with any provision of any Parent Organizational Document or
the organizational documents of Merger Sub, (ii) violate any provision of law,
or any order, judgment or decree of any Governmental Entity, (iii) result in the
creation or imposition of any Lien (other than any Permitted Lien) upon any of
the assets, properties or rights of either Parent or Merger Sub or (iv)
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violate or result in a breach of or constitute (with due notice or lapse of time
or both) a default under any material contract, agreement or instrument to which
Parent or Merger Sub is a party or by which it is bound or to which any of its
properties or assets is subject, except in each case with respect to clauses
(iii) and (iv), for any such violations that would not have a Parent Material
Adverse Effect.
Section 4.4. Consents and Approvals. No consent, waiver, authorization
or approval of any Governmental Entity, and no declaration or notice to or
filing or registration with any Governmental Entity, is required in connection
with the execution and delivery of this Agreement by Parent or Merger Sub of
their obligations hereunder, except for (i) the filing of a certificate of
merger with respect to the Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other states
in which the Company or any Subsidiary is qualified to do business; (ii) the
filing of a Notification and Report Form under the HSR Act, (iii) the filing of
an application jointly by the parties with the FCC for approval of transfer of
control of Company's licenses pursuant to Section 214 of the Communications Act
of 1934 as amended by the Telecommunications Act of 1996, and receipt of an
order from the FCC approving the transfer; (iv) the filing of the Registration
Statement with the SEC, (v) the consents, waivers, authorizations or approvals
of any Governmental Entity set forth on Schedule 4.4 and (vi) such consents,
waivers, authorizations, approvals, declarations, notices, filings or
registrations, which if not obtained or made would not have, a Parent Material
Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
Section 4.5. Authorization and Validity of Agreement. Parent and
Merger Sub have all requisite corporate or company power and authority to enter
into this Agreement and to carry out their respective obligations hereunder. The
execution and delivery of this Agreement and the performance of Parent's and
Merger Sub's obligations hereunder have been duly authorized by all necessary
corporate or company action of Parent and Merger Sub, and no other corporate or
company proceedings on the part of Parent and Merger Sub are necessary to
authorize such execution, delivery and performance. This Agreement has been duly
executed by Parent and Merger Sub and, assuming due execution and delivery by
the Company, shall constitute their valid and binding obligation, enforceable
against them in accordance with its terms, subject to (i) the effect of
bankruptcy, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting the enforcement of creditors' rights generally,
(ii) general equitable principles (whether considered in a proceeding in equity
or at law) and (iii) an implied covenant of good faith and fair dealing.
Section 4.6. Capitalization and Related Matters.
(a) As of the date hereof, the authorized capital stock of Parent consists
of 2.25 billion authorized shares of Parent Common Stock and 10,000,000
authorized shares of preferred stock, par value $0.01 per share ("Parent
Preferred Stock"). As of October 12, 2006, 1,175,271,818 shares of Parent Common
Stock were issued and outstanding and no shares of Parent Preferred Stock were
issued and outstanding.
(b) The outstanding shares of Parent Common Stock (i) have been duly
authorized and validly issued and are fully paid and non-assessable and (ii)
were issued in
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compliance with all applicable federal and state securities laws. Except as set
forth in the Parent SEC Reports, as of June 30, 2006, no shares of capital stock
of the Company are outstanding and the Company does not have outstanding any
securities convertible into or exchangeable for any shares of capital stock, 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 known claims of any other character relating to the
issuance of, any capital stock, or any stock or securities convertible into or
exchangeable for any capital stock; and the Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire, or to register under the Securities Act, any shares of capital stock.
The shares of Parent Common Stock issuable in the Merger have been duly
authorized and, upon issuance, sale and delivery as contemplated by this
Agreement, such shares of Parent Common Stock will be validly issued, fully paid
and non-assessable securities of Parent and the issuance thereof will not be
subject to any preemptive or similar right.
(c) All of the outstanding membership interests of Merger Sub are owned of
record and beneficially by Parent, directly; provided, that, if there is a
Conversion Event, as of the Closing Date, all of the outstanding shares of
common stock, par value $0.0001 per share, of Merger Sub will be owned of record
and beneficially by Parent, directly.
(d) Merger Sub is a newly-formed entity that will not have engaged in any
activities prior to the Effective Time, other than those related to the
transactions contemplated by this Agreement.
Section 4.7. SEC Filings.
(a) Parent and its Subsidiaries have filed each report and definitive proxy
statement (together with all amendments thereof and supplements thereto)
required to be filed by Parent or any of its Subsidiaries pursuant to the
Exchange Act with the SEC since January 1, 2004 (as such documents have since
the time of their filing been amended or supplemented, the "Parent SEC
Reports"). As of their respective dates, after giving effect to any amendments
or supplements thereto filed prior to the date hereof, the Parent SEC Reports
(i) complied as to form in all material respects with the requirements of the
Exchange Act, and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The audited consolidated financial statements and unaudited interim
consolidated financial statements (including, in each case, the notes, if any,
thereto) included in the Parent SEC Reports complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the unaudited
interim financial statements included therein, to normal year-end adjustments
and the absence of complete footnotes) in all material respects the consolidated
financial position of Parent and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended.
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Section 4.8. No Brokers. The Company will not be liable for any
brokerage, finder's or other fee or commission to any consultant, broker, finder
or investment banker in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or Merger Sub.
Section 4.9. Tax Matters. Neither Parent nor any of its Subsidiaries,
including Merger Sub, has taken or agreed to take any action, or is aware of any
fact or circumstance, that would prevent the Merger, or, if there is a
Conversion Event, the Merger and the Subsequent Merger, taken together, from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
Section 4.10. Compliance with Law.
(a) Parent and each of its officers are in compliance in all material
respects with (i) the applicable provisions of the Sarbanes-Oxley Act and (ii)
the applicable listing and corporate governance rules and regulations of the
Nasdaq Global Market System.
(b) The management of Parent has (i) implemented (x) disclosure controls
and procedures to ensure that material information relating to Parent, including
its consolidated Subsidiaries, is made known to the management of Parent by
others within those entities and (y) a system of internal control over financial
reporting sufficient to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP, and (ii) has disclosed, based on its most
recent evaluation prior to the date hereof, to Parent's auditors and the audit
committee of Parent's Board of Directors (A) any significant deficiencies in the
design or operation of internal controls which could adversely affect Parent's
ability to record, process, summarize and report financial data and have
identified for Parent's auditors any material weaknesses in internal controls
and (B) any fraud, whether or not material, that involves management or other
employees who have a significant role in Parent's internal controls.
Section 4.11. Board Approval. The Board of Directors of Parent, at a
meeting duly called and held, approved this Agreement and the transactions
contemplated hereby.
Section 4.12. Sufficiency of Funds. Parent has and will have, at the
Closing, sufficient funds available to pay the Cash Consideration with respect
to all outstanding shares of Company Common Stock.
Section 4.13. No Parent Material Adverse Effect. Since June 30, 2006,
there has not been any Parent Material Adverse Effect.
Section 4.14. No Other Representations or Warranties. Except for the
representations and warranties contained in this Article IV, none of Parent,
Merger Sub or any other Person makes any other express or implied representation
or warranty on behalf of Parent or Merger Sub with respect to Parent and its
Subsidiaries.
32
ARTICLE V.
COVENANTS OF THE COMPANY.
The Company hereby covenants as follows:
Section 5.1. Conduct of Business Before the Closing Date.
(a) The Company covenants and agrees that, during the period from the date
hereof to the earlier of the termination of this Agreement in accordance with
its terms and the Effective Time (except as otherwise specifically contemplated
by the terms of this Agreement), unless Parent shall otherwise consent in
writing: (i) the businesses of the Company and its Subsidiaries shall be
conducted, in all material respects, in the ordinary course of business and in a
manner consistent with past practice and, in all material respects, in
compliance with applicable laws, including without limitation the HSR Act and
the timely filing of all reports, forms or other documents with the SEC required
pursuant to the Securities Act, the Exchange Act or the Sarbanes-Oxley Act; (ii)
the Company shall and shall cause its Subsidiaries to (A) continue to maintain,
in all material respects, its assets, properties, rights and operations in
accordance with present practice in a condition suitable for their current use
and (B) use commercially reasonable efforts to continue to spend the amounts
under the Vendor Contracts at rates and consistent with past practice and in a
manner that will ensure that no penalty or shortfall payment will be assessed
against the Company or its Subsidiaries during the 12 months after the date
hereof, and (iii) the Company shall use its commercially reasonable efforts
consistent with the foregoing to preserve substantially intact the business
organization of the Company and its Subsidiaries, and to preserve, in all
material respects, the present relationships of the Company and its Subsidiaries
with persons with which the Company or any of its Subsidiaries has significant
business relations. Without limiting the generality of the foregoing, neither
the Company nor any of its Subsidiaries shall (except as specifically
contemplated by the terms of this Agreement), between the date of this Agreement
and the earlier of the termination of this Agreement in accordance with its
terms and the Effective Time, directly or indirectly do, any of the following
without the prior written consent of Parent:
(i) make any material change in the conduct of its businesses or enter
into any transaction other than in the ordinary course of business and
consistent with past practices;
(ii) make any change in any of its organizational documents; issue any
additional shares of capital stock (other than upon the exercise of options
or warrants to purchase shares of Company Common Stock outstanding on the
date hereof or upon the conversion of the Convertible Debentures or in
connection with the CIII Merger or CIII Purchase pursuant to Section 5.5),
membership interests or partnership interests or other equity securities or
grant any option, warrant or right to acquire any capital stock, membership
interests or partnership interests or other equity securities or issue any
security convertible into or exchangeable for such securities or alter in
any way any its outstanding securities or make any change in outstanding
shares of capital stock, membership interests or partnership interests or
other ownership interests or its capitalization, whether
33
by reason of a reclassification, recapitalization, stock split or
combination, exchange or readjustment of shares, stock dividend or
otherwise;
(iii) except as set forth on Schedule 5.1(a)(iii), make any sale,
assignment, transfer, abandonment, sublease, assignment or other conveyance
of its material assets, Company Property or rights or any part thereof,
including granting or entering into any IRUs, other than dispositions of
worn-out or obsolete equipment for fair or reasonable value in the ordinary
course of business and consistent with past practice;
(iv) subject any of its material assets, properties or rights or any
part thereof, to any Lien or suffer such to exist other than Permitted
Liens;
(v) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any shares of the capital stock, membership interests or
partnership interests or other ownership interests of the Company and its
Subsidiaries or declare, set aside or pay any dividends or other
distribution in respect of such shares or interests;
(vi) acquire, lease or sublease any material assets, raw materials or
properties (including any real property), other than in the ordinary course
of business and consistent with past practice;
(vii) enter into any new (or amend any existing to increase benefits)
employee benefit plan, program or arrangement or any new (or amend any
existing to increase benefits) employment, severance, change of control or
consulting agreement, grant any general increase in the compensation of
officers or employees (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or grant any increase
in the compensation payable or to become payable to any employee, except as
otherwise provided pursuant to the terms of any plan or agreement, as
required by law, to the extent necessary to avoid imposition of any taxes
under Section 409A or Section 4999 of the Code or for increases in
compensation to employees in accordance with pre-existing contractual
provisions and/or consistent with past practice;
(viii) except as set forth on Schedule 5.1(a)(viii), (A) enter into
any agreement, contract or commitment which (a) requires the Company or its
Subsidiaries to spend in excess of $3,000,000 (or purchase goods and/or
services with a value in excess of $3,000,000) over the term of such
agreement, contract or commitment or (B) contractually commit in any given
month to make capital expenditures after the date hereof in excess of
$8,000,000 in the aggregate;
(ix) 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 wholly owned Subsidiaries) other
than the lease arrangement described in Schedule 5.1(a)(ix);
34
(x) fail to keep in full force and effect insurance comparable in
amount and scope to coverage maintained;
(xi) make any change in any method of accounting or accounting
principle, method, estimate or practice except for any such change required
by reason of a concurrent change in GAAP or required by Regulation S-X
under the Securities Act, or write off as uncollectible any accounts
receivable except in the ordinary course of business and consistent with
past practice;
(xii) make or change any material Tax election, change an annual
accounting period, adopt or change any accounting method, file any amended
Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to the Company or any of its Subsidiaries, surrender
any 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 any of its Subsidiaries;
(xiii) except as set forth on Schedule 5.1(a)(xiii),settle, release or
forgive any material claim or litigation or waive any right thereto which
has not been properly reserved on the books of the Company or its
Subsidiaries other than with respect to disputes with customers and vendors
in the ordinary course of business;
(xiv) make, enter into, modify, amend in any manner that would be
reasonably expected to have an adverse effect on the Company and its
Subsidiaries or terminate, or waive any right or remedy under, any
Contract, bid or expenditure, where such Contract, bid or expenditure is
for a Contract entailing payments in excess of $5,000,000 over the term of
such Contract, other than with respect to customer contracts in the
ordinary course of business and consistent with past practice;
(xv) lend money to any Person, or incur or guarantee any indebtedness
for borrowed money (other than letters of credit in the ordinary course of
business) or enter into any material capital lease obligation;
(xvi) enter into any peering arrangements or peering agreements that
are not terminable by the Company or its Subsidiaries on 90 days' prior
notice without liability or obligation to the Company or its Subsidiaries;
or
(xvii) commit to do any of the foregoing.
(b) Nothing contained in this Agreement shall give to Parent or Merger Sub,
directly or indirectly, rights to control or direct the operations of the
Company or its Subsidiaries prior to the Closing Date. Prior to the Closing
Date, the Company and its Subsidiaries shall exercise, consistent with the terms
and conditions of this Agreement, complete control and supervision of its and
its Subsidiaries' operations.
Section 5.2. Notice of Breach. 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 IX
35
hereof, the Company shall promptly give written notice with particularity upon
having Knowledge of any matter that may constitute a breach by the Company of
any representation, warranty, agreement or covenant contained in this Agreement.
Section 5.3. Affiliate Letter. The Company shall deliver on the date
hereof a letter to Parent identifying all persons who, to the Knowledge of the
Company, are "affiliates" of the Company for purposes of Rule 145 under the
Securities Act.
Section 5.4. Convertible Debentures. If, and only if, requested in
writing by Parent, the Company shall, pursuant to Section 13.05(f) of the
Indenture, dated as of May 16, 2006, by and among the Company, the Guarantors
named therein and J.P. Morgan Trust Company, as Trustee (the "Indenture"),
promptly, and in any event within two Business Days of receipt of such request,
send to the holders of the Convertible Debentures a Designated Event Notice (as
such term is defined in the Indenture) providing that the Company has elected to
adjust the conversion rate and the related conversion obligation of the
Convertible Debentures in accordance with the provisions of Section 13.05(f) of
the Indenture.
Section 5.5. CIII Merger. Promptly following the date hereof, the
Company shall (i) cause Broadwing Communications Holdings, Inc. ("Broadwing
Holdings) to form a wholly owned subsidiary ("CIII Merger Sub") and contribute
to CIII Merger Sub all of Broadwing Holdings' membership interests in CIII and
(ii) cause CIII Merger Sub to be merged with and into CIII, with CIII as the
surviving company ("CIII Merger"). Such merger shall be conducted in accordance
with the terms of CIII's organizational documents and the LLCA. In such merger,
all of BCSI's membership interests in CIII shall be cancelled and converted into
shares of Company Common Stock as set forth on Schedule 5.5; provided, however,
that in lieu of consummating the CIII Merger, the Company may enter into a
purchase agreement to purchase all of the membership interests of CIII held by
BCSI and its Affiliates on terms acceptable to Parent (the "CIII Purchase").
Section 5.6. Consent Solicitation.
(a) Promptly following the date hereof, the Company shall solicit the
consent (the "Consent Solicitation") of the holders of the Convertible
Debentures to an amendment to the Indenture to amend certain covenants contained
therein in the manner set forth on Schedule 5.6(a) (the "Indenture Amendment").
(b) The Company shall use commercially reasonable efforts to obtain, as
promptly as practical after the date hereof, the consent of holders of a
majority in aggregate principal amount of then outstanding Debentures (the
"Requisite Consent") with respect to the Consent Solicitation.
(c) Parent and the Company shall cooperate with each other with respect to
the Consent Solicitation and the preparation, form and content of the
solicitation materials to be distributed to the holders of the Convertible
Debentures.
(d) Promptly upon receipt of the Requisite Consent, the Company shall, and
shall use its commercially reasonable efforts to cause the trustee under the
Indenture to execute a supplemental indenture incorporating the Indenture
Amendment.
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Section 5.7. Credit Facility. Prior to the Closing Date, the Company
shall terminate the Credit Facility.
ARTICLE VI.
COVENANTS OF PARENT AND MERGER SUB.
Section 6.1. Employee Benefits.
(a) For a period of one year following the Effective Time, Parent shall, or
shall cause the Surviving Company to maintain, without interruption, employee
benefit plans, programs and policies and fringe benefits (other than severance
or similar benefits, which shall be provided in accordance with subsection (c)
below) that will provide benefits to the employees of the Company and its
Subsidiaries who continue their employment with the Surviving Company or who
become employees of Parent or any Subsidiary of Parent ("Continuing Employees")
that are, in the aggregate, not less favorable than those currently provided to
such employees by the Company and its Subsidiaries. Continuing Employees shall
be given credit for all service with the Company and its Subsidiaries (and their
respective predecessors) (or service credited by the Company and its
Subsidiaries for similar plans, programs or policies) under all employee benefit
and fringe benefit plans, programs and policies of the Parent or its affiliates
in which they become participants for purposes of eligibility, vesting and level
of benefits (except to the extent such service credit will result in benefit
accrual under any defined benefit pension plans or otherwise result in a
duplication of benefits).
(b) If a Continuing Employee becomes eligible to participate in any
medical, dental or health plan of the Parent or any of its affiliates, Parent
shall cause such plan to (A) waive any preexisting condition limitations for
conditions covered under the applicable medical, health or dental plans of the
Company (the "Company Welfare Plans") and (B) honor any deductible and
out-of-pocket expenses incurred by such employee and his or her beneficiaries
under the Company Welfare Plans during the portion of the applicable plan year
preceding the Closing. If such Continuing Employee becomes eligible to
participate in a group term life insurance plan maintained by Parent or any of
its affiliates, Parent shall cause such plan to waive any medical certification
for such employee in order to provide benefits that do not exceed the benefits
under Parent's group term life insurance plan.
(c) For a period of one year following the Effective Time, Parent shall, or
shall cause the Surviving Company, to provide severance and COBRA benefits to
the Continuing Employees, other than those Continuing Employees who are subject
to the agreements set forth on Schedule 3.9(b)(viii), as set forth on Schedule
6.1(c).
(d) Following the date of this Agreement and until the Effective Time, the
Company shall operate the Company's 2006 Bonus Plan (the "2006 Bonus Plan") in
accordance with the terms and conditions of the 2006 Bonus Plan. If the bonuses
under the 2006 Bonus Plan are not paid by the Company prior to Effective Time,
following the Effective Time and on or prior to February 28, 2007 (or if the
Closing has not occurred on or prior to February 28, 2007, within ten Business
Days of Closing), Parent shall cause the Surviving Company to pay (i) to the
participants in the 2006 Bonus Plan in accordance with the terms of such plan as
set forth on
37
Schedule 6.1(d), (ii) in an aggregate amount determined in accordance with the
2006 Bonus Plan as set forth on Schedule 6.1(d) and (iii) to each participant in
such specific amount as communicated in writing by management of the Company
prior to the Effective Time; provided, however, that notwithstanding the terms
of the 2006 Bonus Plan, all participants otherwise entitled to receive a bonus
in the 2006 Bonus Plan who are employed on the earlier of December 31, 2006 and
the Closing shall be paid their bonuses under the 2006 Bonus Plan, unless the
participant's employment with the Company or its Subsidiaries (or, if
applicable, the Surviving Company or its Subsidiaries) has terminated prior to
the payment date either (i) for "cause" (as defined in such participant's
employment agreement, severance agreement or offer letter or if the participant
does not have an employment agreement, severance agreement or offer letter that
defines "cause", the Company's 2000 Long Term Incentive Plan as of the date of
this Agreement) or (ii) the participant voluntarily terminates such
participant's employment, except where the participant terminated his or her
employment for "Good Reason" or as a result of a "Constructive Termination" (as
defined in such participant's employment agreement, severance agreement or offer
letter or if the participant does not have an employment agreement, severance
agreement or offer letter that defines "Good Reason" or "Constructive
Termination," the Company's 2000 Long Term Incentive Plan as of the date of this
Agreement). Notwithstanding anything to the contrary in the foregoing, Parent
shall not be required to cause the Surviving Company to pay any amounts under
the 2006 Bonus Plan unless, as of September 30, 2006, the Company had accrued an
aggregate liability with respect to its obligations under the 2006 Bonus Plan as
set forth on Schedule 3.20(l).
(e) After the date hereof, the Company shall adopt a special bonus plan
(the "Special Bonus Plan") under which management of the Company, in its sole
discretion, shall allocate an aggregate amount not to exceed $5.0 million for
special bonuses to the employees of the Company or its Subsidiaries. The special
bonuses shall be paid out to each employee designated to participate in the
Special Bonus Plan as set forth on Schedule 6.1(e) (each, a "Participant") as to
2/3rds of the Participant's total special bonus on the three (3) month
anniversary of the Effective Time and as to the remaining 1/3rd of the total
special bonus on the six (6) month anniversary of the Effective Time. Such
payments shall be made whether or not the Participant is an employee of the
Company as of the applicable payments dates, unless the Participant's employment
with the Company (or, if applicable, the Surviving Company) has terminated prior
to the applicable payment date either (i) for "cause" (as defined in such
Participant's employment agreement, severance agreement or offer letter or if
the Participant does not have an employment agreement, severance agreement or
offer letter that defines "cause", the Company's 2000 Long Term Incentive Plan
as of immediately prior to the Effective Time) or (ii) the Participant
voluntarily terminates Participant's employment, except where the Participant
terminates employment for "Good Reason" or as a result of a "Constructive
Termination" (as defined in such Participant's employment agreement, severance
agreement or offer letter or if the Participant does not have an employment
agreement, severance agreement or offer letter that defines "Good Reason" or
"Constructive Termination," the Company's 2000 Long Term Incentive Plan as of
the date of this Agreement).
(f) Except as provided in this Section 6.1, nothing in this Agreement shall
limit or restrict the right of Parent or any of its Subsidiaries to modify,
amend, terminate or establish employee benefit plans or arrangements, in whole
or in part, at any time after the Effective Time.
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(g) No provision of this Section 6.1 shall create any third party
beneficiary rights in any Continuing Employee or any current or former director
or consultant of the Company or its Subsidiaries located in the United States in
respect of continued employment (or resumed employment) or any other matter.
Section 6.2. Indemnification Continuation.
(a) For purposes of this Section 6.2, (i) "Indemnified Person" shall mean
any person who is now, or has been at any time prior to the Effective Time, an
officer or director of the Company or who was serving at the request of the
Company as an officer or director of another corporation, joint venture or other
enterprise, and can provide evidence thereof to Parent acceptable to Parent in
its sole discretion (which such discretion shall be reasonably applied) and (ii)
"Proceeding" shall mean any claim, action, suit, proceeding or investigation,
whether or not such claim, proceeding or investigation results in a formal civil
or criminal litigation or regulatory action.
(b) From and after the Effective Time, Parent shall, or Parent shall cause
the Surviving Company to, provide indemnification (including, but not limited
to, attorneys' fees and other defense costs) to each Indemnified Person to the
same extent and under similar conditions and procedures as such Indemnified
Person is entitled on the date hereof, under the Company Organizational
Documents, in connection with any Proceeding based directly or indirectly (in
whole or in part) on, or arising directly or indirectly (in whole or in part)
out of, the fact that such Indemnified Person is or was an officer or director
of the Company, or is or was serving at the request of the Company as an officer
or director of another corporation, joint venture or other enterprise or general
partner of any partnership or a trustee of any trust, whether pertaining to any
matter arising before or after the Effective Time (including, but not limited
to, any acts or omissions in connection with this Agreement and the consummation
of the transactions contemplated hereby). Any right of indemnification of an
Indemnified Person pursuant to this Section 6.2(b) shall not be amended,
repealed or otherwise modified at any time in a manner that would adversely
affect the rights of such Indemnified Person as provided herein.
(c) Parent shall cause the Surviving Company to, and the Surviving Company
shall, maintain in effect for six years from the Effective Time the Company's
current directors' and officers' liability insurance policies covering acts or
omissions occurring at or prior to the Effective Time with respect to
Indemnified Persons ("D&O Insurance") (provided that the Surviving Company may
substitute therefor policies with reputable carriers of at least the same
coverage containing terms and conditions that are not materially less favorable
to the Indemnified Persons); provided, however, that in no event shall the
Surviving Company be required to expend pursuant to this Section 6.2(c) more
than an amount per year equal to 200% of current annual premiums paid by the
Company for such insurance. In the event that, but for the proviso to the
immediately preceding sentence, the Surviving Company would be required to
expend more than 200% of current annual premiums, the Surviving Company shall
obtain the maximum amount of such insurance obtainable by payment of annual
premiums equal to 200% of current annual premiums. In lieu of the foregoing, the
Company may purchase, prior to the Effective Time, a six-year "tail" prepaid
officers' and directors' liability insurance policy in respect of acts or
omissions occurring prior to the Effective Time covering each such Indemnified
Person.
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(d) The provisions of this Section 6.2 shall survive the consummation of
the Merger for a period of six years and are expressly intended to benefit each
of the Indemnified Persons and their respective heirs and representatives;
provided, however, that in the event that any claim or claims for
indemnification set forth in Section 6.2 are asserted or made within such
six-year period, all rights to indemnification in respect of any such claim or
claims shall continue until disposition of any and all such claims. If Parent
and/or Surviving Company, or any of their respective successors or assigns (i)
consolidates with or merges into any other Person, or (ii) transfers or conveys
all or substantially all of their businesses or assets to any other Person,
then, in each such case, to the extent necessary, a proper provision shall be
made so that the successors and assigns of Parent and/or Surviving Company, as
the case may be, shall assume the obligations of Parent and Surviving Company
set forth in this Section 6.2.
Section 6.3. Notice of Breach. 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 IX hereof, Parent shall promptly give written
notice with particularity upon having knowledge of any matter that may
constitute a breach by Parent of any representation, warranty, agreement or
covenant contained in this Agreement.
ARTICLE VII.
ADDITIONAL COVENANTS OF THE PARTIES.
Section 7.1. Preparation of Proxy Statement and Registration
Statement; Company Stockholders Meeting.
(a) As promptly as practicable, the Company shall prepare and file the
Proxy Statement with the SEC, and Parent shall prepare and file the Registration
Statement (in which the Proxy Statement will be included) with the SEC. Parent
and the Company shall use their reasonable best efforts to cause the
Registration Statement to become effective under the Securities Act as soon
after such filing as practicable and to keep the Registration Statement
effective as long as is necessary to consummate the Merger. The Proxy Statement
shall include the recommendation of the Board of Directors of the Company in
favor of approval and adoption of this Agreement and the Merger, except to the
extent the Board of Directors of the Company shall have withdrawn or modified
its approval or recommendation of this Agreement to the extent such action is
permitted by Section 7.5. The Company shall use its reasonable best efforts to
cause the Proxy Statement to be mailed to its stockholders as promptly as
practicable after the Registration Statement becomes effective. The parties
shall promptly provide copies, consult with each other and prepare written
responses with respect to any written comments received from the SEC with
respect to the Proxy Statement and the Registration Statement and advise one
another of any oral comments received from the SEC. The Registration Statement
and the Proxy Statement shall comply as to form in all material respects with
the rules and regulations promulgated by the SEC under the Securities Act and
the Exchange Act, respectively.
(b) Parent and the Company shall make all necessary filings with respect to
the Merger and the transactions contemplated thereby under the Securities Act
and the Exchange Act and applicable "blue sky" laws and the rules and
regulations thereunder. Each party will advise the other, promptly after it
receives notice thereof, of the time when the Registration
40
Statement has become effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualification of the
Parent Common Stock issuable in connection with the Merger for offering or sale
in any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement or the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information. No amendment or
supplement to the Proxy Statement or the Registration Statement shall be filed
without the approval of both parties hereto, which approval shall not be
unreasonably withheld, conditioned or delayed. If at any time prior to the
Effective Time, any information relating to Parent or the Company, or any of
their respective Affiliates, officers or directors, should be discovered by
Parent or the Company that should be set forth in an amendment or supplement to
the Registration Statement or the Proxy Statement, so that such documents would
not include any misstatement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party which discovers such
information shall promptly notify the other parties hereto and an appropriate
amendment or supplement describing such information shall be promptly filed with
the SEC and, to the extent required by law, disseminated to the stockholders of
the Company.
(c) The Company shall cause the Company Stockholders Meeting to be duly
called and held as soon as reasonably practicable for the purpose of obtaining
the Required Company Vote. In connection with such meeting, the Company will (i)
subject to Section 7.5(b), use its commercially reasonable best efforts to
obtain the Required Company Vote and (ii) otherwise comply with all legal
requirements applicable to such meeting.
Section 7.2. Access to Information.
Upon reasonable notice, the Company shall (and shall cause its Subsidiaries
to) afford to Parent and its representatives reasonable access during normal
business hours, during the period prior to the Effective Time, to all its
officers, employees, properties, offices, plants and other facilities and to all
books and records and, during such period, the Company shall (and shall cause
its Subsidiaries to) furnish promptly to Parent and its representatives,
consistent with its legal obligations, all other information concerning its
business, properties and personnel as Parent may reasonably request; provided,
however, that the Company may restrict the foregoing access to the extent that,
in the Company's reasonable judgment, (i) providing such access would result in
the disclosure of any trade secrets of third parties or violate any of its
obligations with respect to confidentiality if the Company shall have used all
reasonable efforts to obtain the consent of such third party to such access, or
(ii) any law, treaty, rule or regulation of any Governmental Entity applicable
to the Company requires the Company or its Subsidiaries to preclude Parent and
its representatives from gaining access to any properties or information. Parent
will hold any such information that is non-public in confidence to the extent
required by, and in accordance with, the provisions of that certain
Confidentiality Agreement, dated December 8, 2003 (the "Confidentiality
Agreement"), between the Company and Parent.
Section 7.3. HSR Act and Regulatory Matters.
(a) Subject to the terms and conditions of this Agreement, each party will
use its commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to
41
consummate the Merger and the other transactions contemplated by this Agreement
as soon as practicable after the date hereof. In furtherance and not in
limitation of the foregoing, each party hereto agrees to make an appropriate
filing of a Notification and Report Form pursuant to the HSR Act with respect to
the transactions contemplated hereby as promptly as practicable, and in any
event within ten (10) Business Days after the execution of this Agreement, and
to supply as promptly as practicable any additional information and documentary
material that may be requested pursuant to the HSR Act and to take all other
actions necessary to cause the expiration or termination of the applicable
waiting periods under the HSR Act as soon as practicable.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 7.3(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act, the FCC Act or any other Regulatory Law (as defined below), use its
commercially reasonable best efforts to (i) cooperate in all respects with each
other in connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party; (ii) promptly inform the other party of any communication received by
such party from, or given by such party to, the Antitrust Division of the
Department of Justice (the "DOJ"), the Federal Trade Commission (the "FTC") or
any other governmental authority and of any material communication received or
given in connection with any proceeding by a private party, in each case
regarding any of the transactions contemplated hereby, and (iii) permit the
other party to review any communication given by it to, and consult with each
other in advance of any meeting or conference with, the DOJ, the FTC, the FCC or
any such other governmental authority or, in connection with any proceeding by a
private party, with any other Person, and to the extent permitted by the DOJ,
the FTC, the FCC or such other applicable governmental authority or other
Person, give the other party the opportunity to attend and participate in such
meetings and conferences. For purposes of this Agreement, "Regulatory Law" means
the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the
Federal Trade Commission Act, as amended, the Communications Act of 1934, as
amended by the Telecommunications Act of 1996, and all other federal, state and
foreign, if any, statutes, rules, regulations, orders, decrees, administrative
and judicial doctrines and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition through merger or acquisition. In
furtherance and not in limitation of the covenants of the parties contained in
Section 7.3(a) and this Section 7.3(b), each party hereto shall use its
reasonable best efforts to resolve objections, if any, as may be asserted with
respect to the transactions contemplated by this Agreement under any Regulatory
Law. Notwithstanding anything to the contrary contained in this Agreement,
Parent shall not be required to agree to any terms, conditions, modifications
with respect to obtaining any consents, permits, waivers, approvals,
authorizations or orders in connection with the Merger or the consummation of
the transactions contemplated by this Agreement that would result in, or would
reasonably likely to result in, either individually or in the aggregate, (i) a
material adverse effect on the business or operations of the Company and its
Subsidiaries, taken as a whole, or Parent and its Subsidiaries, taken as a whole
(assuming Parent is the size of the Company and its Subsidiaries, taken as a
whole), or (ii) Parent, the Company or any of their respective Subsidiaries
having to cease, sell or otherwise dispose of any assets or business (including
the requirement that any such assets or businesses be held separate).
42
(c) The Company shall use its commercially reasonable efforts to obtain all
consents, waivers, authorizations and approvals of all third parties, including
Governmental Entities, necessary, proper or advisable for the consummation of
the transactions contemplated by this Agreement; provided that, without the
prior written consent of Parent, the Company shall not incur any significant
expense or liability or agree to any significant modification to any contractual
arrangement to obtain such consents or certificates, and to provide any notices
to third parties required to be provided prior to the Effective Time.
Section 7.4. Reorganization.
(a) The parties intend that the Merger or, if there is a Conversion Event,
the Merger and the Subsequent Merger, taken together, qualify as a
reorganization within the meaning of Section 368(a) of the Code and will report
it as such for federal, state and local income tax purposes. None of the parties
will knowingly take any action or fail to take any action, which action or
failure to act would cause the Merger to fail to qualify as a reorganization
within the meaning of Section 368(a) of the Code and the regulations promulgated
thereunder.
(b) Each of the Company and Parent shall use its reasonable best efforts to
provide the officers' certificates and to obtain the opinions referred to in
Section 8.2(c) and Section 8.3(c) hereto, respectively.
(c) Unless there is a Conversion Event, the parties agree that Merger Sub
shall be treated as a disregarded entity for U.S. federal income tax purposes
and agree not to take any action that would be inconsistent with such treatment.
Section 7.5. Acquisition Proposals.
(a) None of the Company or any of its Subsidiaries shall (whether directly
or indirectly through Affiliates, directors, officers, representatives or other
intermediaries), nor shall (directly or indirectly) the Company authorize or
permit any of its or their officers, directors, representatives or other
intermediaries or Subsidiaries to, (i) solicit, initiate or take any action to
facilitate or encourage the submission of inquiries, proposals or offers from
any Person (other than Parent) relating to any Acquisition Proposal, or agree to
or endorse any Acquisition Proposal; (ii) enter into any agreement to (x)
facilitate or consummate, any Acquisition Proposal, (y) approve or endorse any
Acquisition Proposal or (z) in connection with any Acquisition Proposal, require
it to abandon, terminate or fail to consummate the Merger; (iii) enter into or
participate in any discussions or negotiations in connection with any
Acquisition Proposal or inquiry with respect to any Acquisition Proposal, or
furnish to any Person any information with respect to its business, properties
or assets in connection with any Acquisition Proposal or inquiry with respect to
any Acquisition Proposal; or (iv) agree to resolve or take any of the actions
prohibited by clause (i), (ii) or (iii) of this sentence. The Company shall
immediately cease, and cause its representatives and other intermediaries to
immediately cease, any and all existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing and
shall demand the return or destruction of any information previously provided
with respect to such activities, discussion, or negotiations. For purposes of
this Section 7.5, the term "Person" means any person, corporation, entity or
"group," as defined in Section 13(d) of the Exchange Act, other than Parent or
any Subsidiaries of Parent.
43
"Acquisition Proposal" means any offer or proposal for a merger,
reorganization, recapitalization, consolidation, share exchange, business
combination or other similar transaction involving the Company or any of the
Subsidiaries or any proposal or offer to acquire, directly or indirectly,
securities representing more than 20% of the voting power of the Company or more
than 20% of the assets of the Company and the Subsidiaries taken as a whole,
other than the Merger contemplated by this Agreement.
(b) Notwithstanding the foregoing, the Board of Directors of the Company,
directly or indirectly through representatives or other intermediaries, may (i)
comply with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act with
regard to any Acquisition Proposal, so long as any such compliance rejects any
Acquisition Proposal and reaffirms its recommendation of the transactions
contemplated by this Agreement, except to the extent such action is permitted by
clause (iv) of this Section 7.5(b), (ii) engage in negotiations or discussions
with any Person that has made an unsolicited bona fide written Acquisition
Proposal not resulting from or arising out of a breach of Section 7.5(a), (iii)
furnish to such Person nonpublic information relating to the Company or any of
the Subsidiaries pursuant to a confidentiality and standstill agreement with
terms that are substantially similar to, and no less favorable in any material
respect to, the Company than those contained in the Confidentiality Agreement
and in the confidentiality agreement, dated August 5, 2002, between Parent and
the Company (it being understood that the standstill provision contained in such
confidentiality and standstill agreement may permit such Person to convey
confidentially an Acquisition Proposal to the Board of Directors of the Company
under circumstances in which the Company is permitted under this Section 7.5 to
participate in discussions regarding an Acquisition Proposal) and/or (iv) if
prior to the Company Stockholders Meeting, withdraw or modify or change in a
manner adverse to Parent its approval or recommendation of this Agreement or the
Merger; provided that the Board of Directors of the Company shall be permitted
to take an action described in the foregoing clauses (i), (ii), (iii) or (iv)
if, and only if, prior to taking such particular action, the Board of Directors
of the Company has determined in good faith by a majority vote that (x) such
Acquisition Proposal would result in, or would reasonably be expected to result
in, a Superior Proposal, in the case of any of the foregoing clauses (i), (ii)
or (iii), or constitutes a Superior Proposal, in the case of the foregoing
clause (iv), and (y) (in consultation with outside legal counsel) taking such
action would be reasonably likely to be required by its fiduciary duties under
the DGCL.
"Superior Proposal" means any proposal (on its most recently amended or
modified terms, if amended or modified) made by a third party to enter into any
transaction involving an Acquisition Proposal that the Board of Directors of the
Company determines in its good faith judgment (after consultation with its
independent financial advisors and outside legal counsel) to be more favorable
to the Company's stockholders than this Agreement and the Merger, taking into
account all terms and conditions of such transaction (including any break-up
fees, expense reimbursement provision and financial terms, the anticipated
timing, conditions and prospects for completion of such transaction, including
the prospects for obtaining regulatory approvals and financing, and any third
party approvals), except that the reference to "20%" in the definition of
"Acquisition Proposal" shall be deemed to be a reference to "50%". Reference to
"this Agreement" and "the Merger" in this paragraph shall be deemed to include
any proposed alteration of the terms of this Agreement or the Merger that are
agreed to by Parent
44
after it receives written notice from the Company pursuant to Section 7.5(d) of
the existence of, the identity of the Person making, and the terms and
conditions of, any Acquisition Proposal.
(c) Notwithstanding anything in this Section 7.5 to the contrary, if, at
any time prior to the Company Stockholders Meeting, the Company's Board of
Directors determines (i) in good faith, in response to an Acquisition Proposal
that was unsolicited and that did not otherwise result from a breach of Section
7.5(a), that such proposal is a Superior Proposal, and (ii) (in consultation
with outside legal counsel) that taking such action would be reasonably likely
to be required by its fiduciary duties under the DGCL, the Company or its Board
of Directors may, subject to complying with Section 9.2(c), accept such Superior
Proposal and withdraw, modify or amend its recommendation of the Merger;
provided, however, that prior to any such withdrawal, modification or amendment
to the recommendation of the Company's Board of Directors, the Company shall
have given Parent five (5) Business Days' written notice (it being understood
and agreed that any amendment to the amount or form of consideration of the
Superior Proposal shall require a new notice and a new five (5) Business Day
period) advising Parent that the Company's Board of Directors intends to cause
the Company to accept such Superior Proposal, specifying the material terms and
conditions of the Superior Proposal and that the Company shall, during such five
(5) Business Day period, negotiate in good faith with Parent to make such
adjustments to the Merger Consideration and other terms and conditions of this
Agreement such that such Acquisition Proposal would no longer constitute a
Superior Proposal.
(d) The Company shall notify Parent promptly (but in any event within 24
hours) after receipt or occurrence of (i) any Acquisition Proposal, (ii) any
request for information with respect to any Acquisition Proposal, (iii) any
inquiry, proposal, discussions or negotiation with respect to any Acquisition
Proposal, and (iv) the material terms and conditions of any such Acquisition
Proposal, request for information, inquiry, proposal, discussion or negotiation
and the identity of the Person making any such Acquisition Proposal, request for
information, inquiry or proposal or with whom discussions or negotiations are
taking place. In addition, the Company shall promptly (but in any event within
24 hours) after the receipt thereof, provide to Parent copies of any written
documentation material to understanding such Acquisition Proposal, request for
information, inquiry, proposal, discussion or negotiation ("Other Acquisition
Documentation") which is received by the Company from the Person (or from any
representatives or agents of such Person) making such Acquisition Proposal,
request for information, inquiry or proposal or with whom such discussions or
negotiations are taking place. The Company shall not, and shall cause each of
its Subsidiaries not to, terminate, waive, amend or modify any provision of any
existing standstill or confidentiality agreement to which it or any of its
Subsidiaries is a party, and the Company shall, and shall cause its Subsidiaries
to, enforce the provisions of any such agreement; provided, however, that, the
Company may waive any such provision in response to an Acquisition Proposal to
the Board of Directors of the Company made confidentially under circumstances in
which the Company is permitted under this Section 7.5 to participate in
discussions regarding an Acquisition Proposal, but only to the extent necessary
to allow it to respond to such Acquisition Proposal as permitted under this
Section 7.5. The Company shall keep Parent fully informed of the status and
details (including any amendments or proposed amendments) of any such
Acquisition Proposal or request for information and keep Parent fully informed
as to the material details of any information requested of or provided by the
Company and as to the material details of all discussions or
45
negotiations with respect to any such Acquisition Proposal, request for
information, inquiry or proposal and shall provide to Parent within one Business
Day after receipt thereof all copies of any additional Other Acquisition
Documentation received by the Company from the Person (or from any
representatives or agents of such Person) making such Acquisition Proposal,
request for information, inquiry or proposal or with whom such discussions or
negotiations are taking place. The Company shall promptly provide to Parent any
non-public information concerning the Company provided to any other Person in
connection with any Acquisition Proposal that was not previously provided to
Parent. Any such non-public information shall be held by Parent subject to the
terms of the Confidentiality Agreement. The Board of Directors of the Company
shall promptly consider in good faith (in consultation with its outside legal
counsel and financial advisors) any proposed alteration of the terms of this
Agreement or the Merger proposed by Parent in response to any Acquisition
Proposal.
Section 7.6. Stockholder Litigation. The Company shall keep Parent
informed of, and cooperate with Parent in connection with, any stockholder
litigation or claim against the Company and/or its directors or officers
relating to the Merger or the other transactions contemplated by this Agreement;
provided, however, that no settlement in connection with such stockholder
litigation shall be agreed to without Parent's prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed.
Section 7.7. Maintenance of Insurance. The Company will use reasonable
best efforts to maintain in full force and effect through the Closing Date all
material insurance policies applicable to the Company and its Subsidiaries and
their respective properties and assets in effect on the date hereof. If and as
requested by Parent, the Company will use commercially reasonable best efforts
to cause the Company's insurers to waive any provisions in such insurance
policies that would allow the insurer to terminate or adversely modify coverage
upon consummation of the Merger.
Section 7.8. Public Announcements. Each of the Company, Parent and
Merger Sub agrees that no public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
written consent of the Company and Parent (which consent shall not be
unreasonably withheld, conditioned or delayed), except as such release or
announcement may be required by law or the rules or regulations of any
applicable United States securities exchange, in which case the party required
to make the release or announcement shall use its reasonable best efforts to
allow each other party reasonable time to comment on such release or
announcement in advance of such issuance, it being understood that the final
form and content of any such release or announcement, to the extent so required,
shall be at the final discretion of the disclosing party.
Section 7.9. No Shareholder Rights Plan. From the date hereof through
the earlier of termination of this Agreement and the Effective Time, the Company
will not adopt, approve, or agree to adopt, a shareholder rights plan.
Section 7.10. Stock Exchange Listing. Parent shall use its commercially
reasonable efforts to cause the shares of Parent Common Stock to be issued in
connection with the Merger to be approved for quotation on Nasdaq, subject to
official notice of issuance.
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ARTICLE VIII.
CONDITIONS PRECEDENT
Section 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The obligations of the Company, Parent and Merger Sub to effect the
Merger are subject to the satisfaction or waiver on or prior to the Closing Date
of the following conditions:
(a) Stockholder Approval. The Company shall have obtained the Required
Company Vote in connection with the approval and adoption of this Agreement by
the stockholders of the Company.
(b) No Injunctions or Restraints, Illegality. No statute, rule, regulation,
executive order, decree, ruling, shall have been adopted or promulgated, and no
temporary restraining order, preliminary or permanent injunction or other order
issued by a court or other U.S. governmental authority of competent jurisdiction
shall be in effect as of the Closing Date, having the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger; provided,
however, that the provisions of this Section 8.1(b) shall not be available to
any party whose failure to fulfill its obligations pursuant to Section 7.3 shall
have been the cause of, or shall have resulted in, such order or injunction.
(c) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(d) Nasdaq Listing. The shares of Parent Common Stock to be issued in the
Merger and the shares of Parent Common Stock to be reserved for issuance upon
exercise of the Company Warrants and conversion of the Convertible Debentures
shall have been approved for quotation or listing, as the case may be, on the
Nasdaq Global Market System (or any successor inter-dealer quotation system or
stock exchange thereto) subject to official notice of issuance.
(e) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
Section 8.2. Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are subject
to the satisfaction of, or waiver by Parent, on or prior to the Closing Date of
the following additional conditions:
(a) Representations and Warranties. (i) The representations and warranties
of the Company contained in Section 3.6 (Capitalization and Related Matters) and
Section 3.32 (Vote Required) shall be true and correct in all respects (except,
in the case of Section 3.6 for such inaccuracies as are de minimis in the
aggregate), in each case both when made and at and as of the Closing Date, as if
made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such date) and (ii) all other representations
and warranties of the Company set forth in this Agreement shall be true and
correct both when made and at and as of the Closing Date, as if made at and as
of such time (except to the extent expressly made as of
47
an earlier date, in which case as of such date), except where the failure of
such representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "Company Material Adverse
Effect" set forth therein) does not have, and would not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
Parent shall have received a certificate of the chief executive officer and the
chief financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects and complied in all material respects with
all agreements and covenants required to be performed or complied with by it
under this Agreement at or prior to the Closing Date. Parent shall have received
a certificate of the chief executive officer and the chief financial officer of
the Company to such effect.
(c) Tax Opinion. Parent shall have received from Willkie Farr & Gallagher
LLP, counsel to Parent, on the Closing Date, a written opinion dated as of such
date substantially in the form of Exhibit 8.2(c)(1). In rendering such opinion,
counsel to Parent shall be entitled to rely upon representations of officers of
Parent and the Company substantially in the form of Exhibits 8.2(c)(2) and
8.2(c)(3) (allowing for such amendments to the representations as counsel to
Parent deems necessary).
(d) Company Material Adverse Effect. During the period from the date hereof
to the Closing Date, there shall not have been a Company Material Adverse
Effect.
(e) FCC Approvals. All approvals from the FCC required to consummate the
transactions contemplated by this Agreement shall have been obtained and are in
full force and effect on the Closing Date.
(f) Governmental Entity Consents and Approvals. All consents, waivers,
authorizations and approvals of any Governmental Entity required in connection
with the execution, delivery and performance of this Agreement and set forth on
Schedule 8.2(f) shall have been duly obtained and shall be in full force and
effect on the Closing Date.
(g) Appraisal Rights. Holders of no more than 10% of the number of shares
of Company Common Stock outstanding immediately prior to the Effective Time
shall have exercised their appraisal rights in the Merger in accordance with the
DGCL.
(h) CIII Merger. The CIII Merger or the CIII Purchase shall have been
consummated in accordance with Section 5.5 of this Agreement, and CIII shall be
a wholly owned subsidiary of the Company.
Section 8.3. Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are subject to the satisfaction
of, or waiver by the Company, on or prior to the Closing Date of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub set forth in this Agreement shall be true and correct both
when made and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such date), except where the failure of such
48
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Parent Material Adverse Effect" set
forth therein) does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. The Company
shall have received a certificate of an executive officer of Parent to such
effect.
(b) Performance of Obligations of Parent. Parent shall have performed in
all material respects and complied in all material respects with all agreements
and covenants required to be performed or complied with by it under this
Agreement at or prior to the Closing Date. The Company shall have received a
certificate of an executive officer of Parent to such effect.
(c) Tax Opinion. The Company shall have received from Greenberg Traurig,
LLP, counsel to the Company, on the Closing Date, a written opinion dated as of
such date substantially in the form of Exhibit 8.3(c)(1). In rendering such
opinion, counsel to the Company shall be entitled to rely upon representations
of officers of Parent and the Company substantially in the form of Exhibits
8.2(c)(2) and 8.2(c)(3) (allowing for such amendments to the representations as
counsel to the Company deems necessary).
(d) Parent Material Adverse Effect. During the period from the date hereof
to the Closing Date, there shall not have been a Parent Material Adverse Effect.
ARTICLE IX.
TERMINATION.
Section 9.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, by action taken or authorized by the Board of
Directors of the terminating party or parties, and except as provided below,
whether before or after approval of the matters presented in connection with the
Merger by the stockholders of the Company:
(a) By mutual written consent of Parent and the Company, by action of their
respective Boards of Directors;
(b) By either the Company or Parent if the Effective Time shall not have
occurred on or before October 16, 2007 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 9.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the primary cause of the failure of the Effective
Time to occur on or before the Termination Date and such action or failure to
perform constitutes a breach of this Agreement;
(c) By either the Company or Parent if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting or making illegal the
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and nonappealable;
(d) By either the Company or Parent if the approval by the stockholders of
the Company required for the consummation of the Merger shall not have been
obtained by reason
49
of the failure to obtain the Required Company Vote at the Company Stockholders
Meeting (or any adjournment or postponement thereof);
(e) By Parent if (i) prior to the Company Stockholders Meeting, the Board
of Directors of the Company shall have failed to recommend or shall have
withdrawn or modified or changed in a manner adverse to Parent its approval or
recommendation of this Agreement or the Merger or shall have approved or
recommended a Superior Proposal (or the Board of Directors of the Company
resolves to do any of the foregoing), whether or not permitted by Section 7.5,
(ii) the Company shall fail to call or hold the Company Stockholders Meeting in
accordance with Section 7.1(c) or (iii) the Company shall have materially
breached any of its material obligations under Section 7.5;
(f) By the Company, prior to the Company Stockholders Meeting, to accept a
Superior Proposal in accordance with, and subject to the terms and conditions
of, Section 7.5(c); provided, however, that any such purported termination
pursuant to this Section 9.1(f) shall be void and of no force or effect unless
the Company has complied with Section 9.2(c);
(g) By the Company if there shall have been a breach of any representation,
warranty, covenant or agreement on the part of Parent or Merger Sub contained in
this Agreement such that the conditions set forth in Sections 8.3(a) or 8.3(b)
would not be satisfied and (A) such breach is not reasonably capable of being
cured or (B) in the case of a breach of a covenant or agreement, if such breach
is reasonably capable of being cured, such breach shall not have been cured
prior to the earlier of (I) 30 days following notice of such breach and (II) the
Termination Date; provided that the Company shall not have the right to
terminate this Agreement pursuant to this Section 9.1(g) if the Company is then
in material breach of any of its representations, warranties, covenants or
agreements contained in this Agreement; or
(h) By Parent if there shall have been a breach of any representation,
warranty, covenant or agreement on the part of the Company contained in this
Agreement such that the conditions set forth in Sections 8.2(a) or 8.2(b) would
not be satisfied and (A) such breach is not reasonably capable of being cured or
(B) in the case of a breach of a covenant or agreement, if such breach is
reasonably capable of being cured, such breach shall not have been cured prior
to the earlier of (I) 30 days following notice of such breach and (II) the
Termination Date; provided that Parent shall not have the right to terminate
this Agreement pursuant to this Section 9.1(h) if Parent or Merger Sub is then
in material breach of any of its representations, warranties, covenants or
agreements contained in this Agreement.
Section 9.2. Effect of Termination.
(a) In the event of termination of this Agreement by either the Company or
Parent as provided in Section 9.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent or the
Company or their respective officers or directors except with respect to this
Section 9.2 and Article X, provided that the termination of this Agreement shall
not relieve any party from any liability for any willful breach of any covenant
or agreement or willful breach of any representation or warranty in this
Agreement occurring prior to termination.
50
(b) If Parent shall terminate this Agreement pursuant to Section 9.1(e),
then the Company shall pay to Parent, not later than two Business Days following
such termination, an amount equal to $35 million (the "Termination Fee") plus
the Parent Expenses, within two Business Days after delivery to the Company of
written notice of the amount of such Parent Expenses.
(c) If the Company shall terminate this Agreement pursuant to Section
9.1(f), then the Company shall pay to Parent, prior to or concurrently with such
termination, the Termination Fee plus the Parent Expenses, within two Business
Days after delivery to the Company of written notice of the amount of such
Parent Expenses.
(d) If (i) the Company or Parent shall terminate this Agreement pursuant to
Section 9.1(d), (ii) at or prior to the time of the event giving rise to such
termination there shall have been made known to or proposed to the Company or
otherwise publicly disclosed or announced an Acquisition Proposal and (iii)
within 12 months of the termination of this Agreement, the Company enters into a
definitive agreement with respect to, or consummates, an Acquisition Proposal,
then the Company shall pay to Parent, not later than two Business Days after the
execution of the definitive agreement or consummation of the transaction, as
applicable, the Termination Fee.
(e) For purposes of this Section 9.2, the term "Acquisition Proposal" shall
have the meaning assigned to such term in Section 7.5(a), except that the
reference to "more than 20%" in the definition of "Acquisition Proposal" shall
be deemed to be a reference to "more than 50%".
(f) All payments under this Section 9.2 shall be made by wire transfer of
immediately available funds to an account designated by Parent.
(g) The Company acknowledges that the agreements contained in this Section
9.2 are an integral part of the transactions contemplated by this Agreement and
are not a penalty, and that, without these agreements, Parent would not enter
into this Agreement. If the Company fails to pay promptly the fee due pursuant
to this Section 9.2, the Company will also pay to Parent Parent's reasonable
costs and expenses (including legal fees and expenses) in connection with any
action, including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of the unpaid fee under
this Section 9.2, accruing from its due date, at an interest rate per annum
equal to two percentage points in excess of the prime commercial lending rate
quoted by The Wall Street Journal. Any change in the interest rate hereunder
resulting from a change in such prime rate will be effective at the beginning of
the date of such change in such prime rate.
Section 9.3. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of the Company, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
51
Section 9.4. Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE X.
MISCELLANEOUS.
Section 10.1. Non-Survival of Representations, Warranties and
Agreements. None of the representations, warranties, covenants and other
agreements in this Agreement or in any instrument delivered pursuant to this
Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and other agreements, shall survive the
Effective Time, except for Section 6.2 and those other covenants and agreements
contained herein and therein that by their terms apply or are to be performed in
whole or in part after the Effective Time and this Article X.
Section 10.2. Disclosure Schedules.
(a) The inclusion of any information in the disclosure schedules
accompanying this Agreement will not be deemed an admission or acknowledgment,
in and of itself, solely by virtue of the inclusion of such information in such
schedules, that such information is required to be listed in such schedules or
that such information is material to any party or the conduct of the business of
any party.
(b) Any item set forth in the disclosure schedules with respect to a
particular representation, warranty or covenant contained in the Agreement will
be deemed to be disclosed with respect to all other applicable representations,
warranties and covenants contained in the Agreement to the extent any
description of facts regarding the event, item or matter is disclosed in such a
way as to make readily apparent from such description or specified in such
disclosure that such item is applicable to such other representations,
warranties or covenants whether or not such item is so numbered.
Section 10.3. Successors and Assigns. No party hereto shall assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other parties hereto and any such attempted assignment without
such prior written consent shall be void and of no force and effect. This
Agreement shall inure to the benefit of and shall be binding upon the successors
and permitted assigns of the parties hereto.
Section 10.4. Governing Law; Jurisdiction. This Agreement shall be
construed, performed and enforced in accordance with, and governed by, the laws
of the State of Delaware. The parties hereto irrevocably elect as the sole
judicial forum for the adjudication of
52
any matters arising under or in connection with this Agreement, and consent to
the jurisdiction of, the courts of the State of Delaware.
Section 10.5. Expenses. All fees and expenses incurred in connection
with the Merger including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties incurred
by a party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, shall be
the obligation of the respective party incurring such fees and expenses, except
(a) Parent and the Company shall each bear and pay one-half of the expenses
incurred in connection with the filing, printing and mailing of the Registration
Statement and Proxy Statement and (b) as provided in Section 9.2.
Section 10.6. Severability; Construction.
(a) If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such a determination, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.
(b) The parties have participated jointly in the negotiation and drafting
of this Agreement. If any ambiguity or question of intent arises, this Agreement
will be construed as if drafted jointly by the parties and no presumption or
burden of proof will arise favoring or disfavoring any party because of the
authorship of any provision of this Agreement.
Section 10.7. Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given; (ii) on the day after delivery to Federal
Express or similar overnight courier or the Express Mail service maintained by
the United States Postal Service; or (iii) on the fifth day after mailing, if
mailed to the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid and properly addressed, to the party as
follows:
If to the Company:
Broadwing Corporation
1122 Capital of Texas Highway
Austin, Texas 78746
Attn: Kim Larsen
Copy to (such copy not to constitute notice):
Greenberg Traurig, LLP
1750 Tysons Boulevard, Suite 1200
53
McLean, VA 22102
Attn: Scott Meza
If to Parent or Merger Sub:
Level 3 Communications, Inc.
1025 Eldorado Blvd.
Broomfield, CO 80021
Attn: General Counsel
Copy to (such copy not to constitute notice):
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
Attn: David K. Boston
Any party may change its address for the purpose of this Section by giving
the other party written notice of its new address in the manner set forth above.
Section 10.8. Entire Agreement. This Agreement and the Confidentiality
Agreement contain the entire understanding among the parties hereto with respect
to the transactions contemplated hereby and supersede and replace all prior and
contemporaneous agreements and understandings, oral or written, with regard to
such transactions. All Exhibits and Schedules hereto and any documents and
instruments delivered pursuant to any provision hereof are expressly made a part
of this Agreement as fully as though completely set forth herein.
Section 10.9. Parties in Interest. Except for (i) the rights of the
Company stockholders to receive the Merger Consideration following the Effective
Time in accordance with the terms of this Agreement (of which the stockholders
are the intended beneficiaries following the Effective Time) and (ii) the rights
to continued indemnification and insurance pursuant to Section 6.2 hereof (of
which the Persons entitled to indemnification or insurance, as the case may be,
are the intended beneficiaries following the Effective Time), nothing in this
Agreement is intended to confer any rights or remedies under or by reason of
this Agreement on any Persons other than the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement is intended to
relieve or discharge the obligations or liability of any third Persons to the
Company or Parent. No provision of this Agreement shall give any third parties
any right of subrogation or action over or against the Company or Parent.
Section 10.10. Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
Section 10.11. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
54
Section 10.12. Definitions. As used in this Agreement:
"2006 Bonus Plan" shall have the meaning set forth in Section 6.1(d).
"Acquisition Proposal" shall have the meaning set forth in Section 7.5(a).
"Action" shall have the meaning set forth in Section 3.18.
"Affiliate" shall mean, with respect to any Person, any other Person that
directly, or through one or more intermediaries, controls or is controlled by or
is under common control with such Person.
"Agreement" shall have the meaning set forth in the Preamble hereto.
"BCSI" shall have the meaning set forth in Section 3.6(c).
"Board of Directors" shall mean the Board of Directors of any specified
Person and any committees thereof.
"Broadwing Holdings" shall have the meaning set forth in Section 5.5.
"Business Day" shall mean any day on which banks are not required or
authorized to close in the City of New York.
"Cash Consideration" shall have the meaning set forth in Section 1.9(a).
"Cash Percentage" shall mean the quotient of (i) the Cash Consideration
divided by (ii) the Deemed Value of Merger Consideration.
"Certificate" shall have the meaning set forth in Section 1.9(b).
"Certificate of Merger" shall have the meaning set forth in Section 1.4.
"CIII" shall have the meaning set forth in Section 3.6(c). "CIII Merger"
shall have the meaning set forth in Section 5.5.
"CIII Merger Sub" shall have the meaning set forth in Section 5.5.
"CIII Purchase" shall have the meaning set forth in Section 5.5.
"Closing" shall have the meaning set forth in Section 1.3.
"Closing Date" shall have the meaning set forth in Section 1.3.
"Code" shall have the meaning set forth in the Recitals hereto.
"Company" shall have the meaning set forth in the Preamble hereto.
55
"Company Common Stock" shall have the meaning set forth in the Recitals
hereto.
"Company Material Adverse Effect" shall mean any event, change,
circumstance, effect, development or state of facts that, individually or in the
aggregate, (a) is or is reasonably likely to become, materially adverse to the
business, assets, properties, condition (financial or otherwise), liabilities or
results of operations of the Company and its Subsidiaries, taken as a whole;
provided, however, that Company Material Adverse Effect shall not include the
effect of any event, change, circumstance, effect, development or state of facts
arising out of or attributable to (i) general economic, regulatory or political
conditions or (ii) the industry in which the Company and its Subsidiaries
operate, except, in the case of the foregoing clauses (i) and (ii), to the
extent that such event, change, circumstance, effect, development or state of
facts affects the Company and its Subsidiaries in a materially disproportionate
manner when compared to the effect of such event, change, circumstance, effect,
development or state of facts on other Persons in the industry in which the
Company and its Subsidiaries operate, or (b) would prevent or materially impair
or materially delay the ability of the Company to perform its obligations under
this Agreement or to consummate the transactions contemplated hereby.
"Company Options" shall have the meaning set forth in Section 1.10(a).
"Company Organizational Documents" shall mean the Amended and Restated
Certificate of Incorporation and the Bylaws of the Company, together with all
amendments thereto.
"Company Preferred Stock" shall mean the preferred stock, par value $.01
per share, of the Company.
"Company Property" shall have the meaning set forth in Section 3.12(b).
"Company SEC Reports" shall have the meaning set forth in Section 3.8(a).
"Company Stock Plans" shall have the meaning set forth in Section 3.6(a).
"Company Stockholders Meeting" shall have the meaning set forth in Section
3.30.
"Company Warrants" shall have the meaning set forth in Section 1.10(c).
"Company Welfare Plans" shall have the meaning set forth in Section 6.1(b).
"Confidentiality Agreement" shall have the meaning set forth in Section
7.2.
"Consent Solicitation" shall have the meaning set forth in Section 5.6(a).
"Continuing Employees" shall have the meaning set forth in Section 6.1(a).
"Contract" shall have the meaning set forth in Section 3.19(c).
56
"Conversion Date" shall mean the 30th day after the date of this Agreement,
provided, however, that Parent shall have the right to extend the Conversion
Date to up to the 45th day after the date of this Agreement by delivering notice
of such extension to the Company on or prior to such 30th day.
"Conversion Event" shall have the meaning set forth in Section 1.1.
"Convertible Debentures" shall have the meaning set forth in Section
3.6(a).
"Credit Facility" shall mean the Credit Agreement, dated as of October 14,
2005, by and among Broadwing Communications, LLC ("Borrower"), each subsidiary
of Borrower listed as a guarantor on the signature pages thereto and the
Company, as guarantors, the lenders from time to time party thereto, and
Jefferies Babson Finance LLC ("JBF"), as collateral agent, PNC Bank, National
Association, as administrative agent, JBF, as documentation agent, and JBF and
PNC Capital Markets, Inc., as joint syndication agents, joint lead arrangers and
joint book managers.
"Customer Contracts" shall have the meaning set forth in Section 3.19(c).
"D&O Insurance" shall have the meaning set forth in Section 6.2(c).
"Deemed Value of Merger Consideration" shall mean the sum of (x) the Cash
Consideration and (y) the Deemed Value of Stock Consideration.
"Deemed Value of Stock Consideration" shall mean the product of (x) the
Exchange Ratio and (y) the Parent Common Stock Price.
"DGCL" shall mean the Delaware General Corporation Law.
"Dissenting Shares" shall have the meaning set forth in Section 1.9(d).
"DOJ" shall have the meaning set forth in Section 7.3(b).
"Effective Time" shall have the meaning set forth in Section 1.4.
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrances" shall mean any claim, lien, pledge, option, right of first
refusal or offer, preemptive right, charge, easement, security interest, deed of
trust, mortgage, right-of-way, covenant, condition, restriction or encumbrance.
"Environmental Laws" shall have the meaning set forth in Section 3.25(a).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" shall have the meaning set forth in Section 3.20(a).
"ESPP" shall have the meaning set forth in Section 1.10(d).
57
"Exchange Act" shall have the meaning set forth in Section 3.4.
"Exchange Agent" shall have the meaning set forth in Section 2.1.
"Exchange Fund" shall have the meaning set forth in Section 2.1.
"Exchange Ratio" shall have the meaning set forth in Section 1.9(a).
"FCC" shall mean the Federal Communications Commission.
"FTC" shall have the meaning set forth in Section 7.3(b).
"GAAP" shall mean United States generally accepted accounting principles as
in effect from time to time, consistently applied.
"Goldman, Sachs" shall have the meaning set forth in Section 3.29(b).
"Governmental Entity" shall mean any federal, state, local or foreign
governmental, regulatory or administrative authority, branch, agency or
commission or any court, tribunal or judicial body.
"Hazardous Material" shall have the meaning set forth in Section 3.25(c).
"HSR Act" shall have the meaning set forth in Section 3.4.
"Indemnified Person" shall have the meaning set forth in Section 6.2(a).
"Indenture" shall have the meaning set forth in Section 5.4.
"Indenture Amendment" shall have the meaning set forth in Section 5.6(a).
"Intellectual Property" shall mean all of the following, owned or used by
the Company and its Subsidiaries: material (i) trademarks and service marks,
trade dress, product configurations, trade names and other indications of
origin, applications or registrations in any jurisdiction pertaining to the
foregoing and all goodwill associated therewith; (ii) inventions (whether or not
patentable), discoveries, improvements, ideas, know-how, formula methodology,
processes, technology, software (including password unprotected interpretive
code or source code, object code, development documentation, programming tools,
drawings, specifications and data) and applications and patents in any
jurisdiction pertaining to the foregoing, including re-issues, continuations,
divisions, continuations-in-part, renewals or extensions; (iii) trade secrets,
including confidential information and the right in any jurisdiction to limit
the use or disclosure thereof; (iv) copyrighted and copyrightable writings,
designs, software, mask works or other works, applications or registrations in
any jurisdiction for the foregoing and all moral rights related thereto; (v)
database rights; (vi) Internet Web sites, domain names and applications and
registrations pertaining thereto and all intellectual property used in
connection with or contained in all versions of the Web sites of the Company and
its Subsidiaries; (vii) rights under all agreements relating to the foregoing;
(viii) books and records pertaining to the foregoing; and
58
(ix) claims or causes of action arising out of or related to past, present or
future infringement or misappropriation of the foregoing.
"IRS" shall mean the United States Internal Revenue Service.
"IRU" shall have the meaning set forth in Section 3.9(b).
"Knowledge" shall mean, with respect to the Company, the actual knowledge
of the executives of the Company listed on Schedule 10.12(a) after reasonable
inquiry of the senior employees of the Company and its Subsidiaries who have
managerial responsibility for the particular subject matter in question.
"Leases" shall have the meaning set forth in Section 3.12(b).
"Leased Real Property" shall have the meaning set forth in Section 3.12(b).
"Licenses and Permits" shall have the meaning set forth in Section 3.16(a).
"Lien" shall mean any mortgage, pledge, security interest, encumbrance or
title defect, lien (statutory or other) or conditional sale agreement.
"LLCA" shall mean the Delaware Limited Liability Company Act;
"Merger" shall have the meaning set forth in the Recitals hereto.
"Merger Consideration" shall have the meaning set forth in Section 1.9(a).
"Merger Sub" shall have the meaning set forth in the Preamble hereto.
"Multiemployer Plan" shall have the meaning set forth in Section 3.20(c).
"Nasdaq" shall mean The Nasdaq Stock Market, Inc.
"Other Acquisition Documentation" shall have the meaning set forth in
Section 7.5(d).
"Other Stock Awards" shall have the meaning set forth in Section 1.10(b).
"Owned Real Property" shall have the meaning set forth in Section 3.12(a).
"Parent" shall have the meaning set forth in the Preamble hereto.
"Parent Common Stock" shall have the meaning set forth in the Recitals
hereto.
"Parent Common Stock Price" means the volume-weighted sales price per share
taken to four decimal places of Parent Common Stock on the Nasdaq Global Market
for the consecutive period beginning at 9:30 a.m. New York time on the
thirteenth trading day immediately preceding the Closing Date and concluding at
4:00 p.m. New York time on the third
59
trading day immediately preceding the Closing Date, as calculated by Bloomberg
Financial LP under the function "LVLT Equity AQR".
"Parent Expenses" shall mean all of Parent's actual and reasonably
documented out-of-pocket fees and expenses (including fees and expenses of
counsel, accountants, financial advisors or consultants and commitment and
funding fees) actually incurred by Parent and its respective affiliates on or
prior to the termination of this Agreement in connection with the transactions
contemplated by this Agreement, including the financing thereof, which amount
shall not be greater than $2,500,000.
"Parent Material Adverse Effect" shall mean any event, change,
circumstance, effect, development or state of facts that, individually or in the
aggregate, (a) is or is reasonably likely to become, materially adverse to the
business, assets, properties, condition (financial or otherwise), liabilities or
results of operations of Parent and its Subsidiaries, taken as a whole;
provided, however, that Parent Material Adverse Effect shall not include the
effect of any event, change, circumstance, effect, development or state of facts
arising out of or attributable to (i) general economic, regulatory or political
conditions or (ii) the industry in which Parent and its Subsidiaries operate,
except, in the case of the foregoing clauses (i) and (ii), to the extent that
such event, change, circumstance, effect, development or state of facts affects
Parent and its Subsidiaries in a materially disproportionate manner when
compared to the effect of such event, change, circumstance, effect, development
or state of facts on other Persons in the industry in which Parent and its
Subsidiaries operate, or (b) would prevent or materially impair or materially
delay the ability of Parent to perform its obligations under this Agreement or
to consummate the transactions contemplated hereby.
"Parent Organizational Documents" shall mean the Amended and Restated
Certificate of Incorporation and the Amended and Restated Bylaws of Parent,
together with all amendments thereto.
"Parent Preferred Stock" shall have the meaning set forth in Section
4.6(a).
"Parent SEC Reports" shall have the meaning set forth in Section 4.7(a).
"Parent Stock" shall mean the Parent Common Stock and any other shares of
capital stock of Parent that are convertible into or exchangeable for shares of
Parent Common Stock.
"Participant" shall have the meaning set forth in Section 6.1(e).
"Pension Plans" shall have the meaning set forth in Section 3.20(a).
"Permitted Liens" shall mean (a) liens for utilities and current Taxes not
yet due and payable, (b) mechanics', carriers', workers', repairers',
materialmen's, warehousemen's, lessor's, landlord's and other similar liens
arising or incurred in the ordinary course of business not yet due and payable,
(c) liens for Taxes, assessments, or governmental charges or levies on a
Person's properties if the same shall not at the time be delinquent or
thereafter can be paid without penalty or are being contested in good faith by
appropriate proceedings and for which appropriate reserves have been included on
the balance sheet of the applicable Person, (d)
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easements, restrictive covenants and similar Encumbrances or impediments against
any assets or properties of an entity and which individually or in the aggregate
do not materially interfere with the business of such entity or the operation of
the property as currently conducted to which they apply, (e) minor
irregularities and defects of title which individually or in the aggregate do
not materially interfere with an entity's business or the operation of the
property as currently conducted to which they apply, (f) Liens disclosed on the
existing title policies, title commitments and/or surveys which have been
previously provided or made available to Parent, none of which materially
interfere with the business of the Company or its Subsidiaries or the operation
of the property as presently conducted to which they apply, (g) Liens granted in
respect of any Debt or securing any obligations with respect thereto and other
Liens as set forth on Schedule 10.12(b), (h) Liens arising out of pledges or
deposits under worker's compensation laws, unemployment insurance, old age
pensions or other social security or retirement benefits or similar legislation,
(i) deposits securing liability to insurance carriers under insurance or
self-insurance arrangements, (j) deposits to secure the performance of bids,
tenders, trade contracts, leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business, (k) Liens arising from protective filings and (l)
Liens in favor of a banking institution arising as a matter of applicable law
encumbering deposits (including the right of set-off) held by such banking
institution incurred in the ordinary course of business and which are within the
general parameters customary in the banking industry.
"Person" shall mean an individual, corporation, limited liability company,
partnership, limited liability partnership, association, trust, unincorporated
organization, other entity or group (as defined in the Exchange Act).
"Proceeding" shall have the meaning set forth in Section 6.2(a).
"Proxy Statement" shall have the meaning set forth in Section 3.30.
"Registered Intellectual Property" shall have the meaning set forth in
Section 3.14(b).
"Registration Statement" shall have the meaning set forth in Section 3.30.
"Regulatory Law" shall have the meaning set forth in Section 7.3(b).
"Required Company Vote" shall have the meaning set forth in Section 3.32.
"Requisite Consent shall have the meaning set forth in Section 5.6(b).
"Sarbanes-Oxley Act" shall have the meaning set forth in Section 3.17(b).
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall have the meaning set forth in Section 3.4.
"Sister Subsidiary" shall have the meaning set forth in the Preamble
61
"Software" shall have the meaning set forth in Section 3.15(a).
"Special Bonus Plan" shall have the meaning set forth in Section 6.1(e).
"Stock Consideration" shall have the meaning set forth in Section 1.9(a).
"Stock Percentage" shall mean the quotient of (i) the Deemed Value of Stock
Consideration divided by (ii) the Deemed Value of Merger Consideration.
"Subsequent Merger" shall have the meaning set forth in Section 1.2(a).
"Subsidiary" when used with respect to any party shall mean any
corporation, partnership or other organization, whether incorporated or
unincorporated, (i) of which such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
"Superior Proposal" shall have the meaning set forth in Section 7.5(b).
"Surviving Company" shall have the meaning set forth in Section 1.1 (as
revised pursuant to Section 1.2(b), if applicable).
"Tax Return" shall mean any report, return, information return, filing,
claim for refund or other information, including any schedules or attachments
thereto, and any amendments to any of the foregoing required to be supplied to a
taxing authority in connection with Taxes.
"Taxes" shall mean 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, taxes required
to be collected from customers on the sale of services, 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; and "Tax" shall mean any one of them.
"Termination Date" shall have the meaning set forth in Section 9.1(b).
"Termination Fee" shall have the meaning set forth in Section 9.2(b).
"the other party" shall mean, with respect to the Company, Parent and shall
mean, with respect to Parent, the Company.
"Treasury Regulations" shall have the meaning set forth in the Recitals
hereto.
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"TWP" shall have the meaning set forth in Section 3.26.
"Vendor Contracts" shall have the meaning set forth in Section 3.19(c).
"Voting Agreement" shall have the meaning set forth in the Recitals hereto.
"WARN" shall have the meaning set forth in Section 3.24(c).
63
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
LEVEL 3 COMMUNICATIONS, INC.
By:__/s/ Robert M. Yates______________
Name: Robert M. Yates
Title: Senior Vice President,
Assistant General Counsel and Assistant
Secretary
LEVEL 3 SERVICES, LLC
By: __/s/ Robert M. Yates______________
Name: Robert M. Yates
Title: Senior Vice President,
Assistant General Counsel and Assistant
Secretary
LEVEL 3 COLORADO, INC.
By: __/s/ Robert M. Yates______________
Name: Robert M. Yates
Title: Senior Vice President,
Assistant General Counsel and Assistant
Secretary
BROADWING CORPORATION
By: __/s/ Kim D. Larsen_______________
Name: Kim D. Larsen
Title: General Counsel