ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of May 30, 1997 is by and
among ESI/McLeodUSA, Inc., a newly formed Iowa corporation ("Buyer"), McLeodUSA
Incorporated, a Delaware corporation ("McLeod") and ESI Communications, Inc., a
Minnesota corporation, ESI Communications/SW, Inc. a Minnesota corporation, ESI
Communications/West, Inc., a Minnesota corporation, ESI Communications Downtown,
Inc., a Minnesota corporation, and ESI Communications -- North, Inc., a
Minnesota corporation (collectively the "Sellers"), and Michael Reichert, Peter
Jones, John Pupkes and Jeff Meehan (collectively the "Shareholders").
RECITALS
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A. Sellers own certain assets which they use in the conduct of their
businesses providing telephone systems in the state of Minnesota.
B. Buyer desires to purchase from Sellers and Sellers desire to sell
to Buyer certain assets subject to the terms and conditions of this Agreement.
C. Buyer is a subsidiary corporation of McLeod.
AGREEMENT
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The parties agree as follows:
ARTICLE I
DEFINITIONS
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1.1 Defined Terms. As used herein, the terms below shall have the
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following meanings:
"Balance Sheet" shall mean the unaudited balance sheet of each of
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Sellers as of December 31, 1996, previously delivered to Buyer and attached
hereto as Exhibit A.
"Balance Sheet Date" shall mean December 31, 1996.
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"Books and Records" shall mean all records of Sellers pertaining to
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the Purchased Assets or customers or suppliers of or the business of Sellers,
except for Seller's corporate record books and income tax records.
"Closing Date" shall mean June 10, 1997 (or such earlier date as of
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which all conditions to closing shall have been satisfied or waived by the
parties), or such other date as Buyer and Sellers shall mutually agree.
"Closing Date Balance Sheet" shall mean the calculation of Purchased
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Assets and Assumed Liabilities prepared as of the Closing Date as provided in
Section 2.2(b) thereof.
"Code" shall mean the Internal Revenue Code of 1986, as such may be
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amended from time to time.
"Contract" shall mean any of the agreements, contracts, leases or
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commitments described in Section 4.6 of the Disclosure Schedule and any of
Sellers' agreements, contracts, leases or commitments not required to be
described in the Disclosure Schedule solely because of the size or duration
limitations on contracts required to be scheduled by this Agreement.
"Contract Rights" shall mean all of Sellers' rights and obligations
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under the Contracts.
"Disclosure Schedule" shall mean a schedule executed and delivered by
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Sellers to Buyer not later than ten (10) days prior to the Closing Date which
sets forth the exceptions to the representations and warranties contained in
Article IV hereof and certain other information called for by Article IV hereof
and other provisions of this Agreement.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
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easement, security interest, right-of-way, encumbrance or other right of any
third party.
"Environmental Claims" shall mean any allegation, notice of violation,
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claim, action, cause of action, suits, liability, loss, litigation, arbitration,
proceeding, executory decree, judgment or legal fee or cost of investigation or
proceeding relating to compliance with any Environmental Law.
"Environmental Laws" shall mean the Comprehensive Environmental
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Response Compensation and Liability Act of 1980, as amended; or any other
federal, state or local law or ordinance (i) relating to pollution or protection
of the environment; or (ii) regulating the discharge, handling, use of disposal
or exposure to Hazardous Substances.
"Excluded Assets", notwithstanding any other provision of this
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Agreement, shall mean the following items of Sellers which are not to be
acquired by Buyer hereunder:
(a) cash (other than petty cash as provided in the definition of
Purchased Assets) including checking accounts, money market accounts and the
lock box account;
(b) short term investment balances;
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(c) Contract Rights arising under any Contract not specifically
assumed by Buyer as specified in Exhibit B, including without limitation any
employment, change in control or indemnification agreement between Sellers and
any of its present or former officers, directors, stockholders, employees or
agents, including without limitation those identified in the Disclosure
Schedule;
(d) those certain prepaid expenses which will not benefit Buyer after
the Closing (e.g. prepaid insurance);
(e) all claims, choses in action and rights or actions by Sellers
against third parties;
(f) other personal property not included upon the books of Sellers,
not utilized in the business of Sellers and upon which the parties mutually
agree as set forth on Exhibit C; and
(g) Permits, to the extent not lawfully transferable.
"Financial Statements" shall mean the Balance Sheet and the combined
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statements of income, cash flows and stockholders' equity of Sellers for the two
year period ended as of the Balance Sheet Date, previously delivered to Buyer
and attached hereto as Exhibit D.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
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furnishings, machinery, and equipment owned by Sellers and vehicles leased by
Sellers, wherever located, including all warranty rights with respect thereto.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
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as of the date hereof.
"Hazardous Substances" shall mean pollutants, chemicals, materials,
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substances or wastes (i) designated or defined under any Environmental Law as
"hazardous" or "toxic", and (ii) the handling, use of, disposal or exposure to
which is prohibited, limited or regulated by an Environmental Law.
"Interim Financial Statements" shall mean the balance sheets of each
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of Sellers as of April 30, 1997 and the unaudited statements of income, cash
flows and stockholders' equity for the four-month period ended April 30, 1997
previously delivered to Buyer and attached hereto as Exhibit E.
"Inventory" shall mean (a) all of Sellers' goods held for sale or use
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in the ordinary course of Sellers' business to its customers, (b) all office
supplies and similar materials located in any facility owned or rented by
Sellers, and (c) all of the raw materials, work in process, spare parts,
finished products, wrapping, supply and packaging items, employee uniforms and
similar items, wherever located.
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"Leasehold Estates" shall mean all of Sellers' rights and obligations
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as lessee under the Leases listed in the Disclosure Schedule.
"Leasehold Improvements" shall mean all of Sellers' leasehold
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improvements situated in or on the property leased under the Leases, including
all warranty rights with respect thereto.
"Leases" shall mean all of the leases listed on the Disclosure
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Schedule and all other leases relating to the Purchased Assets which are not
required to be scheduled pursuant to this Agreement.
"Permits" shall mean all of Sellers' licenses, permits and other
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governmental authorizations to carry on business at the Facilities as presently
conducted.
"Purchased Assets" shall mean all of Sellers' properties, assets and
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rights of any kind, whether tangible or intangible, real or personal, owned by
Sellers or in which Sellers have any interest (except the Excluded Assets),
including without limitation, the following:
(a) accounts receivable (net of reasonable reserves);
(b) claims for refunds and prepaid expenses which will benefit Buyer
after the Closing (e.g., trade show advance deposits, advance lease or rental
payments, prepaid real estate taxes);
(c) petty cash on hand and cash in accounts designated by Buyer and
maintained by Sellers for payment of incidental expenses;
(d) all Contract Rights under Contracts assumed by Buyer as indicated
in Exhibit F;
(e) all Leasehold Estates with respect to Leases assumed by Buyer as
indicated in Exhibit G;
(f) all Fixtures and Equipment;
(g) all Inventory;
(h) all Books and Records;
(i) all Proprietary Rights;
(j) to the extent transferable, all Permits;
(k) in addition, Shareholders 50% ownership interest in ESI Cabling
Services, Incorporated.
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"Representative" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
1.2 Other Defined Terms. The following terms shall have the meanings
defined for such terms in the Sections set forth below:
Term Section
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Action 4.10
Assumed Liabilities 2.2
Closing 3.1
Employee Plan 4.16
Expense 10.3(a)
ERISA 4.16
Loss 10.3(a)
Permitted Encumbrances 4.4
Personnel 4.3(b)
Proprietary Rights 4.15
Purchase Price 2.2
Tax 4.17
ARTICLE II
PURCHASE AND SALE OF ASSETS
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2.1 Transfer of Assets. On the Closing Date Sellers will sell,
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convey, transfer, assign, and deliver to Buyer, and Buyer will acquire from
Sellers, the Purchased Assets, free and clear of Encumbrances other than
Permitted Encumbrances, effective as of the close of business on the Closing
Date.
2.2 Assumption of Liabilities. Buyer shall assume, effective as of
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the close of business on the Closing Date, the following obligations and
liabilities of Sellers and no others (the "Assumed Liabilities"):
(a) All of Sellers' trade accounts payable for goods and services used
by Sellers, the current portion of accrued and unpaid salaries and wages of
employees of Sellers (including related federal and state withholding and other
payroll taxes relating thereto), accrued and unpaid holiday and vacation pay of
Sellers' employees, accrued and unpaid obligations under Contracts and Leases
assumed by Buyer as indicated in Exhibits F & G, in each case only to the extent
incurred in the ordinary course of business consistent with past practice.
(b) All of Sellers' liabilities set forth on the Preliminary Net Asset
Value prepared in accordance with Section 2.3(b).
(c) All obligations and liabilities of Sellers accruing, arising out
of, or relating to events or occurrences happening after the Closing Date under
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Contracts and Leases assumed by Buyer as indicated on Exhibits F and G
including, without limitation, obligations to provide maintenance, installation
and warranty services to customers.
Anything in this Agreement to the contrary notwithstanding, except as
expressly provided herein, Buyer shall be under no obligation to make any
payment to any employee, stockholder, officer or director or former employee,
stockholder, officer or director of Sellers or any of their affiliates,
including without limitation, obligations pursuant to Contracts between Sellers
and any such persons set forth on the Disclosure Schedule, and Sellers shall
retain all such obligations of Sellers.
2.3 Consideration. Buyer shall pay to Sellers for the sale,
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transfer, assignment, conveyance and delivery of the Purchased Assets an amount
(the "Purchase Price") equal to Fifteen Million Three Hundred Twenty-three
Thousand Eight Hundred Eighty-nine Dollars ($15,323,889), subject to adjustment
as provided in Section 2.3(b) and in Section 2.6. The allocation of the
Purchase Price as to personal property shall be as agreed to in writing by Buyer
and Sellers prior to Closing. Unless otherwise agreed in writing by Sellers and
Buyer, Sellers and Buyer shall (x) reflect the specific Purchased Assets
purchased and sold hereunder in their books and for taxes reporting purposes in
accordance with such allocations, (y) file all forms required under Section 1060
of the Code and all other tax returns and reports in accordance with and based
upon such allocation and (z) unless required to do so in accordance with a
"determination" as defined in Section 1313(a)(1) of the Code, take no position
in any tax return, tax proceeding, tax audit or otherwise which is inconsistent
with such allocation. The Purchase Price shall be paid by Buyer as follows:
(a) Closing Date. On the Closing Date, Buyer shall pay the Purchase
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Price by wire transfer of immediately available funds to the accounts directed
by Sellers.
(b) Minimum Net Asset Value. Prior to the Closing, Sellers shall
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prepare and deliver to Buyer a preliminary net asset value statement, determined
as of April 30, 1997, showing that Sellers have, on a combined basis, a net
asset value of not less than $2,900,000. The preliminary net asset value
("Preliminary Net Asset Value") shall be determined by subtracting the
liabilities to be assumed by Buyer as of April 30, 1997 from Purchased Assets as
of April 30, 1997. If the Preliminary Net Asset Value is less than $2,900,000,
the Purchase Price to be paid at closing shall be reduced on a dollar for dollar
basis by amount of such deficit, which reduction, if any, shall be called the
"Preliminary Purchase Price Adjustment."
As soon as practicable, but in any event within 60 days after the
Closing, Sellers shall prepare and deliver to Buyer a final net asset value
statement determined as of the Closing Date showing that Sellers have, on a
combined basis, a
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net asset value of not less than $2,900,000. The final net asset value ("Final
Net Asset Value") shall be determined by subtracting the liabilities assumed by
Buyer on the Closing Date from the Purchased Assets on the Closing Date. The
Final Net Asset Value shall be compared with the $2,900,000 benchmark, the
Preliminary Net Asset Value and the Preliminary Purchase Price Adjustment and a
final purchase price adjustment shall be made; either by the payment of any
necessary increase in the Purchase Price by Buyer (provided, however, the final
Purchase Price shall never be greater than $15,323,889) or by the refund by
Sellers to Buyer of any necessary further reduction in the purchase price.
2.4 Closing Costs; Transfer Taxes. Buyer shall be responsible for
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any sales or use taxes imposed by reason of the transfers of Purchased Assets.
Buyer shall be responsible for the fees and costs of recording or filing all
applicable conveyancing instruments described in Sections 3.2(a) and 3.2(b), if
any. Buyer shall be responsible for any vehicle transfer taxes or title
transfer charges. Sellers shall be responsible for any income taxes of Sellers
and any deficiency, interest or penalty asserted with respect thereto.
2.5 Transfer of Shares of ESI Cabling Services Incorporated.
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Shareholders hold 5,000 shares of ESI Cabling Services Incorporated, a Minnesota
corporation, ("ESI Cabling"), which shares constitute 50% of the issued and
outstanding shares of ESI Cabling. On the Closing Date, each Shareholder shall
sell, transfer and deliver to Buyer the number of shares set forth opposite the
Shareholder's name as set forth on Exhibit H hereto and Buyer shall purchase
from Shareholders at the Closing all of Shareholders' right, title and interest
in the shares. The value of the shares shall be allocated as part of the
Purchase Price and shall be included in the calculation of net asset value as
set forth in Section 2.3(b).
2.6 Assignment of Revenues from ESI Network Solutions, L.L.P.
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Shareholders own all interests in ESI Network Solutions, L.L.P. ("Network"). As
a part of this transaction, Shareholders shall cause Network to transfer and
assign to Buyer all revenues (after expenses) of Network from contracts executed
by Network after the Closing Date. Buyer shall assume the commission liability
for such contracts. After Closing, Shareholders shall operate Network so as to
keep the operating expenses less than 5% of the gross revenues. Shareholders,
at Closing, shall provide Buyer with a schedule of all commissions due on
contracts executed by Network prior to the Closing Date. Buyer shall assume
those commission liabilities, and the Purchase Price shall be adjusted downward
in an amount equal to the assumed commission liability.
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ARTICLE III
CLOSING
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3.1 Closing. The Closing of the transactions contemplated herein
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(the "Closing") shall be held at 10:00 a.m. local time on the Closing Date at
the offices of Henson & Efron, P.A. unless the parties hereto otherwise agree.
3.2 Conveyances at Closing.
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(a) Sellers' Instruments. To effect the transfer referred to in
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Section 2.1 hereof, Sellers will, on the Closing Date, execute and deliver to
Buyer:
(i) one or more bills of sale, in a form acceptable to Buyer,
conveying in the aggregate all of Sellers' owned personal property included in
the Purchased Assets;
(ii) one or more assignments of leases, in a form acceptable to Buyer
with respect to the Leases included in the Purchased Assets;
(iii) assignments of all Contract Rights included in the
Purchased Assets;
(iv) assignments of all Proprietary Rights included in the Purchased
Assets in recordable form to the extent necessary to assign such rights; and
(v) such other instruments as shall be reasonably requested by Buyer
to vest in Buyer title in and to the Purchased Assets in accordance with the
provisions hereof.
(b) Buyer's Instruments. On the Closing Date, Buyers shall execute
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and deliver to Sellers the Purchase Price and such assumptions of Contracts and
Leases and such other instruments as shall be reasonably requested by Sellers
for Buyer to assume its obligations under the Assumed Liabilities.
(c) Form of Instruments. All of the foregoing instruments shall be in
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form and substance, and shall be executed and delivered in a manner, reasonably
satisfactory to Buyer and Sellers.
3.3 Certificates; Opinions. Buyer and Sellers shall deliver the
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certificates, opinions of counsel and other matters described in Articles VII
and VIII.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
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Except as set forth on that section of the Disclosure Schedule
numbered to correspond to the representations and warranties of this Article IV,
Sellers (with respect to any representation or warranty concerning itself)
represent and warrant to Buyer as follows:
4.1 Organization. Sellers are duly organized, validly existing and
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in good standing under the laws of the state of Minnesota, have full corporate
power and authority to conduct their businesses as they are presently being
conducted and to own and lease their properties and assets. Sellers are not
qualified to do business as a foreign corporation in any state other than
Minnesota.
4.2 Authorization. Sellers have all necessary corporate power and
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authority and have taken all corporate action necessary to enter into this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations hereunder. This Agreement has been duly executed and delivered by
Sellers and is a legal, valid and binding obligation of each Seller and
enforceable against each Seller in accordance with its terms.
4.3 Absence of Certain Changes or Events. Except as set forth in
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Section 4.3 to the Disclosure Schedule, since the Balance Sheet Date, there has
not been any:
(a) change in any of Sellers' condition (financial or otherwise),
assets, liabilities, working capital, reserves, earnings, business or prospects,
except for changes contemplated hereby or changes which have not, individually
or in the aggregate, been materially adverse to Sellers on a combined basis.
(b) (i) except for normal periodic increases in the ordinary course of
business consistent with past practice, increase in the compensation payable or
to become payable by Sellers to any of their employees or agents (collectively,
"Personnel") whose total compensation for services rendered to Sellers are
currently at an annual rate of more than $15,000, (ii) except for bonuses to
Personnel based on sales performance in the ordinary course of business
consistent with past practice, any bonus, incentive compensation, service award
or other like benefit granted, made or accrued, contingently or otherwise, for
or to the credit of any of the Personnel; (iii) any employee benefit welfare,
pension, retirement, profit-sharing or similar payment or arrangement made or
agreed to by Sellers for any Personnel except pursuant to the existing plans and
arrangements described in Section 4.3(b) of the Disclosure Schedule or (iv) any
new employment agreement to which any Seller is a party;
(c) addition to or modification of the employee benefit plans,
arrangements or practices described in Section 4.16 of the Disclosure Schedule
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affecting Personnel other than (i) contributions made for the fiscal year ended
December 31, 1996, in accordance with the normal practices of Sellers or (ii)
the extension of coverage to other Personnel who became eligible after the
Balance Sheet Date;
(d) sale, assignment or transfer of any of the assets of Sellers,
material singly or in the aggregate, other than in the ordinary course;
(e) cancellation of any indebtedness or waiver of any rights of
substantial value to Sellers, whether or not in the ordinary course of business;
(f) amendment, cancellation or termination of any Contract, license or
other instrument material to Sellers;
(g) capital expenditure or the execution of any lease or any incurring
of liability therefor, involving payments in excess of $25,000 in the aggregate;
(h) failure to repay any material obligation of Sellers, except in the
ordinary course of business or where such failure would not have a material
adverse effect on the business or financial condition of Sellers;
(i) failure to operate the business of Sellers in the ordinary course
except where such failure would not have a material adverse effect on the
business or financial condition of Sellers;
(j) change in accounting methods or practices by Sellers affecting
assets, liabilities or business;
(k) revaluation by Sellers of any assets, including without
limitation, writing off notes or accounts receivable;
(l) damage, destruction or loss (whether or not covered by insurance)
adversely affecting the properties, business or prospects of Sellers;
(m) mortgage, pledge or other encumbrance of any asset of Sellers,
material singly or in the aggregate, except purchase money mortgages arising in
the ordinary course of business;
(n) issuance by Sellers of, or commitment of Sellers to issue, any
shares of stock or other equity securities or obligations or securities
convertible into or exchangeable for shares of stock or other equity securities;
(o) except for draws made by Sellers on existing lines of credit,
indebtedness incurred by Sellers for borrowed money or any commitment to borrow
money entered into by Sellers, or any loans made or agreed to be made by
Sellers;
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(p) liabilities involving $25,000 or more except in the ordinary
course of business and consistent with past practice, or any increase or change
in any assumption underlying or methods of calculating any bad debt, contingency
or other reserves;
(q) agreement by Sellers to do any of the foregoing.
4.4 Title to Assets, Etc. Sellers have good and merchantable fee
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simple title to the Purchased Assets and (except for the Excluded Assets) all
assets used by each Seller in the conduct of its business are included in the
Purchased Assets. Except as set forth in the Disclosure Schedule, none of the
Purchased Assets is subject to any Encumbrances, except for minor liens which in
the aggregate are not substantial in amount, do not materially detract from the
value or transferability of the property or assets subject thereto or interfere
with the present use and have not arisen other than in the ordinary course of
business ("Permitted Encumbrances"). Sellers enjoy peaceful and undisturbed
possession of all buildings leased by them and the buildings are not subject to
any encroachments, building or use restrictions, exceptions, reservations or
limitations which in any material respect interfere with, impair, or prevent use
in the usual and normal conduct of the business of Sellers. To the best of
Sellers' knowledge, there are no pending or threatened condemnation proceedings
relating to any of the Leases described on Exhibit G. The leasehold
improvements, equipment and other tangible assets owned or used by Sellers at
the Leased Facilities are adequately insured. None of said improvements,
equipment and other assets owned by Sellers is subject to any commitment for
their sale or use by an affiliate of Sellers or third parties.
4.5 Condition of Tangible Assets. The Leased Facilities and the
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Fixtures and Equipment are in good operating condition and repair (except for
ordinary wear and tear) and are suitable, adequate and fit for the uses for
which they are intended or are being used.
4.6 Contracts and Commitments. Except as set forth in Section 4.6 of
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the Disclosure Schedule, Sellers are not a party to any written or oral:
(a) commitment, contract, note, loan, evidence of indebtedness,
purchase order or letter of credit involving any obligation or liability on the
part of Sellers as the case may be, of more than $25,000 and not cancelable
(without liability) within 60 days;
(b) lease of real property (the Disclosure Schedule indicates with
respect to each lease listed on the Disclosure Schedule the term, annual rent,
renewal options and number of square feet leased);
(c) lease of personal property involving any annual expense in excess
of $25,000 and not cancelable (without liability) within 60 days (the Disclosure
Schedule indicates with respect to each lease listed on the Disclosure Schedule
a general description of the leased items, term, annual rent and renewal
options);
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(d) contracts and commitments not otherwise described above (including
purchase orders, supply contracts, distribution agreements, franchise agreements
and undertakings or commitments to any governmental or regulatory authority)
relating to the business of Sellers and materially affecting Sellers' business;
(e) material governmental or regulatory licenses or permits required
to conduct the business of Sellers as presently conducted or operated;
(f) contracts or agreements containing covenants limiting the freedom
of Sellers to engage in any line of business or compete with any person; or
(g) employment contracts, including without limitation, contracts to
employ executive officers and other contracts with officers or directors of
Sellers.
Sellers are not in material breach or violation of or default under
any of the Contracts or other instruments, obligations, evidences of
indebtedness or commitments described in (a)-(g) above, the breach or violation
of which would have a material adverse effect on the business or financial
condition of Sellers or the ability of Buyer to operate the business of Sellers
after the Closing.
4.7 No Conflict or Violation. Neither the execution and delivery of
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this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the Articles of
Incorporation or Bylaws of Sellers, (b) a breach of, or a default under, any
term or provision of any contract, agreement, indebtedness, lease, commitment,
license, franchise, permit, authorization or concession to which any Seller is a
party or by which the Purchased Assets are bound, which breach or default would
have a material adverse effect on the business of any Seller; (c) a violation by
Sellers of any regulation, ordinance, code, order, judgment, writ, injunction,
decree or award, which violation would have a material adverse effect on the
business of any Seller or any Seller's ability to consummate the transactions
contemplated hereby.
4.8 Consents and Approvals. Except as set forth in Section 4.8 of
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the Disclosure Schedule, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority, or any other person or entity, is required to be made or obtained by
Sellers in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby other
than the filings required under the HSR Act, and approval of lessors.
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4.9 Financial Statements. Sellers have delivered to Buyer the
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Financial Statements and the Interim Financial Statements. Except as otherwise
set forth therein, the Financial Statements and the Interim Financial Statements
are complete, are in accordance with the books and records of Sellers,
accurately reflect the assets, liabilities and financial condition and results
of operations indicated thereby in accordance with generally accepted accounting
principles (as consistently applied by Seller), and contain and reflect all
necessary adjustments for a fair representation of the Financial Statements and
the Interim Financial Statements as of the date and for the periods covered
thereby except that (a) the Financial Statements and Interim Financial
Statements (i) do not contain accruals for vacation pay for employees of Sellers
which are under S corporations, and (ii) do not contain accrual for Sellers
401(k) and Simplified Employee Plan IRA contributions; and (b) the Interim
Financial Statements are subject to normal closing and other normal year end
adjustments and footnotes.
4.10 Litigation. Except as set forth in Section 4.10 of the
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Disclosure Schedule, there is no action, order, writ, injunction, judgment or
decree outstanding or claim, suit, litigation, proceeding, labor dispute (other
than routine grievance procedures or routine, uncontested claims for benefits
under any benefit plans for personnel), arbitral action or investigation
(collectively, "Actions") pending or, to the knowledge of Sellers, threatened or
anticipated against, relating to or affecting (i) Sellers, (ii) any benefit plan
for Personnel or any fiduciary or administrator thereof or (iii) the
transactions contemplated by this Agreement. Sellers are not in default with
respect to any judgment, order, writ, injunction or decree of any court or
governmental agency, and there are no unsatisfied judgments against any Seller
or its business or activities. There is not a reasonable likelihood of an
adverse determination of any pending Actions which would, individually or in the
aggregate, have a material adverse effect on the business or financial condition
of Sellers.
4.11 Labor Matters. Section 4.11 of the Disclosure Schedule
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identifies all employees of Sellers No Seller is a party to any labor
agreement with respect to its employees with any labor organization, group or
association. Except as set forth in Section 4.11 to the Disclosure Schedule, no
Seller has experienced any attempt by organized labor or its representatives to
make any Seller conform to demands of organized labor relating to its employees
or to enter into a binding agreement with organized labor that would cover the
employees of any Seller. Sellers are in material compliance with all applicable
laws respecting employment practices, terms and conditions of employment and
wages and hours and are not engaged in any unfair labor practice. There is no
unfair labor practice charge or complaint against any Seller pending before the
National Labor Relations Board or any other governmental agency arising out of
any Sellers' activities, and no Seller has knowledge of any facts or information
which would give rise thereto; there is no labor strike or labor disturbance
pending or threatened against any Seller nor is any grievance currently being
asserted; and no Seller has experienced a work
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stoppage or other labor difficulty. Sellers have conducted open meetings with
all of their employees; advised all of the employees of the transaction; and
advised the employees that Buyer will offer employment to all employees at
salaries and other benefits not less than the employees enjoy at Closing. For
purposes of this paragraph only, the employees have been treated in the same
manner as a continuation of business and not a plant closing.
4.12 Liabilities. Sellers have no liabilities or obligations
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(absolute, accrued, contingent or otherwise) except (i) liabilities which are
reflected and reserved against on the Interim Balance Sheet, (ii) liabilities
incurred in the ordinary course of business and consistent with past practice
since the Interim Balance Sheet Date, and (iii) liabilities arising under
Contracts, letters of credit, purchase orders, licenses, permits, purchase
agreements and other agreements, business arrangements and commitments described
in the Disclosure Schedule or which are of the type described in Section 4.6 but
which because of the dollar amount or other qualifications are not required to
be listed in the Disclosure Schedule.
4.13 Compliance with Statutes and Antitrust Laws. Each Seller
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conducts its business in compliance with all applicable laws, statutes,
ordinances and regulations, whether federal, state or local including any
applicable federal and state antitrust laws, except where the failure to comply
does not have a material adverse impact on the business or financial condition
of the Sellers. None of the Sellers has received any written notice to the
effect that, or otherwise been advised that, it is not in compliance with any of
such statutes, regulations, orders ordinances or other laws. Each Seller has
filed with all appropriate federal, state or local government bodies all
notices, consents, franchises or any other document which is necessary for the
operation of the business of the Seller.
4.14 No Brokers. Sellers have not entered into any contract,
----------
agreement, arrangement or understanding with any person or firm which will
result in the obligation of Buyer to pay any finder's fee, brokerage commission
or similar payment in connection with the transactions contemplated hereby.
4.15 Proprietary Rights. All of Sellers' registrations of trademarks
------------------
and of other marks, trade names or other trade rights, and all pending
applications for any such registrations, all of Sellers' patents and copyrights
and all pending applications therefor, all other trademarks and other marks,
trade names and other trade rights material to the business of each Seller,
whether or not registered, are listed in Section 4.15 of the Disclosure
Schedule, (collectively, the "Proprietary Rights"). No proceedings have been
instituted against or notices received by any Seller that are presently
outstanding alleging that any Seller's use of its Proprietary Rights infringes
upon or otherwise violates any rights of a third party in or to such Proprietary
Rights, nor does any Seller know of any basis for such a claim.
14
4.16 Employee Benefit Plans. Except as disclosed in Section 4.16 of
----------------------
the Disclosure Schedule, none of the Sellers has offered or maintained any
employee benefit plans as defined in Section 3(3) of Employee Retirement Income
and Security Act of 1974 ("ERISA") or other plan, contract, agreement, including
any vacation, sick leave, deferred compensation or severance pay policy or
arrangement for the benefit of employees or former employees of Sellers (the
"Employee Plans"). None of the Sellers maintains, participates in or
contributes to (and has not at any time maintained, participated in, contributed
to or had an obligation to contribute to) any defined benefit plan (within the
meaning of Section 3(35) of ERISA or any multi-employer plan (within the meaning
of Section 3(37) of ERISA). After Closing, Buyer will have no obligation or
liability (absolute or contingent) under or with respect to the Employee Plans.
To the best of Sellers' knowledge after reasonable investigation, (a) Sellers
are not in default under or in violation of, or have any knowledge of any such
default or violation by any other party to, any of the Employee Benefit Plans;
and (b) each Employee Benefit Plan is in substantial compliance with the
requirements prescribed by any and all statutes, orders, or governmental rules
or regulations applicable to such Employee Benefit Plans, including, but not
limited to, ERISA and the Internal Revenue Code of 1986, as amended.
4.17 Tax Matters. Sellers have duly filed all tax reports and
-----------
returns required to be filed by them, including all federal, state, local and
foreign tax returns and reports. All such returns and reports were correct and
complete in all material respects. Sellers have paid in full all taxes and
interest required to be paid. Sellers have made adequate provision, in
conformity with generally accepted accounting principles consistently applied,
for the payment of all taxes which may subsequently become due. All taxes which
Sellers have been required to collect or withhold have been duly collected or
withheld and, to the extent required when due, have been or will be duly paid to
the proper taxing authority.
For the purpose of this Agreement, any federal, state, local or
foreign income, sales, use, transfer, payroll, personal property, occupancy or
other tax, levy, impost, fee, imposition, assessment or similar charge, together
with any related addition to tax, interest or penalty thereon, is referred to as
a "Tax".
4.18 Insurance. Section 4.18 of the Disclosure Schedule contains a
---------
complete and accurate list of all policies or binders of fire, liability, title,
worker's compensation and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums and a general description of the type of coverage provided) maintained
by Sellers on Sellers' business, property or Personnel. All of such policies
are sufficient for compliance with all requirements of law and of all Contracts
to which any Seller is a party. No Seller is in default under any of such
policies or binders, and no Seller has failed to give any notice or to present
any claim under any such policy or binder in a due and timely fashion. There
are no facts upon which an insurer might be
15
justified in reducing coverage or increasing premiums on existing policies or
binders. There are no outstanding unpaid claims under any such policies or
binders. Such policies and binders provide sufficient coverage in Sellers'
opinion for the risks insured against, are in full force and effect on the date
hereof and shall be kept in full force and effect by Sellers through the Closing
Date.
4.19 Accounts Receivable. The accounts receivable reflected in the
-------------------
Balance Sheet, and all accounts receivable arising since the Balance Sheet Date,
represent bona fide claims against debtors for sales, services performed or
other charges arising on or before the date hereof, and all the goods delivered
and services performed which gave rise to said accounts were delivered or
performed in accordance with the applicable orders, Contracts or customer
requirements. The parties acknowledge that Sellers do not guarantee the
collectibility of the accounts receivable.
4.20 Inventory. The values at which the Inventory are shown on the
---------
Balance Sheet have been determined in accordance with the normal valuation
policy of Sellers, and in accordance with generally accepted accounting
principles consistently applied by Sellers. The Inventory (and items of
Inventory acquired or manufactured subsequent to the Balance Sheet Date)
consists only of items of quality and quantity commercially usable and salable
in the ordinary course of business, except for any items of obsolete material or
material below standard quality, all of which have been written down to
realizable market value, or for which adequate reserves have been provided, and
the present quantities of all Inventory are reasonable in the present
circumstances of Sellers' business.
4.21 Customers and Suppliers. Section 4.21 of the Disclosure
-----------------------
Schedule contains a complete and accurate list of (i) the 10 largest customers
of Sellers on a combined basis in terms of sales during Sellers' last fiscal
year, showing the approximate total sales by each Seller to each such customer
during such fiscal year; (ii) the 10 largest suppliers of Seller on a combined
basis in terms of purchases during Sellers' last fiscal year, showing the
approximate total purchases by Sellers from each such supplier during such
fiscal year. Since the Balance Sheet Date, there has been no adverse change in
the business relationship of Sellers with any customer or supplier named in the
Disclosure Schedule which is material to the business or financial condition of
Sellers.
4.22 Environmental Matters. With respect to its ownership, use,
---------------------
maintenance or operation of the Purchased Assets, Seller is in material
compliance with and has not violated any Environmental Laws. To the knowledge
of Sellers, there are no past, pending or threatened environmental actions,
including without limitation, any existing investigation by any federal state or
local governmental entity against or concerning any Seller nor has any Seller
received notice of any of the foregoing.
16
4.23 Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by Sellers in this Agreement, nor any document, exhibit, statement,
certificate or schedule furnished to Buyer pursuant hereto, or in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or intentionally omits or will omit to state any
material fact necessary to make the statements or facts contained therein not
misleading.
4.24 License Agreements. Sellers have delivered to Buyer prior to
------------------
execution of this Agreement, a list of all license agreements (and any oral or
written agreements or understandings to issue or enter into any license
agreements) pursuant to which a Seller is authorized or whereby a Seller has
authorized another person or entity to manufacture, sell or distribute its
products. All such license agreements are in full force and effect. Except as
disclosed in Section 4.24 of the Disclosure Schedule, all of said license
agreements permit the transfer contemplated by this Agreement and such transfer
will not invalidate any license.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND MCLEOD
--------------------------------------------------
Each of Buyer and McLeod represent and warrant to Sellers as follows:
5.1 Organization. Buyer is duly organized, validly existing and in
------------
good standing under the laws of the State of Iowa. McLeod is duly organized,
validly existing and in good standing under the laws of the State of Delaware.
5.2 Authorization. Each of Buyer and McLeod has all necessary
-------------
corporate power and authority and has taken all corporate action necessary to
enter into this Agreement, to consummate the transactions contemplated hereby
and to perform its obligations hereunder. This Agreement has been duly executed
and delivered by each of Buyer and McLeod and is a legal, valid and binding
agreement of and against Buyer and McLeod in accordance with its terms.
5.3 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the Articles of
Incorporation or Bylaws of Buyer or McLeod, or (b) a violation by Buyer or
McLeod of any statute, rule, regulation, ordinance, code, order, judgment, writ,
injunction, decree or award, which violation would have a material adverse
effect on the business or financial condition of Buyer or McLeod or its ability
to consummate the transactions contemplated hereby or (c) a breach of or default
under any term or provision of any contract, agreement, indebtedness, lease,
commitment, license, franchise, permit, authorization or concession to which
Buyer or McLeod is a party which breach would have a material adverse effect on
the business of Buyer or McLeod.
17
5.4 Consents and Approvals. Except for the filings required under
----------------------
the HSR Act, no consent, approval of authorization of, or declaration, filing or
registration with, any governmental or regulatory authority, or any other person
or entity, is required to be made or obtained by Buyer in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
ARTICLE VI
COVENANTS
---------
Sellers, individually and collectively, on the one hand, and Buyer, on
the other hand, each covenant with the other as follows:
6.1 Maintenance of Business Prior to Closing. Sellers shall continue
----------------------------------------
to carry on Sellers' businesses in the ordinary course and substantially in
accordance with past practice and will not take any action inconsistent
therewith or with the consummation of the Closing. Without limiting the
generality of the foregoing, Sellers shall (a) maintain the Purchased Assets in
substantially their current state of repair, excepting normal wear and tear; (b)
through the Closing Date, maintain insurance covering the Purchased Assets
similar to that in effect on the date hereof; and (c) notify Buyer and provide
to Buyer an opportunity to review any and all cash disbursements not in the
ordinary course of business, to be made prior to Closing.
6.2 Investigation by Buyer; Audits. Sellers shall allow Buyer and
------------------------------
Buyer's advisors and accountants, at Buyer's expense during regular business
hours, to make such inspection of the Purchased Assets and to inspect and make
copies of other Contracts, Books and Records or information requested by Buyer
and necessary for or reasonably related to the operation of the Purchased
Assets.
6.3 Sellers' Employees.
------------------
(a) Sellers will update the list of Sellers' employees on the
Disclosure Schedule as of the Closing Date. Buyer shall extend offers of
employment at or before the Closing to all such employees. No employee of
Sellers, including any employee on authorized leave or disability, shall become
an employee of Buyer unless and until such employee performs actual full-time
service for Buyer on or after the Closing Date, and Buyer shall have no
obligation to any such person prior to or in respect of such time. Buyer shall
honor all accrued vacation for such employees, based on their employment with
Sellers.
(b) Buyer shall have no rights with respect to any assets of any
pension or welfare benefit plan (as defined in Section 3 of ERISA) which is
maintained by any Seller or any of its affiliated corporations after the Closing
Date, including, but not limited to, the right to receive any assets of any such
pension plan upon termination of the plan if the plan's assets exceed its
liabilities. Nothing
18
in this Agreement shall alter any rights of any terminated employees of any
Seller or its affiliated corporations to receive from any Seller their accrued
benefits under any Employee Plan which is maintained by any Seller or any of its
affiliated corporations after the Closing Date.
(c) Sellers shall comply with Section 4980B of the Code and Part 6 of
subtitle B of Title I of ERISA ("COBRA") by providing continuation health
coverage and notification as required under COBRA with respect to qualifying
events occurring prior to Closing or as a result of the transactions
contemplated under this Agreement.
6.4 Certain Prohibited Transactions. Between the date hereof and the
-------------------------------
Closing Date and unless the Buyer shall otherwise agree in writing, no Seller
shall:
(a) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other individual,
partnership, firm or corporation, or make any loans or advances to any
individual, partnership, firm or corporation, except in the ordinary course of
business and consistent with past practice;
(b) mortgage, pledge or otherwise encumber any of its properties or
assets or sell, transfer or otherwise dispose of any of its properties or assets
or cancel, release or assign any indebtedness owed to it or any claims held by
it, except in the ordinary course of business and consistent with past practice;
(c) make any investment of a capital nature either by purchase of
stock or securities, contributions to capital, property transfer or otherwise,
or by the purchase of any property or assets of any other individual,
partnership, firm or corporation, except in the ordinary course of business and
consistent with past practice;
(d) enter into or terminate any material contract or agreement, or
make any material change in any of its Leases and Contracts, other than in the
ordinary course of business and consistent with past practice; or
(e) do any other act which would cause any material adverse effect in
Sellers' business or financial condition or cause any representation or warranty
of Sellers in this Agreement to be or become untrue in any material respect.
6.5 Notification of Certain Matters. Sellers shall give prompt
-------------------------------
notice to Buyer, and Buyer shall give prompt notice to Sellers, of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect any time from the date hereof to
the Closing Date and (ii) any material failure of Sellers or Buyer, as the case
may be, to comply
19
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. Each party shall use all reasonable efforts to remedy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder.
6.6 Name. Effective upon Closing, Sellers shall change Sellers'
----
corporate names to a name not including "ESI" or any similar name.
6.7 Stockholder Approval. Prior to the Closing Date, Sellers shall
--------------------
prepare a form of stockholder consent and obtain the approval of all
stockholders of the actions contemplated by this Agreement.
6.8 Collection of Accounts Receivable. On and after the Closing
---------------------------------
Date, Buyer shall have the right and authority to collect for Buyer's account
all receivables, letters of credit and other items which constitute a part of
the Purchased Assets and to endorse with the name of any Seller, any letters of
credit, documents or checks received on account of or otherwise relating to any
such receivables. Sellers shall execute and deliver to Buyer, upon its request,
one or more powers of attorney in form and substance reasonably satisfactory to
Buyer as evidence of the foregoing agreements. Sellers agree that they will
forthwith transfer or deliver to Buyer any cash or other property that Sellers
may receive on or after the Closing Date in respect of any Contracts, licenses,
Leases, commitments, sales orders, purchase orders, letters of credit, or
receivables of any character or any other items constituting a part of the
Purchased Assets.
6.9 Insurance. Sellers shall have delivered to Buyer copies of
---------
certificates of insurance or copies of binders evidencing fully paid and non-
cancelable general liability insurance coverage with respect to claims arising
out of events or occurrences on or prior to the Closing Date (whether or not
reported) Such insurance coverage shall name Buyer as an additional insureds.
ARTICLE VII
CONDITIONS TO SELLERS' OBLIGATIONS
----------------------------------
The obligations of Sellers to consummate the transactions provided for
hereby are subject, in the discretion of Sellers, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of each of Buyer and McLeod contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date, except
as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms hereof, and Buyer shall have performed all agreements
and covenants required hereby to be performed by it prior to or at the Closing
Date.
20
7.2 Consents. All consents, approvals and waivers from governmental
--------
authorities, stockholders of Sellers and of Buyer and McLeod and other parties
necessary to permit Sellers to transfer the Purchased Assets to Buyer and for
Buyer to assume the Assumed Liabilities as contemplated hereby shall have been
obtained.
7.3 No Governmental Proceedings or Litigation. No Actions by any
-----------------------------------------
governmental authority shall have been instituted or threatened which questions
the validity or legality of the transactions contemplated hereby and which could
reasonably be expected materially to damage Sellers if the transactions
contemplated hereunder are consummated.
7.4 Opinion of Counsel. Buyer shall have delivered to Sellers an
------------------
opinion of counsel to Buyer and McLeod, dated as of the Closing Date, in form
and substance satisfactory to Sellers, to the effect that:
(a) Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Iowa; McLeod is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware.
(b) Each of Buyer and McLeod have the necessary corporate power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby:
(c) All corporate action by each of Buyer and McLeod required in order
to authorize the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby has been duly and validly taken, and no
approval of the stockholders of Buyer and McLeod is required in connection
therewith or, if required, such approval has been duly obtained;
(d) This Agreement has been duly executed and delivered by each of
Buyer and McLeod and is the valid and binding obligation of Buyer and McLeod,
enforceable against Buyer and McLeod in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally or by equitable principles (whether
considered in an action at law or in equity) or other customary limitations
reasonably satisfactory to Sellers' counsel;
(e) Neither the execution and delivery of this Agreement by Buyer and
McLeod nor the consummation of the transactions contemplated hereby will (i)
violate the Articles of Incorporation or Bylaws of each of Buyer and McLeod,
(ii) except as set forth in this Agreement or exhibits or schedules hereto,
breach, or cause a default under, any term or provision of any material contract
or agreement to which Buyer or McLeod is a party and of which such counsel has
knowledge or
21
(iii) to the best knowledge of such counsel violate any judgment, decree,
injunction, writ or order applicable to Buyer or McLeod;
(f) No authorization, consent, order, permit or approval of, or filing
with, any governmental authority or, to the best knowledge of such counsel, any
other person, is required for the execution and delivery of this Agreement by
each of Buyer and McLeod or the consummation by Buyer and McLeod of the
transactions contemplated on its part hereby except as set forth in this
Agreement or the exhibits or schedules hereto;
(g) To the best knowledge of such counsel, no Action is pending or
threatened against Buyer or McLeod which would adversely affect Buyer's or
McLeod's ability to perform its obligations hereunder or against the
transactions contemplated hereby; and
(h) The documents to be delivered by Buyer on the Closing Date to
effect the assumption by Buyer of the obligations and liabilities to be assumed
by Buyer pursuant to this Agreement are effective to do so, subject to the
effects of bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally and equitable principles (whether
considered in an action at law or in equity) or other customary limitations
reasonably satisfactory to Sellers' counsel.
In rendering such opinion, such counsel may rely as they deem
advisable (a) as to matters governed by the laws of jurisdictions other than
states in which they maintain offices, upon opinions of local counsel
satisfactory to such counsel, and (b) as to factual matters, upon certificates
and assurances of public officials and officers of Buyer.
7.5 Certificates. Each of Buyer and McLeod will furnish Sellers with
------------
such certificates of its officers and others to evidence compliance with the
conditions set forth in this Article VII as may be reasonably requested by
Sellers.
7.6 Corporate Documents. Sellers shall have received from each of
-------------------
Buyer and McLeod resolutions adopted by the board of directors of Buyer and
McLeod approving this Agreement and the transactions contemplated hereby,
certified by Buyer's and McLeod's corporate secretary.
7.7 Employee Agreements. Buyer shall have entered into Employment
-------------------
Agreements with each of Michael Reichert, Peter Jones, John Pupkes and Jeff
Meehan in a form substantially identical as attached Exhibit I.
22
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations of Buyer to consummate the transactions provided for
hereby are subject, in the discretion of Buyer, to the satisfaction, on or prior
to the Closing Date, of each of the following conditions:
8.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Sellers contained in this Agreement shall be true and correct
in all material respects at and as of the Closing Date, except as and to the
extent that the facts and conditions upon which such representations and
warranties are based are expressly required or permitted to be changed by the
terms hereof, and Sellers shall have performed all agreements and covenants
required hereby to be performed by them prior to or at the Closing Date.
8.2 Consents.
--------
(a) All consents, approvals and waivers from governmental authorities,
stockholders of Sellers and other parties necessary to permit Sellers to
transfer the Purchased Assets to Buyer free of Encumbrances shall have been
obtained, except where the failure to obtain any such consent, approval or
waiver would not have a material adverse effect upon Buyer and would not affect
the value, transferability, use or operation of any Purchased Asset.
(b) The Lease with respect to the Leasehold Estates at:
5959 Baker Road
Minnetonka, MN 55345
2911 Clearwater Road
St. Cloud, MN
and the related agreements with respect to such Leasehold Estates identified on
Exhibit F shall have been amended in a manner reasonably satisfactory to Buyer
(it being understood that Buyer will not require any reduction in rent or
reduction or extension of the term of such Lease) or a replacement lease for
such property shall have been entered into by Buyer.
8.3 No Governmental Proceedings or Litigation. No Action by any
-----------------------------------------
governmental authority shall have been instituted or threatened which questions
the validity or legality of the transaction contemplated hereby and which could
reasonably be expected to affect materially the right or ability of Buyer to
own, operate or possess the Purchased Assets after the Closing or to damage
Buyer materially if the transactions contemplated hereunder are consummated.
23
8.4 Opinion of Counsel. Sellers shall have delivered to Buyer an
------------------
opinion of counsel to Sellers, dated as of the Closing Date, in form and
substance satisfactory to Buyer, to the effect that:
(a) Each Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of its state of Minnesota; to the knowledge
of counsel no Seller is qualified to do business in any state other than
Minnesota.
(b) Each Seller has the necessary corporate power and authority to
own, lease and/or operate the Purchased Assets and to enter into this Agreement
and consummate the transactions contemplated hereby;
(c) All corporate action by each Seller required in order to authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby has been duly and validly taken, and approval
has been duly obtained;
(d) This Agreement and all documents to be delivered by Sellers to
effect the transfer and assignment to Buyer of all right, title and interest to
the Purchased Assets, have been duly executed and delivered by each Seller and
are the valid and binding obligation of each Seller and enforceable against each
Seller in accordance with their terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally or by equitable principles (whether considered in an
action at law or in equity);
(e) Neither the execution and delivery of this Agreement by any Seller
nor the consummation of the transactions contemplated hereby will (i) violate
the Articles of Incorporation or Bylaws of any Seller, (ii) breach, or cause a
default under, any term or provision of any material contract or agreement to
which any Seller is a party and of which such counsel has knowledge, or (iii) to
the best knowledge of such counsel, violate any judgment, decree, injunction,
writ or order applicable to any Seller;
(f) No authorization, consent, order, permit or approval of, or filing
with, any governmental authority, or, to the best knowledge of such counsel, any
other person, is required for the execution and delivery of this Agreement by
any Seller or the consummation by any Seller of the transactions contemplated on
their part hereby except as set forth in this Agreement, the Disclosure Schedule
or the exhibits hereto;
(g) Except as set forth in the Disclosure Schedule, to the best
knowledge of such counsel, no material Action or Environmental Claim is pending
or threatened against any Seller;
24
(h) To the best knowledge of such counsel, the execution and
performance of the Agreement by each Seller will not violate or result in a
failure to comply with any federal or State of Minnesota statute or regulation
which in counsel's experience is normally applicable to general business
corporations which are not engaged in regulated activities and to transactions
of the type set forth in the Asset Purchase Agreement (but without our having
made any special investigation as to any other laws), except no opinion is
expressed as to any laws the violation of which would not have a material
adverse impact on the Sellers or to which Sellers may be subject as a result of
Buyer's legal or regulatory status.
In rendering such opinion, such counsel may rely as they deem
advisable as to factual matters, upon certificates and assurances of public
officials and officers of any Seller.
8.5 Certificates. Each Seller will furnish Buyer with such
------------
certificate of its officers and others to evidence compliance with the
conditions set forth in this Article VIII as may be reasonably requested by
Buyer.
8.6 Material Changes. Since the Balance Sheet Date, there shall not
----------------
have been any material adverse change in the condition (financial or otherwise),
assets, liabilities, reserves, business, properties, operations, technology,
employee relations, customer, supplier or distributor relations or prospects of
any Seller, or the Purchased Assets. For the purposes of this Agreement, a
"material adverse change" shall include, without limitation, any development or
discovery of any material contingent or other liability not in the Disclosure
Schedule, which is reasonably likely to materially adversely affect the
business, properties, assets, operations, technology or prospects, or relations
with customers, suppliers, distributors or employees, of Sellers.
8.7 Corporate Documents. Buyer shall have received from Sellers
-------------------
resolutions adopted by the boards of directors and stockholders of Sellers
approving this Agreement and the transactions contemplated hereby, certified by
Sellers' corporate secretary.
8.8 Due Diligence. Buyer or its Representatives or advisors shall
-------------
have completed their legal, accounting, environmental and operational review of
Sellers, the Purchased Assets, and in Buyer's sole discretion, Buyer shall be
satisfied with the results of such review.
8.9 Employment Agreements. Buyer shall have entered into Employment
---------------------
Agreements with each of Michael Reichert, Peter Jones, John Pupkes and Jeff
Meehan in a form substantially identical as attached as Exhibit I.
25
ARTICLE IX
RISK OF LOSS
------------
9.1 Risk of Loss. Until the Closing, all risk of loss or damage to
------------
the Purchased Assets shall be borne by Sellers, and thereafter shall be borne by
Buyer. If any material portion of the Purchased Assets is destroyed or damaged
by fire or any other cause prior to the Closing, Sellers shall promptly give
notice to Buyer of such damage or destruction and the amount of insurance, if
any, covering said property. Prior to the Closing, Buyer shall have the option,
which shall be exercised by written notice to Sellers within ten (10) days after
receipt of Sellers' notice or if there is not ten days prior to the Closing
Date, as soon as possible but not less than 24 hours prior to the Closing, of
(a) accepting the Purchased Assets in their destroyed or damaged condition in
which event any insurance proceeds payable to Sellers with respect to the
Purchased Assets shall be assigned to Buyer, and the full Purchase Price shall
be paid for such personal property, or (b) terminating this Agreement. If Buyer
elects to proceed with the Closing, then any such insurance proceeds shall
belong, and to the extent necessary shall be assigned, to Buyer without any
reduction in the Purchase Price.
ARTICLE X
ACTIONS BY SELLERS AND BUYER AFTER THE CLOSING
----------------------------------------------
10.1 Books and Records. Each party shall cooperate with and make
-----------------
available to the other party, during normal business hours, all Books and
Records, information and employees (without substantial disruption of
employment) which are necessary or useful in connection with any tax inquiry,
audit, investigation or dispute, any litigation or investigation or any other
matter requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including, without limitation, copying costs, but excluding reimbursement for
salaries and employee benefits) reasonably incurred in connection with providing
such Books and Records, information or employees. Buyer agrees to maintain all
Books and Records for a minimum of six years from the Closing Date.
10.2 Survival of Representations, Etc. All statements contained in
--------------------------------
the Disclosure Schedule or in any certificate or instrument or conveyance
delivered by or on behalf of the parties pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the parties hereunder. The representations
and warranties of Sellers and Buyer contained herein shall survive the Closing
Date until the date that is the second anniversary of the Closing Date (except
for the representations and warranties set forth in Sections 4.13, 4.16, 4.17
and 4.22 hereof), which shall survive and as to which no time limit shall apply.
26
10.3 Indemnifications by Sellers.
---------------------------
In addition to any other remedies available under law, Sellers,
Michael Reichert, Peter Jones, John Pupkes and Jeff Meehan, jointly and
severally, shall indemnify and hold harmless Buyer, its affiliates, successors
and assigns from and against any and all (a) liabilities, losses, costs or
damages ("Loss") and (b) reasonable attorneys' and accountants' fees and
expenses, court costs and all other reasonable out-of-pocket expenses
("Expense") incurred by Buyer and its affiliate, successors and assigns in
connection with or arising from (i) any breach or claim which if proven true
would constitute a breach by any Seller of any of their covenants in this
Agreement or in any agreement or instrument contemplated hereby or thereby; (ii)
any failure of any Seller to perform any of its obligations in this Agreement or
any agreement or instrument contemplated hereby or thereby; or (iii) any breach
or claim which if proven true would constitute a breach by any Seller of any
warranty or any claim which if proven true would constitute an inaccuracy of any
representation of any Seller contained or referred to in this Agreement or any
schedule or certificate delivered by or on behalf of any Seller pursuant hereto
or thereto. The Buyer's right to indemnification provided for in this Section
10.3 shall terminate (2) two years after the Closing (and no claims made by
Buyer or its affiliates, successors or assigns under this Section shall be valid
thereafter), except that the indemnification shall continue as to (A) the
representations and warranties set forth in Sections 4.13, 4.16, 4.17, and 4.22
as to which no time limitation shall apply; and (B) any Loss or Expense of which
Buyer or its affiliates, successors or assigns has notified Sellers in
accordance with the requirements of Section 10.5 on or prior to the date such
indemnification would otherwise terminate in accordance with this Section 10.3
as to which the obligation of Sellers shall continue until the liability of
Sellers shall have been determined pursuant to this Section 10.3 and Sellers
shall have reimbursed Buyer, and its parent and its affiliates, successors or
assigns for the full amount of such Loss and Expense in accordance with this
Section 10.3.
10.4 Indemnification by Buyer. Buyer shall indemnify and save and
------------------------
hold harmless Sellers, Michael Reichert, Peter Jones, John Pupkes and Jeff
Meehan, and their respective Representatives, affiliates, successors and
assigns, from and against any and all Loss and Expense incurred in connection
with or arising out of or resulting from (i) any breach of any covenant or
warranty, or the inaccuracy of any representation, made by Buyer in or pursuant
to this Agreement; (ii) from and after the Closing Date, any liability,
obligation or commitment of Buyer relating to the Purchased Assets or the
operation of the business acquired from Sellers; (iii) as of or after the
Closing, the failure of Buyer to perform or fulfill any of its covenants or
agreements set forth in this Agreement, including the failure of Buyer to pay
when due or perform services as required under the Assumed Liabilities; or (iv)
any liability arising out of the termination by Buyer of any contract assumed by
Buyer.
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10.5 Notice of Claims. If Buyer or Sellers believes that any of the
----------------
persons indemnified under this Article X has suffered or incurred any Loss or
incurred any Expense, Buyer or Sellers shall notify the indemnifying party
promptly, in writing describing such Loss or Expense, the amount thereof, if
known, and the method of computation of such Loss or Expense, all with
reasonable particularity and containing a reference to the provisions of this
Agreement or any other agreement or any schedule or certificate delivered
pursuant hereto or thereto in respect of which such Loss or Expense shall have
occurred. If any action at law or suit in equity is instituted by or against a
third party with respect to which any of the indemnified persons intends to
claim any liability or expense as Loss or Expense under this Article X, any such
indemnified person shall promptly notify the indemnifying party of such action
or suit.
10.6 Third Party Claims. (a) Subject to Section 10.4, the persons
------------------
indemnified under this Article X shall have the right to conduct and control,
through a single counsel of their choosing, any third party claim, action or
suit, and the persons indemnified may compromise or settle the same, provided
that any of the indemnified persons shall give the indemnifying party advance
notice of any proposed compromise or settlement. The indemnified persons shall
permit the indemnifying party to participate in the defense of any such action
or suit through counsel chosen by it, provided that the fees and expenses of
such counsel shall be borne by the indemnifying party. Subject to Section 10.4,
any compromise or settlement with respect to a claim for money damages effected
by the indemnifying party after the indemnified party shall have disapproved
such compromise or settlement shall discharge the indemnifying party from
liability with respect to the subject matter thereof, and no amount in respect
thereof shall be claimed as Loss or Expense under Section 10.4.
(b) If the remedy sought in any action or suit referred to in
paragraph (a) of this Section 10.6 is solely money damages and will have no
continuing effect on the business of any indemnified person, the indemnifying
party shall have 15 business days after receipt of the notice referred to in the
last sentence of Section 10.5 to notify the indemnified persons that it elects
to conduct and control such action or suit. If the indemnifying party does not
give the foregoing notice, the indemnified persons shall have the right to
defend, contest, settle or compromise such action or suit in the exercise of
their exclusive discretion, and the indemnifying party shall, upon request from
any of the indemnified persons, promptly pay to such indemnified persons in
accordance with the other terms of this Article X of any Loss resulting from its
liability to the third party claimant and all related Expense. If the
indemnifying party gives the foregoing notice, the indemnifying party shall have
the right to undertake, conduct and control, through counsel of its own choosing
and at the sole expense of the indemnifying party, the conduct and settlement of
such action or suit, and the indemnified persons shall cooperate with the
indemnifying party in connection therewith; provided that (x) the indemnifying
party-shall not thereby permit to
28
exist any lien, encumbrance or other adverse charge upon any asset of any
indemnified person; (y) the indemnifying party shall permit the indemnified
persons to participate in such conduct or settlement through counsel chosen by
the indemnified persons, but the fees and expenses of such counsel shall be
borne by the indemnified persons except as provided in clause (z) below; and (z)
the indemnifying party shall agree promptly to reimburse to the extent required
under this Article X the indemnified persons for the full amount of any Loss
resulting from such action or suit and all related Expense incurred by the
indemnified persons, except fees and expenses of a single counsel for the
indemnified persons incurred after the assumption of the conduct and control of
such action or suit by the indemnifying party. So long as the indemnifying party
is contesting any such action or suit in good faith, the indemnified persons
shall not pay or settle any such action or suit. Notwithstanding the foregoing,
the indemnified persons shall have the right to pay or settle any such action or
suit, provided that in such event the indemnified persons shall waive any right
to indemnify therefor by the indemnifying party, and no amount in respect
thereof shall be claimed as Loss or Expense under this Article X.
(c) Limitation on Loss or Expense. No claim may be brought pursuant
-----------------------------
to the provisions of Section 10.3 for any Loss or Expense or for any action
arising under or in connection with the representations and warranties of the
Sellers contained in this Agreement unless and until the aggregate amount of
such claims exceeds $50,000 and then only to the extent of such excess over
$50,000; provided, however, that this provision shall not apply to claims
arising under Sections 4.13, 4.16, 4.17, and 4.22 of this Agreement. In no
event shall a party against whom indemnification is claimed be liable for (i)
Losses or Expenses in excess of the Purchase Price and no Shareholder shall
indemnify Buyer for Losses and Expenses in excess of such shareholder's prorata
share of the Purchase Price.
(d) Valuation of Loss and Expenses. For purposes of evaluating the
------------------------------
Loss and Expense related to claims under this Article X the amount of Loss and
Expense shall be determined on a net after-tax basis, taking into account the
present value, based on a discount rate equal to the prime rate of The Chase
Manhattan Bank, N.A. as of the time any indemnity payment is made or any
litigation to recover the same is commenced, whichever shall first occur, of any
off-setting tax benefit which, in the reasonable opinion of the indemnified
party or its independent public accountants, the indemnified person may
reasonably be expected to receive as a result of such Loss and Expense.
10.7 Shareholders are guarantors of certain of the Contracts and
Leases of the Sellers being assumed by Buyer, which guaranties are listed on
Exhibit J (the "Guaranties"). Buyer agrees to use best efforts to secure,
effective as of the Closing Date, the full release of the Shareholders from such
Guaranties. After the Closing Date, Buyer shall indemnify, defend and hold
Shareholders
29
harmless from and against any Loss and Expense attributable to any of the
Guaranties.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Further Assurances. Both before and after the Closing Date,
------------------
each party will cooperate in good faith with the others and will take all
appropriate action and execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, including, without limitation, obtaining
consents or approvals from third parties for the transfer of Purchased Assets
that were transferred subject to consents or approvals being obtained, as
provided in Section 8.2(a). Any contracts, commitments, or other agreements
required to be listed on the Disclosure Schedule and not so listed shall be
assigned to Buyer on Buyer's written request.
11.2 Bulk Sales. It may not be practicable to comply or attempt to
----------
comply with the procedures of the "Bulk Sales Act" or any similar law of any or
all of the states in which the Purchased Assets are situated or of any other
state which may be asserted to be applicable to the transactions contemplated
hereby. Accordingly, to induce Buyer to waive any requirements for compliance
with any or all of such laws, Sellers agree that except for liabilities
specifically assumed by Buyer hereunder, the indemnity provisions of Section
10.3 hereof shall apply to any Damages of Buyer arising out of or resulting from
the failure of Buyer or Sellers to comply with any or all such laws.
11.3 Termination. If any condition precedent to Sellers' obligations
-----------
hereunder is not satisfied and such condition is not waived by Sellers at or
prior to the Closing Date, or if any condition precedent to Buyer's obligations
hereunder (including the nonoccurrence of any Destruction that would permit
Buyer to terminate this Agreement under Section 9.1) is not satisfied and such
condition is not waived by Buyer at or prior to the Closing Date, Sellers or
Buyer, as the case may be, may terminate this Agreement at their or its option
by notice to the other party. In the event of a termination of this Agreement
by either party as above provided, neither party shall have any liability
hereunder of any nature whatsoever (other than pursuant to Section 11.13 below)
to the other party, including any liability for damages, unless either party is
in default under its obligations hereunder, in which event the party in default
shall be liable to the other party for such default. In the event that a
condition precedent to its obligations is not satisfied, nothing contained
herein shall be deemed to require any party to terminate this Agreement, rather
than to waive such condition precedent and proceed with the Closing.
30
11.4 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by Sellers or Buyer without the prior
written consent of the other party; except that Buyer may, without such consent,
assign all such rights and such obligations to a wholly-owned subsidiary or
subsidiaries of Buyer. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, and no other person shall have any right, benefit or
obligation hereunder.
11.5 Notices; Transfer of Funds. Unless otherwise provided herein,
--------------------------
any notice, request, instruction or other document to be given hereunder by
either party to the other shall be in writing and delivered personally, by
facsimile, overnight delivery service, or mailed by certified mail, postage
prepaid, return receipt requested (such mailed notice to be effective on the
date such receipt is acknowledged or refused), as follows:
If to Sellers: John Pupkes
5021 Dupont Avenue South
Minneapolis, MN 55419
Michael Reichert
155 West Point Road
Tonka Bay, MN 55331
Peter Jones
18216 Hermitage Way
Minnetonka, MN 55345
Jeff Meehan
4821 Minneapolis Avenue
Mound, MN 55364
With a copy to: Stanley Efron
Henson & Efron, P.A.
1200 Title Insurance Bldg.
400 Second Avenue South
Minneapolis, MN 55401
If to Buyer: McLeod, Inc.
McLeodUSA Technology Park
6400 C Street SW
P.O. Box 3177
Cedar Rapids, Iowa 52406-3177
31
With a copy to: Carroll J. Reasoner
Shuttleworth & Ingersoll, P.C.
500 Firstar Bank Bldg.
P.O. Box 2107
Cedar Rapids, Iowa 52406-2107
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
Payments to be made to Sellers hereunder shall be made by wire
transferred funds to be delivered to such account(s) or place(s) as Sellers may
designate by written notice as provided herein.
11.6 Choice of Law. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the laws of the
State of Minnesota (without reference to the choice of law provisions of Iowa
law) except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
11.7 Entire Agreement; Amendments and Waivers. This Agreement,
----------------------------------------
together with all exhibits and schedules hereto, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
11.8 Multiple Counterparts. This Agreement may be executed in one or
---------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.9 Expenses. Except as otherwise specified herein, each party
--------
hereto shall pay its own legal, accounting, out-of-pocket and other expenses
incident to this Agreement and to any action taken by such party in preparation
for carrying this Agreement into effect. Buyer shall pay all costs of applying
for new Permits and obtaining the transfer of existing Permits which may be
lawfully transferred, including vehicle transfer and title charges.
11.10 Invalidity. In the event that any one or more of the
----------
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the
32
maximum extent permitted by law, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
11.11 Titles. The titles, captions or headings of the Articles and
------
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
11.12 Publicity. Except as required by law, no Seller nor Buyer
---------
shall issue any press release or make any public statement regarding the
transactions contemplated hereby, without the prior approval of the other party,
and the parties hereto shall issue a mutually acceptable press release as soon
as practicable after the execution and delivery of this Agreement.
11.13 Confidential Information. The parties acknowledge that the
------------------------
transaction described herein is of a confidential nature and shall not be
disclosed except to consultants, advisors and affiliates, or as required by law,
until such time as the parties make a public announcement regarding the
transaction as provided in Section 11.12. None of the parties shall make any
public disclosure of the specific terms of this Agreement, except as required by
law. In connection with the negotiation of this Agreement and the preparation
for the consummation of the transactions contemplated hereby, each party
acknowledges that it will have access to confidential information relating to
other parties. Each party shall treat such information as confidential,
preserve the confidentiality thereof and not duplicate or use such information,
except to advisors, consultants and affiliates in connection with the
transactions contemplated hereby. Sellers, at a time and in a manner which it
reasonably determines and after prior notice to and consultation with Buyer, may
notify employees of the fact of the subject transaction. In the event of the
termination of this Agreement for any reason whatsoever, each party shall return
to the others all documents, work papers and other material (including all
copies thereof) obtained from them in connection with the transactions
contemplated hereby and will use all reasonable efforts, including instructing
its employees and others who have had access to such information, to keep
confidential and not to use any such information, unless such information is
now, or is hereafter disclosed, through no act or omission of such party, in any
manner making it available to the general public.
11.14 Mediation and Arbitration. Any controversy or claim arising
-------------------------
out of or relating to this contract, or the breach thereof, including the
construction or application of this contract, shall be first submitted to
nonbinding mediation and if not resolved then settled by binding arbitration by
a single arbitrator in Minneapolis, Minnesota in accordance with the rules of
the American Arbitration Association then in effect, and judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
33
ARTICLE XII
GUARANTY
--------
McLeod unconditionally and irrevocably guarantees to Sellers the full,
prompt and complete performance by Buyer of all of its covenants, agreements,
indemnifications, representations and warranties hereunder as if made or agreed
to by McLeod itself. No action of Sellers whatsoever in modifying or
compromising any obligation of Buyer hereunder shall in any fashion alter,
impair or invalidate this guaranty of performance, whether or not Sellers give
notice to McLeod of such modifications or compromise. Sellers shall not be
required to seek satisfaction from Buyer prior to or simultaneous with seeking
satisfaction from McLeod under this Article XII. No failure or delay on the
part of Sellers in the exercise of any right or remedy under this Purchase
Agreement shall operate as a waiver of any such right or remedy, including
rights and remedies under this Article XII, and no single or partial exercise by
Sellers of any such right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy. No assignment or transfer
by Buyer of any of its rights hereunder shall alter or impair this continuing
and absolute guaranty of McLeod. Sellers shall have no greater rights against
McLeod by reason of this guaranty than Sellers have against Buyer.
34
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
ESI/McLEODUSA, INC. ESI COMMUNICATIONS, INC.
BY: /s/ Stephen C. Gray BY: /s/ Peter Jones
--------------------------- ---------------------------
ESI COMMUNICATIONS/SW, INC. ESI COMMUNICATIONS/WEST, INC.
BY: /s/ Michael Reichert BY: /s/ Peter Jones
--------------------------- ---------------------------
ESI COMMUNICATIONS/ ESI COMMUNICATIONS --
DOWNTOWN INC. NORTH, INC.
BY: /s/ John Pupkes BY: /s/ Jeff Meehan
--------------------------- ---------------------------
/s/ Michael Reichert /s/ Peter Jones
- ------------------------------ ------------------------------
MICHAEL REICHERT PETER JONES
/s/ John Pupkes /s/ Jeff Meehan
- ------------------------------ ------------------------------
JOHN PUPKES JEFF MEEHAN
McLeodUSA Incorporated
f/k/a McLEOD, INC.
BY: /s/ Stephen C. Gray
------------------------------
35
EXHIBIT LIST
------------
Exhibit A Balance Sheet
Exhibit B Contracts Not Assumed
Exhibit C Excluded Personal Property
Exhibit D Financial Statements (three years)
Exhibit E Interim Financial Statements
Exhibit F Contracts Assumed
Exhibit G Leases Assumed
Exhibit H ESI Cabling Services Incorporated Share List
Exhibit I Employment Agreements
Exhibit J Guaranties of Shareholders
McLeodUSA Incorporated agrees to furnish supplementally a copy of any
of the Exhibits listed above to the Commission upon request.
36