EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MCLEODUSA INCORPORATED,
BRAVO ACQUISITION CORPORATION,
OVATION COMMUNICATIONS, INC.
and
Certain of the Stockholders of
OVATION COMMUNICATIONS, INC.
Dated as of January 7, 1999
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER..........................................................2
SECTION 1.01. The Merger...................................................2
SECTION 1.02. Effective Time...............................................2
SECTION 1.03. Effect of the Merger.........................................2
SECTION 1.04. Certificate of Incorporation; Bylaws.........................3
SECTION 1.05. Directors and Officers.......................................3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES.................3
SECTION 2.01. Conversion of Securities.....................................3
SECTION 2.02. Exchange of Certificates.....................................6
SECTION 2.03. Stock Transfer Books.........................................9
SECTION 2.04. Stock Options................................................9
SECTION 2.05. Closing.....................................................10
SECTION 2.06. Dissenting Stockholders.....................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................11
SECTION 3.01. Organization and Standing...................................11
SECTION 3.02. Subsidiaries................................................12
SECTION 3.03. Certificate of Incorporation and Bylaws.....................12
SECTION 3.04. Capitalization..............................................12
SECTION 3.05. Authority; Binding Obligation...............................13
SECTION 3.06. No Conflict; Required Filings and Consents..................14
SECTION 3.07. Licenses; Compliance........................................16
SECTION 3.08. Financial Statements........................................17
SECTION 3.09. Absence of Undisclosed Liabilities..........................18
SECTION 3.10. Absence of Certain Changes or Events........................18
SECTION 3.11. Litigation; Disputes........................................20
SECTION 3.12. Debt Instruments............................................20
SECTION 3.13. Real Property Leases........................................21
SECTION 3.14. Other Agreements; No Default................................21
SECTION 3.15. Labor Relations.............................................23
SECTION 3.16. Pension and Benefit Plans...................................24
SECTION 3.17. Taxes and Tax Matters.......................................27
SECTION 3.18. Customers...................................................29
SECTION 3.19. Certain Business Practices..................................29
SECTION 3.20. Insurance...................................................30
SECTION 3.21. Potential Conflicts of Interest.............................30
SECTION 3.22. Receivables.................................................31
SECTION 3.23. Real Property...............................................31
SECTION 3.24. Books and Records...........................................32
SECTION 3.25. Assets......................................................33
SECTION 3.26. No Infringement or Contest..................................33
SECTION 3.27. Intentionally Deleted.......................................34
SECTION 3.28. Board Recommendation........................................34
SECTION 3.29. Vote Required...............................................35
SECTION 3.30. Banks; Attorneys-in-fact....................................35
SECTION 3.31. Intentionally Deleted.......................................35
SECTION 3.32. Brokers.....................................................35
SECTION 3.33. Environmental Matters.......................................35
SECTION 3.34. Disclosure..................................................37
SECTION 3.35. Directors, Officers and Affiliates..........................37
SECTION 3.36. Copies of Documents.........................................38
SECTION 3.37. Condition and Operation of the System.......................38
SECTION 3.38. Reorganization..............................................39
SECTION 3.39. State Takeover Statutes; Certain Charter Provisions.........40
SECTION 3.40. Year 2000 Review............................................40
SECTION 3.41. Affiliate Agreements........................................40
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF PRINCIPAL COMPANY
STOCKHOLDERS....................................................41
SECTION 3A.01. Principal Company Stockholders That Are Entities...........41
SECTION 3A.02. Principal Company Stockholders That Are Individuals........42
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB.......42
SECTION 4.01. Organization and Qualification; Subsidiaries................43
SECTION 4.02. Certificate of Incorporation and Bylaws.....................43
SECTION 4.03. Authority; Binding Obligation...............................43
SECTION 4.04. No Conflict; Required Filings and Consents..................44
SECTION 4.05. No Prior Activities of Acquiror Sub.........................45
SECTION 4.06. Brokers.....................................................45
SECTION 4.07. SEC Documents...............................................45
SECTION 4.08. Acquiror Common Stock.......................................46
SECTION 4.09. Capitalization..............................................46
SECTION 4.10. Reorganization..............................................48
SECTION 4.11. Compliance..................................................48
SECTION 4.12. Disclosure..................................................48
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.................... 49
SECTION 5.01. Conduct of Business of the Company.................... 49
SECTION 5.02. Other Actions......................................... 52
SECTION 5.03. Certain Tax Matters................................... 52
SECTION 5.04. Access and Information................................ 53
SECTION 5.05. No Solicitation....................................... 53
ARTICLE VI ADDITIONAL AGREEMENTS....................................... 54
SECTION 6.01. Registration Statement; Proxy Statement............... 54
SECTION 6.02. Stockholder Approval.................................. 56
SECTION 6.03. Appropriate Action; Consents; Filings................. 57
SECTION 6.04. Amendment to Stockholders' Agreement.................. 58
SECTION 6.05. Update Disclosure; Breaches........................... 58
SECTION 6.06. Public Announcements.................................. 59
SECTION 6.07. Registration of Company Options....................... 59
SECTION 6.08. Unaudited Financial Information....................... 60
SECTION 6.09. Environmental Matters................................. 60
SECTION 6.10. Post-Signing SEC Documents............................ 60
SECTION 6.11. Indemnification....................................... 61
SECTION 6.12. Procedures; Conditions of Indemnification............. 62
SECTION 6.13. Affiliates; Tax Treatment............................. 64
SECTION 6.14. Tax Returns........................................... 64
SECTION 6.15. Reorganization........................................ 65
SECTION 6.16. Directors' and Officers' Insurance; Indemnification... 65
SECTION 6.17. Obligations of Acquiror Sub........................... 66
SECTION 6.18. Loan Agreement........................................ 66
SECTION 6.19 Letters of Accountants................................ 67
ARTICLE VII CONDITIONS PRECEDENT....................................... 67
SECTION 7.01. Conditions to Obligations of Each Party Under This
Merger Agreement...................................... 67
SECTION 7.02. Additional Conditions to Obligations of Acquiror and
Acquiror Sub.......................................... 69
SECTION 7.03. Additional Conditions to Obligations of the Company... 71
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER......................... 73
SECTION 8.01. Termination........................................... 73
SECTION 8.02. Effect of Termination................................. 75
SECTION 8.03. Expenses.............................................. 75
SECTION 8.04. Amendment............................................. 75
SECTION 8.05. Extension; Waiver..................................... 75
ARTICLE IX GENERAL PROVISIONS................................................76
SECTION 9.01. Survival of Representations and Warranties..................76
SECTION 9.02. Notices.....................................................76
SECTION 9.03. Headings....................................................78
SECTION 9.04. Severability................................................78
SECTION 9.05. Entire Agreement............................................78
SECTION 9.06. Assignment..................................................79
SECTION 9.07. Parties in Interest.........................................79
SECTION 9.08. Mutual Drafting.............................................79
SECTION 9.09. Specific Performance........................................79
SECTION 9.10. Governing Law...............................................80
SECTION 9.11. Counterparts................................................80
SECTION 9.12. Confidentiality.............................................80
SECTION 9.13. General Exclusion...........................................80
ARTICLE X DEFINITIONS........................................................81
EXHIBITS
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EXHIBIT A FORM OF AFFILIATE AGREEMENT
EXHIBIT B FORM OF REVOLVING CREDIT AGREEMENT AND PROMISSORY NOTE
EXHIBIT C FORM OF TAX OPINION TO BE RENDERED BY COUNSEL TO ACQUIROR
EXHIBIT D FORM OF ACQUIROR TAX CERTIFICATE
EXHIBIT E FORM OF COMPANY TAX CERTIFICATE
EXHIBIT F FORM OF TAX OPINION TO BE RENDERED BY COUNSEL TO THE COMPANY
EXHIBIT G FORM OF ACQUIROR TAX CERTIFICATE
EXHIBIT H FORM OF COMPANY TAX CERTIFICATE
AGREEMENT AND PLAN OF MERGER, dated as of January 7, 1999 (this "Merger
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Agreement"), among McLeodUSA Incorporated, a Delaware corporation ("Acquiror"),
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Bravo Acquisition Corporation, a Delaware corporation ("Acquiror Sub") and a
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direct wholly owned subsidiary of Acquiror, Ovation Communications, Inc., a
Delaware corporation (the "Company"), and those stockholders of the Company
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named on the signature pages hereof (the "Principal Company Stockholders");
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WHEREAS, the Company, upon the terms and subject to the conditions of this
Merger Agreement and in accordance with the General Corporation Law of the State
of Delaware ("Delaware Law"), will merge with and into Acquiror Sub (the
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"Merger");
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WHEREAS, the Board of Directors of the Company has (i) determined that the
Merger is advisable and fair to the holders of Company Capital Stock (as defined
in Section 3.04) and is in the best interests of such stockholders and (ii)
approved and adopted this Merger Agreement and the transactions contemplated
hereby and recommended approval and adoption of this Merger Agreement by the
stockholders of the Company (the "Company Stockholders");
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WHEREAS, the Board of Directors of Acquiror has determined that the Merger
is advisable and in the best interests of Acquiror and its stockholders and the
Boards of Directors of Acquiror and Acquiror Sub and the sole stockholder of
Acquiror Sub have approved and adopted this Merger Agreement and the
transactions contemplated hereby;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization under the provisions of Section
368(a) and Section 368(a)(2)(D) of the United States Internal Revenue Code of
1986, as amended (the "Code"); and
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WHEREAS, in order to induce Acquiror and Acquiror Sub to enter into this
Merger Agreement, concurrently herewith (i) M/C Investors, L.L.C.,
Media/Communications Partners III Limited Partnership, Timothy T. Devine,
Kenneth A. Kirley, Nicholas Lenoci, Jr., Charles M. Osborne and Scott A. Rediger
are entering into voting agreements pursuant to which, among other things, each
such stockholder agrees to vote in favor of this Merger Agreement and the Merger
and against any Competing Transaction (as defined in Section 5.05(a)), (ii) M/C
Investors, L.L.C. and Media/Communications Partners III Limited Partnership are
entering into a stockholders' agreement with Acquiror, Clark E. and Mary E.
McLeod, Richard Lumpkin and IES Investments Inc. (the "Stockholders' Agreement")
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and (iii) Acquiror is agreeing to lend to the Company up to $20,000,000 on a
senior subordinated unsecured basis as provided in Section 6.18 (the "Acquiror
Loan");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this Merger
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows.
ARTICLE I
THE MERGER
SECTION 1.01. The Merger.
Upon the terms and subject to the conditions set forth in this Merger
Agreement, and in accordance with Delaware Law, at the Effective Time (as
defined in Section 1.02) the Company shall be merged with and into Acquiror Sub.
As a result of the Merger, the separate corporate existence of the Company shall
cease and Acquiror Sub shall continue as the surviving corporation of the Merger
(the "Surviving Corporation").
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SECTION 1.02. Effective Time.
Subject to the provisions of Section 2.05, as promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII, the parties hereto shall cause the Merger to be consummated by
filing this Merger Agreement, articles of merger or other appropriate documents
(in any such case, the "Articles of Merger") with the Secretary of State of the
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State of Delaware, in such form as required by, and executed in accordance with
the relevant provisions of, Delaware Law (the date and time of such filing being
the "Effective Time"). The day on which the Effective Time shall occur shall
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hereinafter be referred to as the "Closing Date."
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SECTION 1.03. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Acquiror Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Acquiror Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.04. Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Acquiror prior to the Effective
Time, at the Effective Time the certificate of incorporation of Acquiror Sub
shall
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continue unchanged and shall be the certificate of incorporation of the
Surviving Corporation, until thereafter amended as provided by Law (as defined
in Article X) and such certificate of incorporation, except that Article I of
Acquiror Sub's certificate of incorporation shall be amended at the Effective
Time to read as follows: "The name of the corporation is Ovation Communications,
Inc."
(b) Unless otherwise determined by Acquiror prior to the Effective
Time, at the Effective Time the bylaws of Acquiror Sub shall continue unchanged
and shall be the bylaws of the Surviving Corporation until thereafter amended as
provided by Law, the certificate of incorporation of the Surviving Corporation
and such bylaws.
SECTION 1.05. Directors and Officers.
The directors of Acquiror Sub immediately prior to the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation, and the officers of Acquiror Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities.
At the Effective Time, as provided in this Merger Agreement, by virtue
of the Merger and without any action on the part of Acquiror Sub, the Company or
the Company Stockholders:
(a) Conversion.
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(i) Company Common Stock. Subject to the provisions of this
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Section 2.01, each share of common stock, $.01 par value per share, of the
Company ("Company Common Stock") issued and outstanding immediately prior
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to the Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 2.01(c) or any Company Dissenting Shares (as
defined in Article X)), shall be converted, subject to Section 2.01(a)(iv)
and Section 2.02(e), into the right to receive, at the election of the
holder thereof, either (A) the Common Stock Cash Amount (as defined in
Article X), or (B) one share of Class A common stock, par value $.01 per
share, of Acquiror ("Acquiror Common Stock") multiplied by the Common Stock
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Exchange Ratio (as defined in Article X). Each record holder of shares
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of Company Common Stock immediately prior to the Effective Time will be
entitled to elect to receive either cash pursuant to the Common Stock Cash
Amount (such election being referred to herein as a "Cash Election" and
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such shares being referred to herein as "Cash Election Shares") or Acquiror
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Common Stock pursuant to the Common Stock Exchange Ratio for each such
share of Company Common Stock. All such elections must be made on a form
designated for that purpose by Acquiror (a "Form of Election") that must be
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delivered to Acquiror after the effectiveness of the Registration Statement
(as defined in Section 6.01(a)), unless otherwise permitted by Law, and
prior to the third (3rd) business day preceding the Scheduled Closing Date.
If Acquiror does not receive a Form of Election from a holder of shares of
Company Common Stock prior to the third (3rd) business day preceding the
Scheduled Closing Date, then such holder shall be deemed to have elected to
receive Acquiror Common Stock for all shares of Company Common Stock owned
by such holder. Holders of record of shares of Company Common Stock who
hold such shares as nominees, trustees or in other representative
capacities (a "Representative") may submit multiple Forms of Election,
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provided such Representative certifies that each such Form of Election
covers all the shares of Company Common Stock held by such Representative
for a particular beneficial owner.
All such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each certificate previously representing any such shares
shall thereafter represent the right to receive the Acquiror Common Stock
and/or cash into which such shares were converted in the Merger. No
fractional share of Acquiror Common Stock shall be issued, and, in lieu
thereof, a cash payment shall be made pursuant to Section 2.02(e) hereof.
(ii) Company Preferred Stock. Each share of Series A Preferred
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Stock, $.01 par value per share, of the Company ("Company Series A
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Preferred Stock") issued and outstanding immediately prior to the Effective
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Time (other than any shares of Company Series A Preferred Stock to be
canceled pursuant to Section 2.01(c) or any Company Dissenting Shares),
shall be converted into the right to receive its Preferred Liquidation
Preference (as defined in Article X) in cash, without interest (the
"Preferred Stock Cash Amount").
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All such shares of Company Series A Preferred Stock shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the right to receive the Preferred Stock
Cash Amount into which such shares were converted in the Merger.
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(iii) Merger Consideration. If between the date of this Merger
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Agreement and the Effective Time the outstanding shares of Acquiror Common
Stock or Company Common Stock shall have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Common Stock Exchange Ratio and the Common Stock
Cash Amount shall be appropriately and correspondingly adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
(iv) Adjustment for Changes in Value. To the extent that the
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value of the Acquiror Common Stock forming part of the Merger Consideration
(as defined in Article X) as of the Effective Time, based upon the closing
price of the Acquiror Common Stock on The Nasdaq Stock Market's National
Market System on the last trading day immediately prior to the Closing Date
(as defined in Section 2.05) (the "Acquiror Common Stock Closing Price"),
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would be less than 50% (or such lesser percentage, not below 40%, as the
Company may reasonably determine in connection with the qualification of
the Merger as a tax-free reorganization under Section 368(a) of the Code)
of the sum of (A) the aggregate value of the Merger Consideration (with
Acquiror Common Stock being valued for this purpose at the Acquiror Common
Stock Closing Price), (B) any amounts paid directly or indirectly by the
Company or Acquiror to purchase or redeem shares of the Company's capital
stock on or after December 1, 1998 and (C) an amount equal to the number of
Company Dissenting Shares multiplied by the Common Stock Cash Amount, then
(A) the Acquiror Common Stock portion of the Merger Consideration shall be
increased by a number of shares of Acquiror Common Stock equal to the
amount of such deficit in value divided by the Acquiror Common Stock
Closing Price (rounded to the nearest whole share) (the "Stock Adjustment
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Amount"), (B) the aggregate Common Stock Cash Amount shall be
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correspondingly reduced by an amount equal to the product of the Stock
Adjustment Amount multiplied by the Acquiror Common Stock Closing Price
(the "Cash Adjustment Amount"), and (C) each Cash Election Share shall be
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converted, subject to Section 2.02(e), into the right to receive (1) a
number of shares of Acquiror Common Stock equal to the Stock Adjustment
Amount divided by the Cash Election Shares and (2) an amount in cash equal
to the Common Stock Cash Amount minus the quotient of the Cash Adjustment
Amount divided by the Cash Election Shares.
(b) Cancellation and Retirement of Company Capital Stock. All such
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shares of Company Capital Stock referred to in Section 2.01(a) (other than
any shares of Company Capital Stock to be canceled pursuant to Section
2.01(c)) shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the right to
receive
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the Merger Consideration as described in Section 2.01(a). The holders of
certificates which prior to the Effective Time represented shares of
Company Capital Stock shall cease to have any rights with respect thereto
except as otherwise provided herein or by Law.
(c) Cancellation of Treasury Stock. Any shares of Company Capital
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Stock held in the treasury of the Company and any shares of Company Capital
Stock owned by Acquiror or any direct or indirect wholly owned subsidiary
of Acquiror or of the Company immediately prior to the Effective Time shall
be canceled and extinguished without any conversion thereof and no payment
shall be made with respect thereto.
(d) Acquiror Sub Common Stock. Each share of common stock, par value
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$0.01 per share, of Acquiror Sub issued and outstanding immediately prior
to the Effective Time shall continue to be one issued and outstanding share
of common stock, par value $.01 per share, of the Surviving Corporation,
and all of which shall continue to be held by Acquiror.
SECTION 2.02. Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Acquiror shall
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deposit, or shall cause to be deposited, with Norwest Bank Minnesota, N.A., or
another bank or trust company designated by Acquiror (the "Exchange Agent"), for
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the benefit of the holders of Company Capital Stock for exchange through the
Exchange Agent in accordance with this Article II as of the Effective Time, (i)
certificates representing the whole shares of Acquiror Common Stock issuable to
such holders pursuant to Section 2.01, (ii) cash in an amount sufficient to
permit payment of the cash payable pursuant to Section 2.01 and (iii) cash in an
amount sufficient to permit payment of the cash payable in lieu of fractional
shares pursuant to Section 2.02(e) (such certificates for shares of Acquiror
Common Stock, together with any dividends or distributions with respect thereto,
and such amounts of cash, being hereafter referred to as the "Exchange Fund").
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Acquiror shall irrevocably instruct the Exchange Agent, at the Effective Time,
to deliver the shares of Acquiror Common Stock to be issued and to deliver by
check or, if requested, in immediately available funds the amount of cash to be
paid to the holders of Company Capital Stock pursuant to Section 2.01 out of the
Exchange Fund pursuant to the procedures set forth in Section 2.02(b) beginning
immediately after the Effective Time.
(b) Exchange Procedures. At the earliest practicable date prior to
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the Effective Time, Acquiror shall mail or shall cause to be delivered to each
holder of record of a certificate or certificates of Company Capital Stock which
immediately prior to the Effective Time represented outstanding shares of
Company Capital Stock (the "Certificates") (i) a letter of transmittal (which
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shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon
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proper delivery of the Certificates to the Exchange Agent and shall be in
customary form) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for cash or certificates representing shares of
Acquiror Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such instructions,
the holder of such Certificate shall be entitled to receive in exchange
therefor, and Acquiror shall thereupon cause the Exchange Agent to deliver to
the holder of such Certificate, (i) the amount of cash, by check or, if
requested, in immediately available funds, which such holder has the right to
receive in accordance with Section 2.01, (ii) a certificate representing that
number of whole shares of Acquiror Common Stock which such holder has the right
to receive in accordance with Section 2.01 together with any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c) and
(iii) cash in lieu of fractional shares of Acquiror Capital Stock to which such
holder is entitled pursuant to Section 2.02(e). The Certificates so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of shares
of Company Capital Stock which is not registered in the transfer records of the
Company, the proper number of shares of Acquiror Common Stock may be issued
and/or the proper amount of cash may be paid pursuant hereto to a transferee if
the Certificates representing such shares of Company Capital Stock, properly
endorsed or otherwise in proper form for transfer, are presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.02, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration issuable in exchange
therefor, together with any dividends or other distributions to which such
holder is entitled pursuant to Section 2.02(c). No interest will be paid or will
accrue on any cash payable pursuant to Sections 2.01(a), 2.02(c) or 2.02(e).
(c) Distributions with Respect to Unexchanged Shares of Acquiror
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Common Stock. No dividends or other distributions declared or made after the
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Effective Time with respect to Acquiror Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the whole shares of Acquiror Common Stock represented thereby
until the holder of such Certificate shall surrender such Certificate. Subject
to the effect of escheat, tax or other applicable Laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, (i) promptly, the amount of any cash
payable with respect to (A) the shares of Company Common Stock formerly
represented by such Certificate, and (B) a fractional share of Acquiror Common
Stock to which such holder is entitled pursuant to Section 2.02(e), and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Acquiror
Common Stock, and (ii) at the appropriate payment date, the
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amount of dividends or other distributions, with a record date after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Acquiror Common Stock.
(d) No Further Rights in Company Capital Stock. All shares of
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Acquiror Common Stock issued or cash paid upon conversion of the shares of
Company Capital Stock in accordance with the terms hereof (including any cash
paid pursuant to Sections 2.01(a), 2.02(c) or 2.02(e)) shall be deemed to have
been issued and paid in full satisfaction of all rights pertaining to such
shares of Company Capital Stock.
(e) No Fractional Shares. No fractional shares of Acquiror Common
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Stock shall be issued upon surrender for exchange of the Certificates, and any
such fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of Acquiror, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to receive a
fraction of a share of Acquiror Common Stock, after aggregating all Certificates
delivered by such holder, and rounding down to the nearest whole share, shall
receive an amount in cash equal to the average, during the ten (10) trading days
immediately prior to the Effective Time, of the daily closing prices for
Acquiror Common Stock on The Nasdaq Stock Market's National Market System as
reported by Nasdaq (the "Average Trading Price") multiplied by the fraction of a
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share of Acquiror Common Stock to which such holder would otherwise be entitled.
Such payment in lieu of fractional shares shall be administered by the Exchange
Agent pursuant to the procedures set forth in Section 2.02(b).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
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which remains undistributed to the holders of Company Capital Stock for six (6)
months after the Effective Time shall be delivered to Acquiror, upon demand.
Any holders of Company Capital Stock who have not theretofore complied with this
Article II shall thereafter look only to Acquiror for the cash and shares of
Acquiror Common Stock to which they are entitled pursuant to Section 2.01, any
dividends or other distributions with respect to Acquiror Common Stock to which
they are entitled pursuant to Section 2.02(c) and any cash in lieu of fractional
shares of Acquiror Common Stock to which they are entitled pursuant to Section
2.02(e).
(g) No Liability. None of Acquiror, Acquiror Sub, the Company, the
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Surviving Corporation or the Exchange Agent shall be liable to any Person (as
defined in Article X) for any shares of Acquiror Common Stock (or dividends or
distributions with respect thereto) or cash delivered to a public official
pursuant to any abandoned property, escheat or similar Laws.
(h) Lost, Stolen or Destroyed Certificates. In the event any
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certificate evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or
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destroyed certificate, upon the making of an affidavit of that fact by the
holder thereof, such shares of Acquiror Common Stock and cash, if any, as may be
required pursuant to this Article II; provided, however, that Acquiror may, in
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its reasonable discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim that
may be made against Acquiror, the Surviving Corporation, or the Exchange Agent
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 2.03. Stock Transfer Books.
At the Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers of shares of
Company Capital Stock thereafter on the records of the Company. From and after
the Effective Time, the holders of certificates representing shares of Company
Capital Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Capital Stock except as
otherwise provided herein or by Law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Acquiror for any reason shall be
converted into cash and/or shares of Acquiror Common Stock issuable in exchange
therefor pursuant to Section 2.01(a), any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 2.02(c) and any cash
in lieu of fractional shares of Acquiror Common Stock to which the holders
thereof are entitled pursuant to Section 2.02(e).
SECTION 2.04. Stock Options.
Prior to the Effective Time, the Company and Acquiror shall take such
action as may be necessary or appropriate for Acquiror, at its option, to assume
or to issue a substitute option with respect to each outstanding unexpired and
unexercised option to purchase shares of Company Common Stock (collectively, the
"Company Stock Options") under the Company's 1997 Stock Option Plan (the
---------------------
"Company Stock Plan") so that at the Effective Time each Company Stock Option
- -------------------
will become or be replaced by an option to purchase a number of whole shares of
Acquiror Common Stock (an "Acquiror Option") equal to the product of the Common
---------------
Stock Exchange Ratio and the number of shares of Company Common Stock subject to
such Company Stock Options (assuming full vesting) under the Company Stock
Option (and rounding any fractional share up to the nearest whole share), at a
price per share equal to the aggregate exercise price for the shares of Company
Common Stock subject to such Company Stock Option divided by the number of whole
shares of Acquiror Common Stock deemed to be purchasable pursuant to such
Company Stock Option. Each substituted Acquiror Option shall otherwise be
subject to the same terms and conditions as apply to the related Company Stock
Option. The date of grant of each substituted Acquiror Option for purposes of
such terms and
- 9 -
conditions shall be deemed to be the date on which the corresponding Company
Stock Option was granted. As to each assumed Company Stock Option, at the
Effective Time (i) all references to the Company in the stock option agreements
with respect to the Company Stock Options being assumed shall be deemed to refer
to Acquiror; (ii) Acquiror shall assume all of the Company's obligations with
respect to the related Company Stock Option; and (iii) Acquiror shall issue to
each holder of a Company Stock Option a document evidencing the foregoing
assumption by Acquiror. Nothing in this Section 2.04 shall affect the schedule
of vesting with respect to the Company Stock Options in accordance with the
terms of the Company Stock Plan. It is the purpose and intention of the parties
that, subject to applicable Law, the assumption of such Company Stock Options or
the substitution of Acquiror Options for Company Stock Options shall meet the
requirements of Section 424(a) of the Code and that each assumed Company Stock
Option or the substituted Acquiror Option shall qualify immediately after the
Effective Time as incentive stock options as defined in Section 422 of the Code
to the extent that the related Company Stock Option so qualified immediately
before the Effective Time and the foregoing provisions of this Section 2.04
shall be interpreted to further such purpose and intention. The Company
represents and warrants that the assumption of Company Stock Options or
substitution of Acquiror Options therefor, as contemplated by this Section 2.04,
may be effected pursuant to the terms of the Company Stock Options and the
Company Stock Plan without the consent of any holder of a Company Stock Option
and without liability to any such holder. Acquiror represents and warrants that
it has the full power and authority to assume the Company Stock Options or to
substitute Acquiror Options therefor.
SECTION 2.05. Closing.
Subject to the terms and conditions of this Merger Agreement, the closing
of the Merger (the "Closing") will take place after the satisfaction of the
-------
latest to occur or, if permissible, waiver of the conditions set forth in
Article VII hereof. The scheduled closing date will take place as soon as
practicable (but, in any event, no later than the first business day following
the tenth (10th) day) after the satisfaction of the latest to occur or, if
permissible, waiver of the conditions set forth in Section 7.01 hereof (the
"Scheduled Closing Date"), at the offices of Hogan & Hartson L.L.P., Columbia
- -----------------------
Square, 555 13th Street, N.W., Washington, D.C. 20004, unless another date or
place is agreed to in writing by the parties hereto.
SECTION 2.06. Dissenting Stockholders.
Subject to the terms and conditions hereof, at and after the Effective
Time, any holder of shares of Company Capital Stock who complies with Section
262 of Delaware Law (a "Company Dissenting Stockholder") shall be entitled to
------------------------------
obtain payment from the Surviving Corporation of the fair value of such Company
Dissenting Stockholder's shares of Company Capital Stock as determined pursuant
- 10 -
to Section 262 of Delaware Law; provided, however, that, to the extent
-------- -------
permissible under Delaware Law, no such payment shall be made unless and until
such Company Dissenting Stockholder has surrendered to the Exchange Agent the
Certificate representing the shares of Company Capital Stock for which payment
is being made. The Company shall give Acquiror prompt notice of any demands for
appraisal or withdrawals of demands for appraisal received by the Company and
any other documents obtained by the Company pursuant to the provisions of
Section 262 of Delaware Law, and, except with the prior written consent of
Acquiror, which shall not be unreasonably withheld, shall not settle or offer to
settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Disclosure Schedule delivered by
the Company to Acquiror prior to the execution and delivery of this Merger
Agreement (the "Company Disclosure Schedule") (the contents of which Company
---------------------------
Disclosure Schedule may be updated, corrected or otherwise modified by the
Company up to ten (10) days prior to the Closing Date in accordance with Section
6.05(b) hereof) (with (i) a disclosure with respect to a Section of this Merger
Agreement to require a specific reference in the Company Disclosure Schedule to
the Section of this Merger Agreement to which each such disclosure applies, (ii)
no disclosure to be deemed to apply with respect to any Section to which it does
not expressly refer and (iii) the Company having the right to cross-reference
the sections of the Company Disclosure Schedule as appropriate with respect to
disclosures that are reasonably related), the Company hereby represents and
warrants (which representation and warranty shall be deemed to include the
disclosures with respect thereto so specified in the Company Disclosure
Schedule) to, and agrees with, Acquiror and Acquiror Sub as follows, in each
case as of the date of this Merger Agreement, unless otherwise specifically set
forth herein or in the Company Disclosure Schedule:
SECTION 3.01. Organization and Standing.
The Company is a corporation duly organized, validly existing and in good
standing under Delaware Law, and has the full and unrestricted corporate power
and authority to own, operate and lease its Assets (as defined in Article X), to
carry on its business as currently conducted, to execute and deliver this Merger
Agreement and to carry out the transactions contemplated hereby. The Company is
duly qualified to conduct business as a foreign corporation and is in good
standing in Illinois, Michigan, Minnesota and Wisconsin and in each jurisdiction
where the nature of its business or the ownership or leasing of its properties
makes such qualification necessary other than where the failure to be so
qualified would not have a Company Material Adverse Effect (as defined in
Article X).
- 11 -
SECTION 3.02. Subsidiaries.
Except as set forth in Section 3.02 of the Company Disclosure Schedule, the
Company has no Subsidiaries (as defined in Article X) and neither the Company
nor any Subsidiary has any equity investment or other interest in, nor has the
Company or any Subsidiary made advances or loans to (other than intra-company
transactions between or among the Company and any Subsidiary and other than for
customary credit extended to customers of the Company in the Ordinary Course of
Business (as defined in Article X) and reflected in the Financial Statements (as
defined in Section 3.08)), any Person. Section 3.02 of the Company Disclosure
Schedule sets forth (a) the authorized capital stock or other equity interests
of each Subsidiary and the percentage of the outstanding capital stock or other
equity interests of each Subsidiary owned by the Company. All of such shares of
capital stock or other equity interests of the Subsidiaries have been duly
authorized and validly issued and are outstanding, fully paid and nonassessable
and except as set forth in Section 3.02 of the Company Disclosure Schedule, are
owned by the Company free and clear of all Encumbrances (as defined in Article
X) other than Encumbrances arising under applicable securities Laws. Each
Subsidiary is duly organized, validly existing and in good standing under the
Laws of its state or jurisdiction of organization (as listed in Section 3.02 of
the Company Disclosure Schedule), and has the requisite corporate or limited
liability company power and authority to own, operate and lease its Assets and
to carry on its business as currently conducted. Each Subsidiary is duly
qualified to conduct business as a foreign Person and is in good standing in
each jurisdiction where the nature of its business or the ownership or leasing
of its properties makes such qualification necessary, other than where the
failure to be so qualified would not have a Company Material Adverse Effect.
SECTION 3.03. Certificate of Incorporation and Bylaws.
The Company has furnished to Acquiror a true and complete copy of (i) the
certificate of incorporation and (ii) the organizational documents of the
Company and each Subsidiary, as in effect on the date hereof, certified as of a
recent date by the Company's corporate secretary, and a true and complete copy
of the Company's bylaws and the bylaws or other governing agreements of each
Subsidiary, as currently in effect, certified by the Company's corporate
secretary.
SECTION 3.04. Capitalization.
The authorized capital stock of the Company consists of (a) 30,000,000
shares of Company Common Stock, of which: (i) 23,971,756 shares are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable; (ii) no shares are held in the treasury of the Company; and (iii)
806,845 shares are reserved for issuance pursuant to Company Stock Options
(including 127,705 shares to be issued pursuant to Section 4.2 of the Ovation
- 12 -
Stockholders' Agreement); (b) 6,000,000 shares of Company preferred stock, $.01
par value per share ("Company Preferred Stock"), of which (A) 500,000 are
-----------------------
designated "Series A Preferred Stock", of which: (i) 240,000 shares are issued
------------------------
and outstanding, all of which are duly authorized, validly issued, fully paid
and nonassessable; and (ii) no shares are held in the treasury of the Company;
(B) 5,000 are designated "Series B Preferred Stock", of which: (i) no shares
------------------------
are issued and outstanding; and (ii) no shares are held in the treasury of the
Company; and (C) 5,495,000 are designated "Preferred Stock," of which none have
ever been issued. The Company Common Stock and Company Preferred Stock are
referred to collectively in this Merger Agreement as the "Company Capital
---------------
Stock." Section 3.04 of the Company Disclosure Schedule sets forth the names
- -----
and addresses of all holders of record of the Company Common Stock and the
Company Preferred Stock. Except as described in this Section 3.04 or in Section
3.04 of the Company Disclosure Schedule, no other shares of Company Capital
Stock have been reserved for any purpose. Except as set forth in clause
(a)(iii) above or in Section 3.04 of the Company Disclosure Schedule, there are
no outstanding securities convertible into or exchangeable for Company Common
Stock, any other securities of the Company, or any capital stock or other
securities of any of the Subsidiaries and no outstanding options, rights
(preemptive or otherwise), or warrants to purchase or to subscribe for any
shares of such stock or other securities of the Company or any of the
Subsidiaries. Except as set forth in Section 3.04 of the Company Disclosure
Schedule, there are no outstanding Agreements (as defined in Article X)
affecting or relating to the voting, issuance, purchase, redemption,
registration, repurchase or transfer of Company Common Stock, any other
securities of the Company, or any capital stock or other securities of any
Subsidiary, except as contemplated hereunder. Each of the outstanding shares of
Company Common Stock and of capital stock of, or other equity interests in, the
Subsidiaries was issued in compliance with all applicable federal and state Laws
concerning the issuance of securities. There are no obligations, contingent or
otherwise, of the Company or any Subsidiary to provide funds to, make any
investment (in the form of a loan, capital contribution or otherwise) in, or
provide any guarantee with respect to, any Person other than the Company or its
wholly owned Subsidiaries. There are no Agreements pursuant to which any Person
(other than the Company or its wholly owned Subsidiaries) is or may be entitled
to receive any of the revenues or earnings, or any payment based thereon or
calculated in accordance therewith, of the Company or any Subsidiary.
SECTION 3.05. Authority; Binding Obligation.
The execution and delivery by the Company of this Merger Agreement, the
execution and delivery by the Company and the Subsidiaries of all other
agreements, documents, certificates or other instruments contemplated hereby,
and the consummation by the Company and the Subsidiaries of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
- 13 -
corporate action, and no other corporate proceedings on the part of the Company
or the Subsidiaries are necessary to authorize this Merger Agreement and the
other agreements, documents, certificates or other instruments contemplated
hereby, or to consummate the transactions contemplated hereby and thereby, other
than the approval and adoption of this Merger Agreement by the holders of a
majority of the voting power attributable to the outstanding shares of Company
Common Stock and Company Series A Preferred Stock, voting together as a class,
in accordance with Delaware Law and the Company's certificate of incorporation
and bylaws. This Merger Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as such enforceability may be
subject to the effects of any applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar Laws affecting creditors'
rights generally and subject to the effects of general equitable principles
(whether considered in a proceeding in equity or at law); provided, however,
that the Merger will not become effective until Articles of Merger reflecting
the Merger are filed with the office of the Secretary of State of the State of
Delaware.
SECTION 3.06. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other agreements, documents,
certificates or other instruments contemplated hereby, the fulfillment of and
compliance with the respective terms and provisions hereof and thereof, and the
consummation by the Company and the Subsidiaries of the transactions
contemplated hereby and thereby, do not and will not: (i) conflict with, or
violate any provision of, the certificate of incorporation or bylaws of the
Company or the certificate or articles of incorporation or bylaws of any
Subsidiary; (ii) subject to (A) obtaining the requisite approval and adoption of
this Merger Agreement by the holders of a majority of the voting power
attributable to the outstanding shares of Company Common Stock and Company
Series A Preferred Stock, voting together as a class, in accordance with
Delaware Law and the Company's certificate of incorporation and bylaws and (B)
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, the applicable Governmental Entity pursuant to
the applicable requirements, if any, of the Securities Act (as defined in
Article X), the Exchange Act (as defined in Article X), Blue Sky Laws (as
defined in Article X), the HSR Act (as defined in Article X), the Communications
Act (as defined in Article X), the Federal Aviation Act (as defined in Article
X), applicable state utility Laws, applicable municipal franchise Laws and the
filing and recordation of the Articles of Merger as required by Delaware Law,
conflict with or violate any Law applicable to the Company or any Subsidiary, or
any of their respective Assets; (iii) subject to obtaining the consents and
approvals set forth in Section 3.06(b) of the Company Disclosure Schedule,
conflict with, result in any breach of, or constitute a default (or an event
that with notice or lapse of
- 14 -
time or both would become a default) under any Agreement to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary, or any of
their respective Assets, may be bound; or (iv) except as disclosed in Section
3.06(b) of the Company Disclosure Schedule, result in or require the creation or
imposition of, or result in the acceleration of, any indebtedness or any
Encumbrance of any nature upon, or with respect to, the Company or any
Subsidiary or any of the Assets now owned or hereafter acquired by the Company
or any Subsidiary; except for any such conflict or violation described in clause
(ii), any such conflict, breach or default described in clause (iii), or any
such creation, imposition or acceleration described in clause (iv) that would
not have a Company Material Adverse Effect and that would not prevent the
Company from consummating the Merger on a timely basis.
(b) Except as set forth in Section 3.06(b) of the Company Disclosure
Schedule and non-material Agreements allowing the installation, maintenance or
operation of the Company's or its Subsidiaries' fiber optic network on, over,
under or across a specific parcel of real property, the execution, delivery and
performance by the Company and the Subsidiaries of this Merger Agreement and all
other agreements, documents, certificates or other instruments contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) require any consent, approval, authorization or permit of, or
filing with or notification to, any Person not party to this Merger Agreement,
except (A) the approval and adoption of this Merger Agreement by the holders of
a majority of the voting power attributable to the outstanding shares of Company
Common Stock and Company Series A Preferred Stock, voting together as a class,
in accordance with Delaware Law and the Company's certificate of incorporation
and bylaws, (B) pursuant to the applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the HSR Act, the Communications
Act, the Federal Aviation Act, applicable state utility Laws and applicable
municipal franchise Laws and Laws of other Governmental Entities, (C) the filing
and recordation of the Articles of Merger as required by Delaware Law, and (D)
where the failure to obtain any consent, approval, authorization or permit or to
make any filing or notification otherwise required to be disclosed hereunder
would not have a Company Material Adverse Effect; or (ii) result in or give rise
to any penalty, forfeiture, Agreement termination, right of termination,
amendment or cancellation, or restriction on business operations of Acquiror,
the Company, the Surviving Corporation or any Subsidiary that would have a
Company Material Adverse Effect. Furthermore, there is no Agreement when
considered on its face when standing alone where the failure to obtain consent
to the transactions contemplated by this Merger Agreement would cause the
Company to be unable to conduct its business.
- 15 -
SECTION 3.07. Licenses; Compliance.
(a) Each of the Company and each Subsidiary is in possession of all
Licenses (as defined in Article X) necessary for the Company or any Subsidiary
to own, lease and operate its Assets or to carry on its business as it is now
being conducted (the "Company Licenses"), except where the failure to possess
----------------
any such Company License would not have a Company Material Adverse Effect. All
Company Licenses that are FCC (as defined in Article X), FAA (as defined in
Article X) or state utilities Licenses or municipal franchises, and all other
Company Licenses the loss of which would not have a Company Material Adverse
Effect, are listed and described in Section 3.07(a) of the Company Disclosure
Schedule. All Company Licenses are valid and in full force and effect through
the respective dates indicated in such Company Licenses, except for any such
invalidity or failure to be in full force and effect that would not have a
Company Material Adverse Effect, and no suspension, cancellation, complaint,
proceeding, order or investigation of or with respect to any Company License (or
operations thereunder) the loss of which would not have a Company Material
Adverse Effect is pending or, to the knowledge of the Company or any Subsidiary,
threatened. The Company has indicated in Section 3.07 of the Company Disclosure
Schedule those Company Licenses which expire within 12 months from the date of
this Merger Agreement. Neither the Company nor any Subsidiary is in violation
of or default under any Company License, except for any such violation or
default that would not have a Company Material Adverse Effect. Except as set
forth in Section 3.07(a) of the Company Disclosure Schedule, since January 1,
1997, neither the Company nor any Subsidiary has received written or, to the
knowledge of the Company or any Subsidiary, oral notice from any Governmental
Entity or any other Person of any allegation of any such violation or default
under a Company License.
(b) Neither the Company nor any Subsidiary is in violation of or
default under, nor has it breached, (i) any term or provision of its certificate
or articles of incorporation or bylaws or (ii) any Agreement or restriction to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, is bound or affected, except for
any such violation, default or breach described in clause (ii) that would not
have a Company Material Adverse Effect. The Company and the Subsidiaries have
complied and are in full compliance with all Laws, except where the failure so
to comply would not have a Company Material Adverse Effect.
(c) All returns, reports, statements and other Documents required to
be filed by the Company or any Subsidiary with any Governmental Entity have been
filed and complied with and are true, correct and complete in all material
respects (and any related fees required to be paid have been paid in full except
where the failure to so file or to so pay such fees would not have a Company
Material Adverse Effect). To the knowledge of the Company and the Subsidiaries,
all material records of every type and nature relating to the Company Licenses
or
- 16 -
the business, operations or Assets of the Company or any Subsidiary have been
maintained in all material respects in accordance with good business practices
and the rules of any Governmental Entity and are maintained at the Company or
the appropriate Subsidiary.
(d) Except as provided in Section 3.07(a) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has any interest in any License
(including both any Company License and any License held by third parties in
which the Company or any Subsidiary has an interest) the loss of which would
have a Company Material Adverse Effect and that is subject to restrictions on
assignment or transfer based on the circumstances under which the License was
granted (such as eligibility or auction rules), the status of construction and
operation (such as rules restricting resale for a certain period after
construction), or any other restrictions other than an ordinary course
requirement for prior approval of transactions such as the Merger contemplated
herein.
(e) Neither the Company nor any Subsidiary is aware of any fact or
circumstance related to them that would reasonably be expected to cause the
filing of any objection to any application for any Governmental consent required
hereunder, lead to any delay in processing such application, or require any
waiver of any Governmental rule, policy or other applicable Law.
SECTION 3.08. Financial Statements.
(a) The Company has prepared an audited consolidated balance sheet of
the Company and the Subsidiaries as of the end of the fiscal year ended December
31, 1997 (the "Audited Balance Sheet") and the related audited consolidated
---------------------
statements of income, shareholders' equity and cash flows of the Company and the
Subsidiaries for such fiscal year (the Audited Balance Sheet and such audited
consolidated statements of income, shareholders' equity and cash flows are
hereinafter referred to collectively as the "Audited Statements"), in each case,
------------------
audited by Ernst & Young L.L.P. in accordance with generally accepted auditing
standards and accompanied by the related report of Ernst & Young L.L.P.. A true
and complete copy of the Audited Statements has been delivered to Acquiror and
is attached as an exhibit to, and constitutes an integral part of, the Company
Disclosure Schedule. The Company has also prepared unaudited consolidated
balance sheets of the Company and the Subsidiaries as of the last day of each
month ending after January 1, 1998 and prior to December 1, 1998 (including the
unaudited consolidated balance sheets to be furnished to Acquiror pursuant to
Section 6.08, the "Unaudited Balance Sheets") and the unaudited consolidated
------------------------
statements of income of the Company and the Subsidiaries for the one-month
periods then ended (the Unaudited Balance Sheets and such statements of income,
including the unaudited consolidated statements of income to be furnished to
Acquiror pursuant to Section 6.08, are hereinafter referred to collectively as
the
- 17 -
"Unaudited Statements" and, together with the Audited Statements, as the
--------------------
"Financial Statements").
--------------------
(b) The Financial Statements, including, without limitation, the notes
thereto, (i) are complete and correct in all material respects, (ii) have been
prepared in accordance with the books and records of the Company and the
Subsidiaries, and (iii) present fairly the consolidated financial position of
the Company and the Subsidiaries and their consolidated results of operations
and cash flows as of and for the respective dates and time periods in accordance
with GAAP applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to, in the case of the Unaudited Statements, the
absence of footnotes and a statement of cash flows and normal and recurring
year-end adjustments which were not or are not expected to be material in
amount, other than as a result of the recording of the acquisition of BRE
Communications, L.L.C. All changes in accounting methods (for financial
accounting purposes) made, agreed to, requested or required with respect to the
Company or any of the Subsidiaries since January 1, 1998 are reflected in the
Financial Statements.
SECTION 3.09. Absence of Undisclosed Liabilities.
There are no material liabilities or obligations (whether absolute or
contingent, matured or unmatured, known or unknown) of the Company or any
Subsidiary, including but not limited to liabilities for Taxes (as defined in
Article X), of a nature required by GAAP to be reflected, or reserved against,
in the Financial Statements and that are not so reflected, or reserved against,
in the Financial Statements, except for those that may have been incurred after
November 30, 1998 in the Ordinary Course of Business and that are not material
in amount either individually or collectively. Except as described in Section
3.09 of the Company Disclosure Schedule or reflected in the Financial
Statements, since December 31, 1997, neither the Company nor any Subsidiary has
incurred any liabilities or obligations (whether absolute or contingent, matured
or unmatured, known or unknown) other than in the Ordinary Course of Business
(as defined in Article X).
SECTION 3.10. Absence of Certain Changes or Events.
Other than as set forth in Section 3.10 to the Company Disclosure Schedule
from December 31, 1997 through the date of this Merger Agreement, there has been
no material adverse change, and no change except in the Ordinary Course of
Business, in the business, operations, prospects, condition (financial or
otherwise), Assets or liabilities of the Company or any Subsidiary. Except as
disclosed pursuant to other provisions of this Merger Agreement or described in
the Company Disclosure Schedule, since November 30, 1998, the Company and the
Subsidiaries have conducted their respective businesses substantially in the
manner theretofore conducted and only in the Ordinary Course of Business, and
neither the Company
- 18 -
nor any Subsidiary has (a) incurred any material damage, destruction or loss not
covered by insurance with respect to any Assets of the Company or of any such
Subsidiary; (b) issued any capital stock or other equity securities or granted
any options, warrants or other rights calling for the issuance thereof; (c)
issued any bonds or other long-term debt instruments, granted any options,
warrants or other rights calling for the issuance thereof, or borrowed any
funds; (d) incurred, or become subject to, any material obligation or liability
(whether absolute or contingent, matured or unmatured, known or unknown), except
current liabilities incurred in the Ordinary Course of Business; (e) discharged
or satisfied any Encumbrance or paid any material obligation or liability
(whether absolute or contingent, matured or unmatured, known or unknown) other
than current liabilities shown in the Unaudited Balance Sheets and current
liabilities incurred since December 31, 1997 in the Ordinary Course of Business;
(f) declared or made payment of, or set aside for payment, any dividends or
distributions of any Assets, or purchased, redeemed or otherwise acquired any of
its capital stock, any securities convertible into capital stock, or any other
securities; (g) mortgaged, pledged or subjected to any Encumbrance (other than a
Permitted Encumbrance) any of its Assets; (h) sold, exchanged, transferred or
otherwise disposed of any of its Assets, or canceled any debts or claims, except
in each case in the Ordinary Course of Business; (i) written down the value of
any Assets or written off as uncollectable any debt, notes or accounts
receivable, except to the extent previously reserved against in the Financial
Statements and not material in amount, and except for write-downs and write-offs
in the Ordinary Course of Business, none of which, individually or in the
aggregate, are material; (j) entered into any transactions other than in the
Ordinary Course of Business; (k) increased the rate of compensation payable, or
to become payable, by it to any of its officers, employees, agents or
independent contractors over the rate being paid to them on November 30, 1998,
except for any increase in the rate of compensation payable, or to become
payable in connection with normal employee salary and performance reviews or
otherwise in the Ordinary Course of Business; (l) made or permitted any
amendment or termination of any material Agreement to which it is a party other
than in the Ordinary Course of Business; (m) through negotiation or otherwise
made any commitment or incurred any liability to any labor organization; (n)
made any accrual or arrangement for or payment of bonuses or special
compensation of any kind to any director, officer or employee, except for any
accrual or arrangement for or payment of bonuses or special compensation in
connection with normal employee salary and performance reviews or otherwise in
the Ordinary Course of Business; (o) directly or indirectly paid any severance
or termination pay in excess of two months' salary to any officer or employee
with an annual salary in excess of $70,000; (p) made capital expenditures, or
entered into commitments therefor, not provided for in the Company's capital
budget for 1998 (a copy of which has been furnished by the Company to Acquiror)
or, if applicable, the Company's capital budget for 1999 (a copy of which has
been furnished by the Company to Acquiror), except for capital expenditures
permitted by Section 5.01; (q) made any change in any method of accounting or
accounting practice except as required by GAAP and
- 19 -
except as specified in the Financial Statements; (r) entered into any
transaction of the type described in Section 3.19; (s) made any charitable
contributions or pledges exceeding $10,000 individually or $100,000 in the
aggregate; or (t) made any Agreement to do any of the foregoing.
SECTION 3.11. Litigation; Disputes.
(a) Except as disclosed in Section 3.11(a) of the Company Disclosure
Schedule, there are no actions, suits, claims, arbitrations, proceedings or
investigations pending or, to the knowledge of the Company or any Subsidiary,
threatened against, affecting or involving the Company or any Subsidiary or
their respective businesses or Assets, or the transactions contemplated by this
Merger Agreement, at law or in equity, or before or by any court, arbitrator or
Governmental Entity, domestic or foreign that would have a Company Material
Adverse Effect. Neither the Company nor any Subsidiary is (i) operating under
or subject to any order (except for orders that Persons similarly situated,
engaged in similar businesses and owning similar Assets are operating under or
subject to), award, writ, injunction, decree or judgment of any court,
arbitrator or Governmental Entity, or (ii) in default with respect to any order,
award, writ, injunction, decree or judgment of any court, arbitrator or
Governmental Entity.
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary is currently involved in, or to
the knowledge of the Company or any Subsidiary, reasonably anticipates any
dispute with, any of its current or former employees, agents, brokers,
distributors, vendors, customers, business consultants, franchisees,
franchisors, representatives or independent contractors (or any current or
former employees of any of the foregoing Persons) affecting the business or
Assets of the Company or any Subsidiary, except for any such disputes that, if
resolved adversely to the Company or any Subsidiary, would not have a Company
Material Adverse Effect.
SECTION 3.12. Debt Instruments.
Section 3.12 of the Company Disclosure Schedule lists all mortgages,
indentures, notes, guarantees and other Agreements for or relating to borrowed
money (including, without limitation, conditional sales agreements and capital
leases) to which the Company or any Subsidiary is a party or which have been
assumed by the Company or any Subsidiary or to which any Assets of the Company
or any Subsidiary are subject that evidences an indebtedness in excess of
$100,000. Neither the Company nor the Subsidiaries is in default under any of
such mortgages, indentures, notes, guarantees and other Agreements, and there
has not occurred any event which (whether with or without notice, lapse of time
or the happening or occurrence of any other event) would constitute such a
default, except for any such default that would not have a Company Material
Adverse Effect.
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SECTION 3.13. Real Property Leases.
Section 3.13 of the Company Disclosure Schedule lists all real property
leases with a term in excess of two (2) years or requiring payments in excess of
$100,000 in the aggregate over its term under which the Company or any
Subsidiary is the lessee or lessor. The Company and the Subsidiaries are the
owners and holders of all the leasehold estates purported to be granted to them
by the leases listed in Section 3.13 of the Company Disclosure Schedule. Each
such lease is in full force and effect and constitutes a legal, valid and
binding obligation of, and to the Company's knowledge, is legally enforceable in
all material respects against, the respective parties thereto and grants the
leasehold estate it purports to grant free and clear of all Encumbrances other
than Permitted Encumbrances. The Company and the Subsidiaries have in all
respects performed all material obligations thereunder required to be performed
by any of them to date. To the knowledge of the Company and the Subsidiaries,
no party is in default in any material respect under any of the foregoing, and
there has not occurred any event which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute such a
material default.
SECTION 3.14. Other Agreements; No Default.
(a) Except non-material Agreements allowing the installation,
maintenance or operation of the Company's or its Subsidiaries' fiber optic
network on, over, under or across a specific parcel of real property, Sections
3.04, 3.13 and 3.14(a) of the Company Disclosure Schedule list each Agreement
(other than Agreements solely between the Company and its wholly owned
Subsidiaries) to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary, or any of their respective Assets, is bound, and
which is:
(i) an Agreement with a term in excess of two (2) years or
requiring payments in excess of $100,000 in any twelve (12) month period or
$100,000 in the aggregate over its term for the employment of any director,
officer, employee, consultant or independent contractor, or providing for
severance payments to any such director, officer, employee, consultant or
independent contractor;
(ii) a license Agreement or distributor, dealer, sales
representative, sales agency, advertising, property management or brokerage
Agreement involving an annual payment in excess of $100,000;
(iii) an Agreement with any labor organization or other
collective bargaining unit;
(iv) an Agreement for the future purchase of materials, supplies,
services, merchandise or equipment involving payments of more
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than $100,000 over its remaining term (including, without limitation,
periods covered by any option to renew by any party);
(v) an Agreement for the purchase, sale or lease of any Asset
with a purchase or sale price or aggregate rental payment in excess of
$100,000;
(vi) a profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee
benefit, insurance, hospitalization, pension, retirement or other similar
plan or Agreement;
(vii) an Agreement for the sale of any of its Assets or services
or the grant of any preferential rights to purchase any of its Assets,
services or rights, other than in the Ordinary Course of Business;
(viii) an Agreement that contains any provisions requiring the
Company or any Subsidiary to indemnify any other party;
(ix) a joint venture Agreement or other Agreement involving the
sharing of revenues or profits;
(x) an Agreement with an Affiliate (as defined in Article X) of
the Company or any Subsidiary;
(xi) an Agreement (including, without limitation, an Agreement
not to compete and an exclusivity Agreement) that reasonably could be
interpreted to impose any restriction on the business or operations of the
Company or any Subsidiary, or any of their respective Affiliates, prior to
the Effective Time, or on the business or operations of Acquiror or any of
its Affiliates after the Effective Time;
(xii) an Agreement material to the Company and its Subsidiaries
not otherwise described in this Section 3.14(a) which by its terms does not
terminate or is not terminable by the Company or by a Subsidiary within
thirty (30) days or upon thirty (30) days' (or less) notice;
(xiii) an Agreement with any Governmental Entity the loss or
cancellation of which would reasonably be expected to have a Company
Material Adverse Effect;
(xiv) an Agreement with any of the twenty (20) largest customers
of the Company and the Subsidiaries, taken as a whole (based on amounts
billed), for each of (A) the year ended December 31, 1997 and (B) the
period from January 1, 1998 through the date of this Merger Agreement;
- 22 -
(xv) a material Agreement to provide any customer with free
service or service at rates departing from the standard rate schedules of
the System (as defined in Article X);
(xvi) an Agreement with any incumbent local exchange carrier
involving an aggregate payment in excess of $100,000; or
(xvii) any other Agreement (A) that is material to the Company
and the Subsidiaries, taken as a whole, or the conduct of their businesses
or operations, or (B) the absence of which would have a Company Material
Adverse Effect,
(the foregoing Agreements referred to herein as the "Company Contracts"). The
-----------------
Company has furnished Acquiror with access to true and complete copies of each
Company Contract (including any amendments thereto).
(b) Each Company Contract is in full force and effect and constitutes
a legal, valid and binding obligation of, and, to the Company's knowledge, is
legally enforceable in all material respects against the respective parties
thereto. All necessary approvals of any Governmental Entity with respect
thereto have been obtained (except where the failure so to obtain any such
approval would not have a Company Material Adverse Effect), all material filings
or registrations therefor have been made, and there are no outstanding material
disputes thereunder and, to the knowledge of the Company or any Subsidiary, no
threatened cancellation or termination thereof. The Company and the
Subsidiaries have performed all material obligations thereunder required to be
performed by any of them to date. To the knowledge of the Company and the
Subsidiaries, no party is in default in any material respect under any of the
Company Contracts, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute such a material default. No Agreement has been canceled or
otherwise terminated within the twelve (12) months prior to the date of this
Merger Agreement that would have been a "Company Contract" had such Agreement
not been canceled or terminated and the cancellation or termination of which has
had or is reasonably likely to have a Company Material Adverse Effect. Except
as specifically described in Section 3.14(a) of the Company Disclosure Schedule,
there has been no material written or oral modification or amendment to any
Company Contract and, to the Company's knowledge, there are no reasonably
expected changes to any Company Contract.
SECTION 3.15. Labor Relations.
There are no collective bargaining or other labor union Agreements to which
the Company or any Subsidiary is a party. There are no strikes, work stoppages,
union organization efforts or other controversies (other than grievance
proceedings)
- 23 -
pending, to the Company's knowledge, threatened or reasonably anticipated
between the Company or any Subsidiary and (a) any current or former employees of
the Company or of any Subsidiary (other than disputes with sales employees not
in excess of $3,000 in the aggregate per such employee) or (b) any union or
other collective bargaining unit representing such employees. The Company and
the Subsidiaries have complied and are in compliance with all Laws relating to
employment or the workplace, including, without limitation, Laws relating to
wages, hours, collective bargaining, safety and health, work authorization,
equal employment opportunity, immigration, withholding, unemployment
compensation, worker's compensation, employee privacy and right to know, except
where the failure so to comply would have a Company Material Adverse Effect.
Except as set forth in Section 3.15(b) of the Company Disclosure Schedule,
neither the Company nor any Subsidiary has been notified by any Governmental
Agency or counsel to any claimant of any unresolved violation or alleged
violation of any Law relating to equal employment opportunity, civil or human
rights, or employment discrimination generally. Except as set forth in Section
3.15(c) to the Company Disclosure Schedule, there are no collective bargaining
Agreements, employment Agreements between the Company or any Subsidiary and any
of their respective employees, or professional service Agreements not terminable
at will relating to the businesses and Assets of the Company or of any
Subsidiary. Except as set forth in Section 3.15(d) to the Company Disclosure
Schedule, the consummation of the transactions contemplated hereby will not
cause Acquiror, the Surviving Corporation, the Company or any Subsidiary to
incur or suffer any liability relating to, or obligation to pay, severance,
termination or other payments to any Person under any Agreement.
SECTION 3.16. Pension and Benefit Plans.
(a) Except as set forth in Section 3.16(a) to the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) maintains or during the
past six (6) years has maintained any Plan (as defined in Article X) or Other
Arrangement (as defined in Article X), (ii) is or during the past six (6) years
has been a party to any Plan or Other Arrangement, or (iii) has obligations
under any Plan or Other Arrangement.
(b) The Company has furnished to Acquiror true and complete copies of
each of the following Documents: (i) the Documents setting forth the terms of
each Plan; (ii) all related trust Agreements or annuity Agreements (and any
other funding Document) for each Plan; (iii) for the three (3) most recent plan
years, all annual reports (Form 5500 series) on each Plan that have been filed
with any Governmental Entity; (iv) the current summary plan description and
subsequent summaries of material modifications for each Title I Plan (as defined
in Article X); (v) all DOL (as defined in Article X) opinions on any Plan; (vi)
all correspondence with the PBGC (as defined in Article X) on any Plan exchanged
during the past three (3) years; (vii) all IRS (as defined in Article X)
rulings, opinions or technical
- 24 -
advice relating to any Plan and the current IRS determination letter issued with
respect to each Qualified Plan (as defined in Article X); and (viii) all current
Agreements with service providers or fiduciaries for providing services on
behalf of any Plan. For each Other Arrangement, the Company has furnished to
Acquiror true and complete copies of each policy, Agreement or other Document
setting forth or explaining the current terms of the Other Arrangement, all
related trust Agreements or other funding Documents (including, without
limitation, insurance contracts, certificates of deposit, money market accounts,
etc.), all significant employee communications, all correspondence with or other
submissions to any Governmental Entity, and all current Agreements with service
providers or fiduciaries for providing services on behalf of any Other
Arrangement.
(c) No Plan is a Multiemployer Plan (as defined in Article X).
(d) No Plan is an ESOP (as defined in Article X).
(e) No Plan is a Minimum-Funding Plan (as defined in Article X).
(f) Section 3.16(g) of the Company Disclosure Schedule sets forth the
contributions that (i) the Company or any Subsidiary has promised or is
otherwise obligated to make under each Individual Account Plan that is a
Statutory-Waiver Plan (as defined in Article X) and (ii) are unpaid as of the
date of this Merger Agreement.
(g) The Company and the Subsidiaries have made all contributions and
other payments required by and due under the terms of each Plan and Other
Arrangement or have accrued such payments and contributions on the Company's
Financial Statements as of December 31, 1998. Neither the Company nor any of
its Subsidiaries has taken any action (other than actions required by Law)
relating to any Plan or Other Arrangement that will materially increase
Acquiror's, the Surviving Corporation's, the Company's or any Subsidiary's
obligation under any Plan or Other Arrangement above the level of expense
incurred for the year ended December 31, 1997.
(h) Section 3.16(i) of the Company Disclosure Schedule sets forth a
list of all Qualified Plans (as defined in Article X). All Qualified Plans and
any related trust Agreements or annuity Agreements (or any other funding
Document) comply and have complied with ERISA, the Code (including, without
limitation, the requirements for Tax qualification described in Section 401
thereof), and all other Laws, except where the failure so to comply would not
have a Company Material Adverse Effect. The trusts established under such Plans
are exempt from federal income taxes under Section 501(a) of the Code. The
Company and the Subsidiaries have received determination letters issued by the
IRS with respect to each Qualified Plan, and the Company has furnished to
Acquiror true and complete copies of all such determination letters and all
correspondence relating to the applications therefor. All statements made by or
on behalf of the Company or any Subsidiary to
- 25 -
the IRS in connection with applications for determinations with respect to each
Qualified Plan were true and complete in all material respects when made and
continue to be true and complete in all material respects. To the knowledge of
the Company and the Subsidiaries, nothing has occurred since the date of the
most recent applicable determination letter that would adversely affect the tax-
qualified status of any Qualified Plan.
(i) To their knowledge, the Company and the Subsidiaries have complied
in all material respects with all applicable provisions of the Code, ERISA, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Fair Labor Standards Act, the Securities
Act, the Exchange Act, and all other Laws pertaining to the Plans, Other
Arrangements and other employee or employment related benefits, and all premiums
and assessments relating to all Plans or Other Arrangements. There are no
investigations by any Governmental Entity, termination proceedings or other
claims (except claims for benefits payable in the normal operation of the Plans
and Other Arrangements), suits or proceedings pending or, to the knowledge of
the Company, threatened or anticipated, against or involving any Plan or Other
Arrangement or asserting any rights or claims to benefits under any Plan or
Other Arrangement that would reasonably be expected to give rise to any material
liability on the part of the Company or the Subsidiaries. Neither the Company
nor any Subsidiary has any pending claims or lawsuits before any court, arbiter
or Governmental Entity arising under any Law governing any Plan (except claims
for benefits payable in the normal operation of the Plan and Other
Arrangements), and to the knowledge of the Company and the Subsidiaries there
exist no facts that would reasonably be likely to give rise to such a claim.
(j) Neither the Company nor any Subsidiary nor any of the Plans has
engaged in violation of Section 406(a) or 406(b) of ERISA for which no exemption
exists under Section 408 of ERISA and all "prohibited transactions" (as such
term is defined in Section 4975(c)(1) of the Code), for which no exemption
exists under Section 4975(c)(2) or 4975(d) of the Code which would result in a
material liability to the Company and the Subsidiaries. The Company has
furnished to Acquiror true and complete copies of each request for a prohibited
transaction exemption and each exemption obtained in response to such request.
All such requests were true and complete when made and continue to be true and
complete.
(k) Except as set forth in Section 3.16(n) of the Company Disclosure
Schedule, no Plan or Other Arrangement, individually or collectively, provides
for any payment by the Company or any Subsidiary to any employee or independent
contractor that is not deductible under Section 162(a)(1) or 404 of the Code or
that is an "excess parachute payment" pursuant to Section 280G of the Code.
- 26 -
(l) No Plan is a "qualified foreign plan" (as such term is defined in
Section 404A(e) of the Code), and no Plan is subject to the Laws of any
jurisdiction other than the United States of America or one of its political
subdivisions.
(m) No Plan is a funded Welfare Plan (as defined in Article X) that
provide benefits to current or former employees of the Company or any
Subsidiary, or to their beneficiaries.
(n) No Plan provides or promises post-retirement medical, life
insurance or other benefits now or in the future to current, former or retired
employees of the Company or any Subsidiary except as required by applicable
federal and state continuation law, and (ii) identifies the method of funding
(including, without limitation, any individual accounting) for all such
benefits.
(o) All Welfare Plans and the related trusts that are subject to
Section 4980B(f) of the Code and Sections 601 through 607 of ERISA comply in all
material respects with and have been administered in material compliance with
the health care continuation-coverage requirements under Section 4980B(f) of the
Code, Sections 601 through 607 of ERISA, and all proposed or final regulations
under Section 162 of the Code explaining those requirements.
(p) The Company and the Subsidiaries have (i) filed or caused to be
filed all returns and reports on the Plans that they are required to file, and
(ii) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other fees, interest, penalties and
assessments that are due and payable by or for the Company or any Subsidiary
with respect to any Plan have been timely reported, fully paid and discharged.
There are no unpaid fees, penalties, interest or assessments due from the
Company or any Subsidiary or from any other Person that are or could become an
Encumbrance on any Asset of the Company or any Subsidiary or could otherwise
have a Company Material Adverse Effect. The Company and the Subsidiaries have
collected or withheld all amounts that are required to be collected or withheld
by them to discharge their obligations with respect to each Plan, and all of
those amounts have been paid to the appropriate Governmental Entity or set aside
in appropriate accounts for future payment when due.
SECTION 3.17. Taxes and Tax Matters.
(a) The Company and the Subsidiaries have (or, in the case of Company
Tax Returns (as defined in Article X) becoming due after the date hereof and
before the Effective Time, will have prior to the Effective Time) duly filed all
Company Tax Returns required to be filed by the Company and the Subsidiaries at
or before the Effective Time with respect to all applicable material Taxes. No
- 27 -
material penalties or other charges are or will become due with respect to any
such Company Tax Returns as the result of the late filing thereof. All such
Company Tax Returns are (or, in the case of returns becoming due after the date
hereof and before the Effective Time, will be) true and complete in all material
respects. The Company and the Subsidiaries: (i) have paid all Taxes due in
connection with any such Company Tax Returns; or (ii) have established (or, in
the case of amounts becoming due after the date hereof, prior to the Effective
Time will have paid or established) in the Financial Statements adequate
reserves (in conformity with GAAP consistently applied) for the payment of such
Taxes. The amounts set up as reserves for Taxes in the Financial Statements are
sufficient for the payment of all unpaid Taxes, whether or not such Taxes are
disputed or are yet due and payable, for or with respect to the applicable
period, and for which the Company or any Subsidiary may be liable in its own
right (including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee of the Assets of, or successor to, any
Person.
(b) Neither the Company nor any Subsidiary, either in its own right
(including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee, has or at the Effective Time will have any
liability for Taxes payable for or with respect to any periods prior to and
including the Effective Time in excess of the amounts actually paid prior to the
Effective Time or reserved for in the Financial Statements, except for any Taxes
due in connection with the Merger or incurred in the Ordinary Course of Business
subsequent to the date of the latest Financial Statement.
(c) Except as set forth in Section 3.17(c) of the Company Disclosure
Schedule, there is no action, suit, proceeding, audit, investigation or claim
pending or, to the knowledge of the Company or any Subsidiary, threatened in
respect of any Taxes for which the Company or any Subsidiary is or may become
liable, nor has any deficiency or claim for any such Taxes been proposed,
asserted or, to the knowledge of the Company or any Subsidiary, threatened.
Except as set forth in Section 3.17(c) of the Company Disclosure Schedule,
neither the Company nor any Subsidiary has consented to any waivers or
extensions of any statute of limitations with respect to any taxable year of the
Company or any Subsidiary. Except as set forth in Section 3.17(c) of the
Company Disclosure Schedule, there is no Agreement, waiver or consent providing
for an extension of time with respect to the assessment or collection of any
Taxes against the Company or any Subsidiary, and no power of attorney granted by
the Company or any Subsidiary with respect to any Tax matters is currently in
force.
(d) The Company has made available to Acquiror true and complete
copies of all Company Tax Returns and all material written communications with
any Governmental Entity relating to any such Company Tax Returns or to any
deficiency or claim proposed or asserted, irrespective of the outcome of such
matter, but only to the extent such items relate to Tax years (i) which are
subject to an
- 28 -
audit, investigation, examination or other proceeding, or (ii) with respect to
which the statute of limitations has not expired.
(e) Except as set forth in Section 3.17(e) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) is or has ever been a
partner in a partnership or an owner of an interest in an entity treated as a
partnership for federal income Tax purposes; (ii) has executed or filed with the
IRS any consent to have the provisions of Section 341(f) of the Code apply to
it; (iii) is subject to Section 999 of the Code; (iv) is a passive foreign
investment company as defined in Section 1296(a) of the Code; or (v) is a party
to an Agreement relating to the sharing, allocation or payment of, or indemnity
for, Taxes (other than an Agreement the only parties to which are the Company
and the Subsidiaries).
(f) The Company has complied in all material respects with all rules
and regulations relating to the withholding of Taxes.
SECTION 3.18. Customers.
To the knowledge of the Company and the Subsidiaries, the relationships of
the Company and the Subsidiaries with their customers are generally good
commercial working relationships. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, during the twelve (12) months prior to the date of
this Merger Agreement, no customer of the Company or any Subsidiary which
accounted for in excess of $120,000 of the revenues of the Company and the
Subsidiaries during such twelve (12) months has canceled or otherwise terminated
its relationship with the Company or any Subsidiary and except to the extent of
events described in Section 9.13(a).
SECTION 3.19. Certain Business Practices.
Neither the Company, the Subsidiaries nor any of their officers, directors
or, to the knowledge of the Company or any Subsidiary, any of their employees or
agents (or stockholders, distributors, representatives or other persons acting
on the express, implied or apparent authority of the Company or of any
Subsidiary) have paid, given or received or have offered or promised to pay,
give or receive, any bribe or other unlawful payment of money or other thing of
value, any unlawful discount, or any other unlawful inducement, to or from any
Person or Governmental Entity in the United States or elsewhere in connection
with or in furtherance of the business of the Company or any Subsidiary
(including, without limitation, any offer, payment or promise to pay money or
other thing of value (a) to any foreign official or political party (or official
thereof) for the purposes of influencing any act, decision or omission in order
to assist the Company or any Subsidiary in obtaining business for or with, or
directing business to, any Person, or (b) to any Person, while knowing that all
or a portion of such money or other thing of value will be offered, given or
promised to any such official or party for such purposes). The business of the
- 29 -
Company and the Subsidiaries is not in any manner dependent upon the making or
receipt of such payments, discounts or other inducements.
SECTION 3.20. Insurance.
Section 3.20 of the Company Disclosure Schedule lists and briefly describes
all policies of title, Asset, fire, hazard, casualty, liability, life, worker's
compensation and other forms of insurance of any kind owned or held by the
Company or any Subsidiary. All such policies: (a) are with insurance companies
reasonably believed by the Company to be financially sound and reputable; (b)
are in full force and effect; (c) are sufficient for compliance by the Company
and by each Subsidiary with all requirements of Law and of all Agreements to
which the Company or any Subsidiary is a party; (d) are valid and outstanding
policies enforceable against the insurer; (e) insure against risks of the kind
customarily insured against and in amounts customarily carried by companies
similarly situated and by companies engaged in similar businesses and owning
similar Assets; and (f) provide that they have the policy expiration dates as
set forth in Section 3.20 of the Company Disclosure Schedule.
SECTION 3.21. Potential Conflicts of Interest.
Except as set forth in Section 3.21 of the Company Disclosure Schedule,
neither any present or, to the knowledge of the Company or any Subsidiary,
former director, officer, employee with a salary in excess of $60,000, or
stockholder of the Company or any Subsidiary who beneficially owns more than 5%
of the capital stock of the Company or any Subsidiary, nor any Affiliate of such
director, officer, employee or stockholder:
(a) owns, directly or indirectly, any interest in (except for holdings
in securities that are listed on a national securities exchange, quoted on
a national automated quotation system or regularly traded in the over-the-
counter market, where such holdings are not in excess of two percent (2%)
of the outstanding class of such securities and are held solely for
investment purposes), or is a stockholder, partner, other holder of equity
interests, director, officer, employee, consultant or agent of, any Person
that is a lessor, lessee or customer of, or supplier of goods or services
to, the Company or any Subsidiary, except where the value to such
individual of any such arrangement with the Company or any Subsidiary has
been less than $60,000 in the last twelve (12) months;
(b) owns, directly or indirectly, in whole or in part, any Assets with
a fair market value of $60,000 or more which the Company or any Subsidiary
currently uses in its business;
- 30 -
(c) has any cause of action or other suit, action or claim whatsoever
against, or owes any amount to, the Company or any Subsidiary, except for
claims arising in the Ordinary Course of Business from any such Person's
service to the Company or any Subsidiary as a director, officer or
employee;
(d) has sold or leased to, or purchased or leased from, the Company or
any Subsidiary any Assets for consideration in excess of $60,000 in the
aggregate since the inception of the Company;
(e) is a party to any Agreement pursuant to which the Company or any
Subsidiary provides office space to any such Person, or provides services
of any nature to any such Person, other than in the Ordinary Course of
Business in connection with the employment of such Person by the Company or
any Subsidiary; or
(f) has, since the inception of the Company, engaged in any other
material transaction with the Company or any Subsidiary involving in excess
of $60,000, other than (i) in the Ordinary Course of Business in connection
with the employment of such Person by the Company or any Subsidiary, (ii)
dividends, distributions and stock issuances to all common and preferred
stockholders (as applicable) on a pro rata basis and (iii) as set forth in
Section 3.04 of the Company Disclosure Schedule.
SECTION 3.22. Receivables.
The accounts receivable of the Company and the Subsidiaries shown on the
Audited Balance Sheet and the Unaudited Balance Sheets, or thereafter acquired
by any of them, have been collected or are collectible in amounts not less than
the amounts thereof carried on the books of the Company and the Subsidiaries,
without right of recourse, defense, deduction, counterclaim, offset or setoff on
the part of the obligor, and can reasonably be expected to be collected within
ninety (90) days of the date incurred, except to the extent of the allowance for
doubtful accounts shown on such Audited Balance Sheet and Unaudited Balance
Sheets and except to the extent of events described in Section 9.13(a).
SECTION 3.23. Real Property.
(a) Section 3.23(a) of the Company Disclosure Schedule lists all the
Real Property (as defined in Article X), specifying the owner of each parcel
thereof, and all such Real Property is suitable and adequate for the uses for
which it is currently being used.
(b) Except as set forth in Section 3.23(b) of the Company Disclosure
Schedule, the Company and the Subsidiaries are the sole owners of good, valid,
fee simple, marketable and insurable (at standard rates) title to the Real
Property
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respectively owned by them, including, without limitation, all buildings,
structures, fixtures and improvements thereon and all equipment, machinery and
personal property therein, in each case free and clear of all Encumbrances,
except for Permitted Encumbrances.
(c) All material buildings, structures, fixtures and other
improvements on the Real Property are in reasonable repair, free of known
defects and are fit for the uses to which they are currently devoted. All such
buildings, structures, fixtures and improvements on the Real Property conform to
all Laws, except for any such non-conformance that would not have a Company
Material Adverse Effect. The buildings, structures, fixtures and improvements
on each parcel of the Real Property lie entirely within the boundaries of such
parcel of the Real Property, and no structures of any kind encroach on the Real
Property, except as may be disclosed on an accurate ALTA Land Title Survey, and
except where the failure of any such buildings, structures, fixtures and
improvements on each parcel of Real Property to lie entirely within the
boundaries of such parcel of the Real Property or the encroachment of any such
structure on the Real Property would not have a Company Material Adverse Effect.
(d) To the knowledge of the Company and the Subsidiaries, none of the
Real Property is subject to any Agreement or other restriction of any nature
whatsoever (recorded or unrecorded), other than Permitted Encumbrances,
preventing or limiting the Company's or any Subsidiary's right to convey or to
use it.
(e) No portion of the Real Property or any material building,
structure, fixture or improvement thereon is the subject of, or affected by, any
condemnation, eminent domain or inverse condemnation proceeding currently
instituted or pending, and neither the Company nor any Subsidiary has any
knowledge that any of the foregoing are, or will be, the subject of, or affected
by, any such proceeding.
(f) The Real Property has reasonable access to adequate electric, gas,
water, sewer and telephone lines, all of which are adequate for the uses to
which the Real Property is currently devoted.
SECTION 3.24. Books and Records.
The books of account, stock records, minute books and other corporate and
financial records of the Company are complete and correct in all material
respects and have been maintained in accordance with reasonable business
practices for companies similar to the Company, and the matters contained
therein are appropriately and accurately reflected in all material respects in
the Financial Statements in accordance with GAAP.
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SECTION 3.25. Assets.
Except as set forth in Section 3.25 of the Company Disclosure Schedule, the
Company and the Subsidiaries have good, valid and marketable title to all
material Assets respectively owned by them, including, without limitation, all
material Assets reflected in the Audited Balance Sheet and in the Unaudited
Balance Sheets and all material Assets purchased by the Company or by any
Subsidiary since December 31, 1997 (except for Assets reflected in such Audited
Balance Sheet and Unaudited Balance Sheets or acquired since December 31, 1997
which have been sold or otherwise disposed of in the Ordinary Course of
Business), free and clear of all Encumbrances other than Permitted Encumbrances.
All personal property of the Company and the Subsidiaries is in good operating
condition and repair and is suitable and adequate for the uses for which it is
intended or is being used. All Inventory (as defined in Article X) of the
Company and the Subsidiaries (i) consists of items which are good and
merchantable and of a quality and quantity presently usable and salable in the
Ordinary Course of Business and (ii) have been reflected in the Financial
Statements at the lower of cost or market, in accordance with GAAP, and include
no obsolete or discontinued items, except to the extent reserved against in the
Financial Statements.
SECTION 3.26. No Infringement or Contest.
(a) Section 3.26(a) of the Company Disclosure Schedule identifies and
describes each item of Intellectual Property (as defined in Article X) (i) owned
by the Company or a Subsidiary, (ii) owned by any third party and used by the
Company or any Subsidiary pursuant to license, sublicense or other Agreement, or
(iii) otherwise used by the Company or any Subsidiary and not otherwise
generally used by Persons similarly situated (including, in each case,
specification of whether each such item is owned, licensed or used by the
Company or any Subsidiary) in the case of each of the foregoing clauses (i),
(ii) or (iii), the absence of which would have a Company Material Adverse
Effect.
(b) With respect to each item of Intellectual Property listed in
Section 3.26(a) of the Company Disclosure Schedule that is owned by the Company
or any Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of any material restrictions, Encumbrances (other than Permitted
Encumbrances) and royalties on such use, and the Company and the Subsidiaries
have the right to bring action for infringement of such Intellectual Property.
With respect to the Intellectual Property listed in Section 3.26(a) of the
Company Disclosure Schedule that is used by the Company or a Subsidiary pursuant
to license, sublicense or other Agreement, such Intellectual Property has been
licensed on an arm's-length basis and can be used by the Company and the
Subsidiaries in their respective businesses as currently conducted by them in
accordance with the terms and conditions of such licenses, sublicenses or other
Agreements. With
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respect to each item of Intellectual Property listed in Section 3.26(a) of the
Company Disclosure Schedule that is otherwise used by the Company or any
Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of any material restrictions, Encumbrances (other than Permitted
Encumbrances) and royalties on such use. Each item of Intellectual Property
owned or used by the Company or any Subsidiary immediately prior to the Closing
will be owned or available for use by the Company or such Subsidiary on
identical terms and conditions identified in all material respects immediately
after the Closing.
(c) As used in the businesses of the Company and the Subsidiaries as
conducted in the past and as currently conducted, to the knowledge of the
Company, none of the Intellectual Property listed in Section 3.26(a) of the
Company Disclosure Schedule has at any time infringed or misappropriated or
otherwise violated, or is likely to infringe, misappropriate or violate, any
Intellectual Property of any other Person, nor is the Company or any Subsidiary
otherwise in the conduct of their respective businesses infringing upon, or
alleged to be infringing upon, any Intellectual Property of any other Person.
There are no pending or, to the knowledge of the Company or any Subsidiary,
threatened claims against the Company or any Subsidiary alleging that the
conduct of the Company's or any Subsidiary's business infringes or conflicts
with any Intellectual Property rights of others. To the knowledge of the
Company or any Subsidiary, there is no Intellectual Property of another Person
which infringes, misappropriates or violates any of the Intellectual Property
listed in Section 3.26(a) of the Company Disclosure Schedule.
(d) The Company and the Subsidiaries own or have the right to use
pursuant to a valid license, sublicense or other Agreement all Intellectual
Property that is material in the operation of the businesses of the Company and
the Subsidiaries as currently conducted and as currently proposed to be
conducted.
SECTION 3.27. Intentionally Deleted.
SECTION 3.28. Board Recommendation.
The Board of Directors of the Company has adopted, in compliance with
Delaware Law, a resolution approving and adopting this Merger Agreement and the
transactions contemplated hereby and recommending approval and adoption of this
Merger Agreement and the transactions contemplated hereby by the Company
Stockholders.
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SECTION 3.29. Vote Required.
The affirmative vote of the holders of a majority of the voting power
attributable to the outstanding shares of Company Common Stock and Company
Series A Preferred Stock, voting together as a class, is the only vote of the
holders of any class or series of capital stock of the Company necessary to
approve the transactions contemplated by this Merger Agreement.
SECTION 3.30. Banks; Attorneys-in-fact.
Section 3.30 of the Company Disclosure Schedule sets forth a complete list
showing the name of each bank or other financial institution in which the
Company or any Subsidiary has accounts (including a description of the names of
all Persons authorized to draw thereon or to have access thereto). Such list
also shows the name of each Person holding a power of attorney from the Company
or any Subsidiary and a brief description thereof.
SECTION 3.31. Intentionally Deleted.
SECTION 3.32. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of the Company or any Subsidiary or any of their respective Affiliates.
SECTION 3.33. ENVIRONMENTAL MATTERS.
(a) The Company and each of the Subsidiaries have complied and are in
compliance with, and the Real Property and any real property that is leased by
the Company or any Subsidiary and all improvements thereon are in compliance
with, all Environmental Laws (as defined in Article X), except where the failure
so to comply would not have a Company Material Adverse Effect.
(b) To the knowledge of the Company and the Subsidiaries, neither the
Company nor any Subsidiary has any liability under any Environmental Law, nor is
the Company or any Subsidiary responsible for any liability of any other Person
under any Environmental Law. Except as set forth in Section 3.33(b) of the
Company Disclosure Schedule, there are no pending or, to the knowledge of the
Company or any Subsidiary, threatened actions, suits, claims, legal proceedings
or other proceedings based on, and neither the Company nor any Subsidiary, has
received any formal or informal notice of any complaint, order, directive,
citation, notice of responsibility, notice of potential responsibility, or
information request from any Governmental Entity or any other Person since
January 1, 1993 (or prior
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thereto with respect to any such complaint, order, directive, citation, notice
of responsibility, notice of potential responsibility, or information request
which has not been finally resolved) or knows any fact(s) which might reasonably
be expected to form the basis for any such actions or notices arising out of or
attributable to: (i) the current or past presence at any part of the Real
Property or any real property that is leased by the Company or any Subsidiary of
Hazardous Materials (as defined in Article X) or any substances that pose a
hazard to human health or an impediment to working conditions; (ii) the current
or past release or threatened release into the environment from the Real
Property or any real property that is leased by the Company or any Subsidiary
(including, without limitation, into any storm drain, sewer, septic system or
publicly owned treatment works) of any Hazardous Materials or any substances
that pose a hazard to human health or an impediment to working conditions; (iii)
the off-site disposal of Hazardous Materials originating on or from the Real
Property or any real property that is leased by the Company or any Subsidiary or
the businesses or Assets of the Company or any Subsidiary; (iv) any facility
operations, procedures or designs of the Company or any Subsidiary which do not
conform to requirements of the Environmental Laws; or (v) any violation of
Environmental Laws at any part of the Real Property or any real property that is
leased by the Company or any Subsidiary or otherwise arising from the Company's
or any Subsidiary's activities (or the activities of the Company's or any
Subsidiary's predecessors in title) involving Hazardous Materials.
(c) The Company and the Subsidiaries have been duly issued, and
currently have and will maintain through the Effective Time, all Licenses
required under any Environmental Law. A true and complete list of all such
Licenses the absence of which would have a Company Material Adverse Effect is
set out in Section 3.33(c) of the Company Disclosure Schedule. All Licenses
listed in Section 3.33(c) of the Company Disclosure Schedule are valid and in
full force and effect. Except in accordance with such Licenses, as described in
Section 3.33(c) of the Company Disclosure Schedule or as otherwise permitted by
Law, there has been no Hazardous Discharge (as defined in Article X) or
discharge of any other material regulated by such Licenses. Except as disclosed
in Section 3.33(c) of the Company Disclosure Schedule, to the knowledge of the
Company and the Subsidiaries no such Licenses are non-transferable or which
require consent, notification or other action to remain in full force and effect
following consummation of the Merger and the other transactions contemplated
hereby.
(d) Except as set forth in Section 3.33(d) of the Company Disclosure
Schedule, neither the Real Property nor any real property that is leased by the
Company or any Subsidiary contains any underground improvements, including but
not limited to treatment or storage tanks, or underground piping associated with
such tanks, used currently or in the past for the storage, throughput or other
management of Hazardous Materials, and no portion of the Real Property or any
real property that is leased by the Company or any Subsidiary is or has been
used as a dump or landfill or consists of or contains filled in land or
wetlands.
- 36 -
SECTION 3.34. Disclosure.
(a) None of the information supplied by the Company expressly for
inclusion (and so included or relied on for information included) in (i) the
Registration Statement (as defined in Section 6.01(a)) and (ii) the Proxy
Statement (as defined in Section 6.01(a)), at the respective times that (w) the
Registration Statement is filed with the SEC, (x) the Registration Statement
becomes effective, (y) the Proxy Statement is mailed, and (z) any meeting of
stockholders (and any adjournment thereof) is held to consider, or written
consents are effective with respect to approval of, the transactions
contemplated by this Merger Agreement, shall contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(b) No representation or warranty contained in this Merger Agreement
or the Company Disclosure Schedule (giving full effect to the concepts and
qualifications of materiality and knowledge contained therein and not with the
intention or effect of eliminating or limiting such concepts and qualifications
in any way), and no other agreements, documents, certificates, instruments or
other information furnished or to be furnished, or made available or to be made
available to Acquiror by the Company pursuant to this Merger Agreement or
otherwise in connection herewith or with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading; provided however, that this representation shall not apply to the
matters specifically covered by any other representation or warranty in this
Merger Agreement, it being the intent of the parties that this sentence not be
applied so as to broaden the scope of those representations and warranties. As
of the date of this Merger Agreement, the Company believes that the Company has
a reasonable likelihood of attaining the results of its business plan as set
forth in the Confidential Information Memorandum (relating to certain senior
credit facilities) dated December 1998, as furnished to Acquiror, based upon the
assumptions used in the preparation of such business plan (which assumptions the
Company believes to be reasonable).
SECTION 3.35. Directors, Officers and Affiliates.
Section 3.35 of the Company Disclosure Schedule lists all current directors
and officers of the Company and the Subsidiaries, showing each such person's
name, positions, and annual remuneration, bonuses and fringe benefits paid by
the Company or any Subsidiary for the current fiscal year and the most recently
completed fiscal year.
- 37 -
SECTION 3.36. Copies of Documents.
True and complete copies of all agreements, documents, certificates or
other instruments listed in the Company Disclosure Schedule have been made
available to Acquiror prior to the execution of this Merger Agreement.
SECTION 3.37. Condition and Operation of the System.
(a) Section 3.37(a)(1) of the Company Disclosure Schedule contains a
description of the size and capacity of the System (as defined in Article X)
(including, as of December 31, 1998, the percentage of the System capacity that
was activated and in operation and the percentage of the System capacity that
was unactivated and in reserve). The system coverage map which constitutes an
integral part of the Company Disclosure Schedule has previously been made
available to Acquiror. The System and all major component parts (including but
not limited to transmission towers, microwave facilities, fiber optic cables and
switches) are in compliance in all material respects with all applicable build-
out requirements, are in good operating condition and repair ordinary wear and
tear excepted, and are suitable, adequate and fit for the uses for which they
are intended and are being used, as the case may be. Since January 1, 1998,
there have been no material complaints with respect to the Company's or any
Subsidiary's performance under Agreements with customers that have not been
substantially corrected, and there have been no material System outages. The
System and the Assets of the Company and the Subsidiaries meet the technical
standards, if any, of the FCC and the FAA and the technical specifications of
the Company Licenses, and do not violate any applicable Laws, engineering
standards or building, fire, zoning, health and safety or other Laws in any
material respect.
(b) Section 3.37(b) of the Company Disclosure Schedule sets forth:
(i) information with respect to System services offered and rates
charged for initiation and provision of System services that is complete
and accurate in all material respects;
(ii) the rate of customer churn for each of (A) the year ended
December 31, 1997 and (B) the period from January 1, 1998 through November
30, 1998;
(iii) the amount of fraud loss for each of (A) the year ended
December 31, 1997 to the extent such amount exceeded $100,000 and (B) the
period from January 1, 1998 through November 30, 1998 to the extent such
amount exceeded $100,000;
- 38 -
(iv) a list of all independent marketing or selling agents for
each month during the period from January 1, 1998 through December 31,
1998, indicating the volume of sales generated by such agents;
(v) any complaints received by the Company or any Subsidiary
regarding "slamming" or "cramming" (as such term are understood in the
telephone industry) by the Company, any Subsidiary or any of their
respective employees, resellers, agents or representatives;
(vi) a list and description of all material easements for the
installation, use and repair of fiber optic cable used by the System;
(vii) a list of all FCC Licenses held by the Company or any
Subsidiary;
(viii) all material filings by the Company or any Subsidiary
with the FCC since January 1, 1996; and
(ix) a list of any proceedings (other than proceedings of general
applicability) before the FCC, a state utility commission, or other
regulatory body that are reasonably likely to result in (A) adjustments in
and/or refunds of material amounts in the past charged to or paid to third
parties by the Company or any Subsidiary, or (B) adjustments in amounts
otherwise in the future to be charged to or paid to third parties by the
Company or any Subsidiary, in each case including but not limited to
amounts related to universal service, access charges, service rates charged
to customers, franchise fees, or any other revenues or expenses subject to
regulatory oversight.
(c) To the knowledge of the Company, the easements required to be
disclosed pursuant to Section 3.37(b)(vi) above (i) are valid, binding,
enforceable and sufficient for the purposes for which they are used as of the
date hereof and (ii) will be valid, binding, enforceable and sufficient for the
such purposes immediately following the Effective Time without the consent or
approval of any Person.
SECTION 3.38. Reorganization.
To the knowledge of the Company, neither it nor any of the Subsidiaries has
taken any action or failed to take any action that would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) or Section 368(a)(2)(D) of the Code.
- 39 -
SECTION 3.39. State Takeover Statutes; Certain Charter Provisions.
The Board of Directors of the Company has, to the extent such statutes are
applicable, taken all action (including appropriate approvals of the Board of
Directors of the Company) necessary to exempt the Company, the Subsidiaries and
affiliates, the Merger, this Merger Agreement and the transactions contemplated
hereby and thereby from Section 203 of Delaware Law. To the knowledge of the
Company, no other state takeover statutes or charter or bylaw provisions are
applicable to the Merger or this Merger Agreement and the transactions
contemplated hereby or thereby.
SECTION 3.40. Year 2000 Review.
(a) The Company and the Subsidiaries will not, to the Company's
knowledge, be materially adversely affected by (i) any failure of the Company's
and the Subsidiaries' computer hardware, software, firmware or embedded chip
technology to be Year 2000 Compliant (as defined in Article X); or (ii) the cost
and/or disruption to normal activities caused by work to be carried out to
ensure such computer hardware, software or embedded chip technology is Year 2000
Compliant.
(b) The Company and the Subsidiaries are currently reviewing their
information technology ("IT") and non-IT computer systems and programs to
--
determine which are not capable of recognizing the Year 2000 and to verify
system readiness for the millennium date (the "Company Year 2000 Review"). The
------------------------
Company Year 2000 Review covers all of the Company's and the Subsidiaries'
material operations and is centrally managed.
(c) All of the information related to the Company Year 2000 Review
disclosed in any of the Company's filings with any Governmental Entity was to
the Company's knowledge accurate and complete in all material respects as of the
date the filing was made with such Governmental Entity.
SECTION 3.41. Affiliate Agreements.
In accordance with Section 6.13, the executive officers, directors and
certain Company Stockholders specified in Section 3.41 of the Company Disclosure
Schedule ("Company Affiliates") have indicated to the Company that they intend
------------------
to execute and deliver to Acquiror affiliate agreements in substantially the
form attached hereto as Exhibit A (the "Affiliate Agreements") and each such
--------- --------------------
Affiliate Agreement, when so executed and delivered, will, to the knowledge of
the Company, constitute a legal, valid and binding obligation of the respective
Company Affiliate who is a party thereto, enforceable against such Company
Affiliate in accordance with its terms. Except for the Principal Company
Stockholders, John F. Wade and
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Peter H. O. Claudy, there are no affiliates of the Company as of the date hereof
as that term is used in SEC Rule 145.
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF PRINCIPAL COMPANY STOCKHOLDERS
SECTION 3A.01. Principal Company Stockholders That Are Entities.
To induce Acquiror to enter into this Merger Agreement, each Principal
Company Stockholder that is an entity, severally and not jointly, represents and
warrants to Acquiror on its own behalf and only with respect to itself as of the
date hereof and as of the Effective Date that:
(a) The execution and delivery by such Principal Company Stockholder
of this Merger Agreement, the execution and delivery by such Principal Company
Stockholder of all other agreements, documents, certificates or other
instruments contemplated hereby, and the consummation by such Principal Company
Stockholder of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate, partnership or limited liability company
action, and no other corporate, partnership or limited liability company
proceedings on the part of such Principal Company Stockholder are necessary to
authorize such Principal Company Stockholder to execute this Merger Agreement
and the other agreements, documents, certificates or other instruments
contemplated hereby, or to consummate the transactions contemplated hereby and
thereby, other than the approval and adoption of this Merger Agreement by a
majority of the voting power attributable to the outstanding Company Common
Stock and Company Series A Preferred Stock, voting together as a class, in
accordance with Delaware Law and the Company's articles of incorporation and
bylaws.
(b) This Merger Agreement has been duly executed and delivered by
such Principal Company Stockholder and constitutes a legal, valid and binding
obligation of such Principal Company Stockholder, enforceable in accordance with
its terms, except as such enforceability may be subject to the effects of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles (whether considered in a proceeding
in equity or at law).
(c) All of the shares of Company Capital Stock beneficially owned by
such Principal Company Stockholder are set forth on Section 3.04 of the Company
Disclosure Schedule, all of which shares are owned by such Principal Company
Stockholder free and clear of all Encumbrances other than Encumbrances arising
- 41 -
under applicable securities Laws and other than Encumbrances that will be
released at or prior to the Effective Time.
SECTION 3A.02. Principal Company Stockholders That Are Individuals.
To induce Acquiror to enter into this Merger Agreement, each Principal
Company Stockholder who is an individual, severally and not jointly, represents
and warrants to Acquiror on his own behalf and only with respect to himself as
of the date hereof and as of the Effective Date that:
(a) Such Principal Company Stockholder has the legal capacity and all
other necessary power and authority necessary to execute and deliver this Merger
Agreement, to execute and deliver all other agreements, documents, certificates
or other instruments contemplated hereby, and to consummate the transactions
contemplated hereby and thereby.
(b) This Merger Agreement has been duly executed and delivered by
such Principal Company Stockholder and constitutes a legal, valid and binding
obligation of such Principal Company Stockholder, enforceable in accordance with
its terms, except as such enforceability may be subject to the effects of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles (whether considered in a proceeding
in equity or at law).
(c) All of the shares of Company Capital Stock beneficially owned by
such Principal Company Stockholder are set forth on Section 3.04 of the Company
Disclosure Schedule, all of which shares are owned by such Principal Company
Stockholder free and clear of all Encumbrances other than Encumbrances arising
under applicable securities Laws and other than Encumbrances that will be
released at or prior to the Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUIROR SUB
Except as specifically set forth in the Disclosure Schedule delivered by
Acquiror and Acquiror Sub to the Company prior to the execution and delivery of
this Merger Agreement (the "Acquiror Disclosure Schedule") (with (i) a
----------------------------
disclosure with respect to a Section of this Merger Agreement to require a
specific reference in the Acquiror Disclosure Schedule to the Section of this
Merger Agreement to which each such disclosure applies, (ii) no disclosure to be
deemed to apply with respect to
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any Section to which it does not expressly refer and (iii) Acquiror and Acquiror
Sub having the right to cross-reference the sections of the Acquiror Disclosure
Schedule as appropriate with respect to disclosures that are reasonably
related), Acquiror and Acquiror Sub hereby jointly and severally represent and
warrant (which representation and warranty shall be deemed to include the
disclosures with respect thereto so specified in the Acquiror Disclosure
Schedule) to, and agrees with, the Company as follows, in each case as of the
date of this Merger Agreement, unless otherwise specifically set forth herein or
in the Acquiror Disclosure Schedule:
SECTION 4.01. Organization and Qualification; Subsidiaries.
Each of Acquiror, Acquiror Sub and Acquiror's Significant Subsidiaries (as
defined in Article X) is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction of its incorporation or
organization, and has the full and unrestricted corporate power and authority to
own, operate and lease its Assets, and to carry on its business as currently
conducted. Each of Acquiror, Acquiror Sub and Acquiror's Significant
Subsidiaries is duly qualified to conduct business as a foreign corporation and
is in good standing in the states, countries and territories in which the nature
of the business conducted by it or the character of the Assets owned, leased or
otherwise held by it makes such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have an
Acquiror Material Adverse Effect (as defined in Article X).
SECTION 4.02. Certificate of Incorporation and Bylaws.
Acquiror has furnished to the Company a true and complete copy of the
Amended and Restated Certificate of Incorporation of Acquiror and the
certificate of incorporation of Acquiror Sub, as currently in effect, certified
as of a recent date by the Secretary of State (or comparable Governmental
Entity) of their respective jurisdictions of incorporation, and a true and
complete copy of the Amended and Restated Bylaws of Acquiror and the bylaws of
Acquiror Sub, as currently in effect, certified by their respective corporate
secretaries. Such certified copies are attached as exhibits to, and constitute
an integral part of, the Acquiror Disclosure Schedule.
SECTION 4.03. Authority; Binding Obligation.
Each of Acquiror and Acquiror Sub has the full and unrestricted corporate
power and authority to execute and deliver this Merger Agreement and to carry
out the transactions contemplated hereby. The execution and delivery by
Acquiror and Acquiror Sub of this Merger Agreement and all other agreements,
documents, certificates or other instruments contemplated hereby, and the
consummation by Acquiror and Acquiror Sub of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action,
and no other corporate
- 43 -
proceedings on the part of Acquiror or Acquiror Sub are necessary to authorize
this Merger Agreement and the other agreements, documents, certificates or other
instruments contemplated hereby, or to consummate the transactions contemplated
hereby and thereby. This Merger Agreement has been duly executed and delivered
by Acquiror and Acquiror Sub and constitutes a legal, valid and binding
obligation of Acquiror and Acquiror Sub, enforceable in accordance with its
terms, except as such enforceability may be subject to the effect of any
applicable bankruptcy, insolvency fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effect of general equitable principles (whether considered in a proceeding
in equity or at law); provided, however, that the Merger will not become
effective until Articles of Merger reflecting the Merger are filed with the
office of the Secretary of State of Delaware.
SECTION 4.04. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance by Acquiror and Acquiror
Sub of this Merger Agreement and all other agreements, documents, certificates
or other instruments contemplated hereby, the fulfillment of and compliance with
the respective terms and provisions hereof and thereof, and the consummation by
Acquiror and Acquiror Sub of the transactions contemplated hereby and thereby,
do not and will not: (i) conflict with, or violate any provision of, the Amended
and Restated Certificate of Incorporation or the Amended and Restated Bylaws of
Acquiror, or the certificate or articles of incorporation or bylaws of Acquiror
Sub or any of Acquiror's Significant Subsidiaries; or (ii) subject to obtaining
the consents, approvals, authorizations and permits of, and making filings with
or notifications to, the applicable Governmental Entity pursuant to the
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws, the HSR Act, the Communications Act, the Federal Aviation Act,
applicable state utility Laws and applicable municipal franchise Laws, and the
filing and recordation of the Articles of Merger as required by Delaware Law,
conflict with or violate any Law applicable to Acquiror, Acquiror Sub or any of
Acquiror's Significant Subsidiaries, or any of their respective Assets; (iii)
conflict with, result in any breach of, constitute a default (or an event that
with notice or lapse of time or both would become a default) under any Agreement
to which Acquiror, Acquiror Sub or any of Acquiror's Significant Subsidiaries is
a party or by which Acquiror, Acquiror Sub or any of Acquiror's Significant
Subsidiaries, or any of their respective Assets, may be bound; or (iv) result in
or require the creation or imposition of, or result in the acceleration of, any
indebtedness or any Encumbrance of any nature upon, or with respect to,
Acquiror, Acquiror Sub or any of Acquiror's Significant Subsidiaries or any of
the Assets of Acquiror, Acquiror Sub or any of Acquiror's Significant
Subsidiaries; except for any such conflict or violation described in clause
(ii), any such conflict, breach or default described in clause (iii), or any
such creation, imposition or acceleration described in clause (iv) that would
not have an
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Acquiror Material Adverse Effect and that would not prevent Acquiror or Acquiror
Sub from consummating the Merger on a timely basis.
(b) Except as set forth in Section 4.04(b) of the Acquiror Disclosure
Schedule, the execution, delivery and performance by Acquiror and Acquiror Sub
of this Merger Agreement and all other agreements, documents, certificates or
other instruments contemplated hereby, the fulfillment of and compliance with
the respective terms and provisions hereof and thereof, and the consummation by
Acquiror and Acquiror Sub of the transactions contemplated hereby and thereby,
do not and will not: (i) require any consent, approval, authorization or permit
of, or filing with or notification to, any Person not party to this Merger
Agreement, except (A) pursuant to the applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the HSR Act, the Communications
Act, the Federal Aviation Act, applicable state utility Laws and applicable
municipal franchise Laws and Laws of other Governmental Entities, (B) the filing
and recordation of the Articles of Merger as required by Delaware Law and (C)
where the failure to obtain any consent, approval, authorization or permit or to
make any filing or notification otherwise required to be disclosed hereunder
would not have an Acquiror Material Adverse Effect; or (ii) result in or give
rise to any penalty, forfeiture, Agreement termination, right of termination,
amendment or cancellation, or restriction on business operations of Acquiror,
the Surviving Corporation or any of Acquiror's Significant Subsidiaries that
would have an Acquiror Material Adverse Effect.
SECTION 4.05. No Prior Activities of Acquiror Sub.
Acquiror Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Merger Agreement and has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
SECTION 4.06. Brokers.
No broker or finder or investment banker (other than Salomon Smith Barney
Inc., the fees of which shall be solely the responsibility of Acquiror) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Merger Agreement based upon
arrangements made by or on behalf of Acquiror or any of its Affiliates.
SECTION 4.07. SEC Documents.
Acquiror has filed all required reports, schedules, forms, statements and
other documents with the SEC (as defined in Article X) since January 1, 1997
(including the Acquiror Post-Signing SEC Documents (as defined in Section 6.10),
the "Acquiror SEC Documents"). As of their respective dates, the Acquiror SEC
----------------------
Documents complied or, in the case of the Acquiror Post-Signing SEC Documents,
- 45 -
will comply as to form in all material respects with the applicable requirements
of the Securities Act or the Exchange Act, as the case may be, and none of the
Acquiror SEC Documents contained or, in the case of the Acquiror Post-Signing
SEC Documents, will contain, any untrue statement of a material fact or omitted
or, in the case of the Acquiror Post-Signing SEC Documents, will omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of Acquiror included in
the Acquiror SEC Documents comply or, in the case of the Acquiror Post-Signing
SEC Documents, will comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been or, in the case of the Acquiror Post-Signing SEC
Documents, will have been prepared in accordance with GAAP (except, in the case
of unaudited statements, for the lack of normal year-end adjustments, the
absence of footnotes and as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods subject thereto (except as may be indicated
in the notes thereto) and fairly present the consolidated financial position of
Acquiror and its consolidated subsidiaries as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end adjustments
and the absence of footnotes). Except as disclosed in the Acquiror SEC
Documents, as required by GAAP or as required by any Governmental Entity,
Acquiror has not, since December 31, 1997, made any change in accounting
practices or policies applied in the preparation of financial statements.
SECTION 4.08. Acquiror Common Stock.
The Acquiror Common Stock to be issued and delivered to the Company
Stockholders pursuant to the Merger has been duly authorized and, when issued in
the Merger in accordance with this Merger Agreement, will be validly issued,
fully paid and nonassessable and will have been approved for listing subject to
official notice of issuance by The Nasdaq Stock Market's National Market System.
SECTION 4.09. Capitalization.
The authorized capital stock of Acquiror consists of (a) 250,000,000 shares
of Acquiror Common Stock, of which, as of January 5, 1999: (i) 63,545,925 shares
were issued and outstanding, all of which were duly authorized, validly issued,
fully paid and nonassessable; (ii) no shares were held in the treasury of
Acquiror; (iii) 12,278,323 shares were reserved for issuance pursuant to
outstanding options to purchase Acquiror Common Stock granted to employees and
certain other Persons; (iv) 245,536 shares were reserved for issuance pursuant
to a Stock Option Agreement dated August 21, 1998 between Acquiror and QST
Enterprises, Inc.; (v) 10,414 shares were reserved for issuance pursuant to a
Stock Option Agreement
- 46 -
dated November 25, 1998 between Acquiror, Inlet, Inc. and certain shareholders
of Inlet, Inc.; (vi) 917,398 shares were reserved for issuance pursuant to the
McLeodUSA Incorporated Employee Stock Purchase Plan; and (vii) 961,920 shares
were reserved for issuance pursuant to the McLeodUSA Incorporated 401(k) Profit
Sharing Plan; (b) 22,000,000 shares of Class B common stock, par value $.01 per
share ("Acquiror Class B Common Stock"), of which, as of January 5, 1999:
-----------------------------
(i) no shares were issued and outstanding; (ii) no shares were held in the
treasury of Acquiror; and (iii) 1,300,688 shares were reserved for issuance
pursuant to outstanding options to purchase Acquiror Class B Common Stock
granted to a significant stockholder of Acquiror; and (c) 2,000,000 shares of
serial preferred stock, par value $.01 per share, of which: (i) no shares are
issued and outstanding; and (ii) no shares are held in the treasury of Acquiror.
Except for the options set forth in clauses (a)(iii), (a)(iv), (a)(v), (a)(vi)
and (b)(iii) above and as set forth in Section 4.09(a) of the Acquiror
Disclosure Schedule, as of January 5, 1999, there were no outstanding securities
convertible into or exchangeable for capital stock or any other securities of
Acquiror, or any capital stock or other securities of any of Acquiror's
Significant Subsidiaries and no outstanding options, rights (preemptive or
otherwise), or warrants to purchase or to subscribe for any shares of such
capital stock or other securities of Acquiror or any of Acquiror's Significant
Subsidiaries. Except as set forth in Section 4.09(b) of the Acquiror Disclosure
Schedule and except for Agreements relating to the options specified in clauses
(a)(iii), (a)(iv), (a)(v), (a)(vi) and (b)(iii) above, there are no outstanding
Agreements to which Acquiror or any of its Significant Subsidiaries is a party
affecting or relating to the voting, issuance, purchase, redemption,
registration, repurchase or transfer of capital stock or any other securities of
Acquiror, or any capital stock or other securities of any of Acquiror's
Significant Subsidiaries, except as contemplated hereunder. Each of the
outstanding shares of Acquiror Common Stock, and of capital stock of, or other
equity interests in, Acquiror's Significant Subsidiaries was issued in
compliance with all applicable federal and state Laws concerning the issuance of
securities, and, except as set forth in Section 4.09(d) of the Acquiror
Disclosure Schedule, such shares or other equity interests owned by Acquiror or
any of its Significant Subsidiaries are owned free and clear of all
Encumbrances. There are no obligations, contingent or otherwise, of Acquiror or
any of its Significant Subsidiaries to provide funds to, make any investment (in
the form of a loan, capital contribution or otherwise) in, or provide any
guarantee with respect to, any of Acquiror's Significant Subsidiaries or any
other Person. Except as set forth in Section 4.09(e) of the Acquiror Disclosure
Schedule, there are no Agreements pursuant to which any Person (other than
Acquiror or Acquiror's Significant Subsidiaries) is or may be entitled to
receive any of the revenues or earnings, or any payment based thereon or
calculated in accordance therewith, of Acquiror or any of its Significant
Subsidiaries. No vote of the stockholders of Acquiror is required in connection
with the consummation of the Merger and the other transactions contemplated
hereby. Acquiror is the legal and beneficial owner of all of Acquiror Sub's
outstanding capital stock.
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SECTION 4.10. Reorganization.
To the knowledge of Acquiror, neither Acquiror, Acquiror Sub nor any of
Acquiror's Significant Subsidiaries has taken any action or failed to take any
action that would jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) or Section 368(a)(2)(D) of the Code.
SECTION 4.11. Compliance.
Neither Acquiror nor Acquiror Sub is aware of any fact or circumstance
related to them that could reasonably be expected to cause the filing of any
objection to any application for any Governmental consent required hereunder,
lead to any delay in processing such application, or require any waiver of any
Governmental rule, policy or other applicable Law.
SECTION 4.12. Disclosure.
(a) None of the information supplied by Acquiror or Acquiror Sub expressly
for inclusion (and so included or relied on for information included) in (i) the
Registration Statement and (ii) the Proxy Statement, at the respective times
that (w) the Registration Statement is filed with the SEC, (x) the Registration
Statement becomes effective, (y) the Proxy Statement is mailed, and (z) any
meeting of stockholders (and any adjournment thereof) is held to consider, or
written consents are effective with respect to approval of, the transactions
contemplated by this Merger Agreement, shall contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(b) No representation or warranty contained in this Merger Agreement
or the Acquiror Disclosure Schedule (giving full effect to the concepts and
qualifications of materiality and knowledge contained therein and not with the
intention or effect of eliminating or limiting such concepts and qualifications
in any way), and no other agreements, documents, certificates, instruments or
other information furnished or to be furnished, or made available or to be made
available to the Company by Acquiror or Acquiror Sub pursuant to this Merger
Agreement or otherwise in connection herewith or with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary in order to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading; provided however, that this representation shall not
apply to the matters specifically covered by any other representation or
warranty in this Merger Agreement, it being the intent of the parties that this
sentence not be applied so as to broaden the scope of those representations and
warranties.
- 48 -
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Business of the Company.
The Company hereby covenants and agrees that, from the date of this Merger
Agreement until the Effective Time, the Company, unless otherwise expressly
contemplated by this Merger Agreement or consented to in writing by Acquiror,
will, and will cause the Subsidiaries to, carry on their respective businesses
only in the Ordinary Course of Business or as contemplated by the Company's 1999
capital budget, a copy of which was previously furnished to Acquiror or in the
Confidential Offering Memorandum (relating to certain senior credit facilities)
dated December 1998, use their respective reasonable best efforts to preserve
intact their business organizations and Assets, maintain their rights and
franchises, retain the services of their officers and employees and maintain
their relationships with customers, suppliers, licensors, licensees and others
having business dealings with them, and use their respective reasonable best
efforts to keep in full force and effect liability insurance and bonds
comparable in amount and scope of coverage to that currently maintained.
Without limiting the generality of the foregoing, except as otherwise consented
to in writing by Acquiror or orally by Stephen C. Grey, J. Lyle Patrick or John
Wray or as otherwise expressly contemplated by this Merger Agreement or as
contemplated by the Company's 1999 capital budget, a copy of which was
previously furnished to Acquiror or in the Confidential Offering Memorandum
(relating to certain senior credit facilities) dated December 1998, from the
date of this Merger Agreement until the Effective Time the Company shall not,
and shall not permit any of the Subsidiaries to:
(a) (i) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee, except for
increases or bonuses in the Ordinary Course of Business to employees who
are not directors or officers and except pursuant to existing arrangements
previously disclosed to or approved in writing by Acquiror; (ii) grant any
severance or termination pay (other than pursuant to the normal severance
practices or existing Agreements of the Company or any Subsidiary in effect
on the date of this Merger Agreement as described in Section 5.01(a)(ii) of
the Company Disclosure Schedule) to, or enter into any severance Agreement
with, any director, officer or employee, or enter into any employment
Agreement with any director, officer or employee; (iii) establish, adopt,
enter into or amend any Plan or Other Arrangement, except as may be
required to comply with applicable Law; (iv) pay any benefit not provided
for under any Plan or Other Arrangement; (v) grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement or
Plan or Other Arrangement (including the grant of stock options, stock
appreciation rights, stock-based or stock-related awards, performance units
or restricted stock, or the removal of
- 49 -
existing restrictions in any Plan or Other Arrangement or Agreement or
awards made thereunder), except for grants in the Ordinary Course of
Business or as required under the Agreements set forth in Section
5.01(a)(ii) of the Company Disclosure Schedule, or (vi) take any action to
fund or in any other way secure the payment of compensation or benefits
under any Agreement, except as required under the Agreements set forth in
Section 5.01(a)(ii) of the Company Disclosure Schedule;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock other than
capital stock repurchased from departing employees in the Ordinary Course
of Business;
(c) (i) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any Subsidiary or any securities or obligations
convertible into or exchangeable for any shares of capital stock of the
Company or any Subsidiary, or any options, warrants or conversion or other
rights to acquire any shares of capital stock of the Company or any
Subsidiary or any such securities or obligations, or any other securities
thereof, other than redemption and purchases from departing employees in
the Ordinary Course of Business; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for, shares of its capital
stock;
(d) except upon the exercise of Company Stock Options in accordance
with their terms, issue, deliver, award, grant or sell, or authorize the
issuance, delivery, award, grant or sale (including the grant of any
limitations in voting rights or other Encumbrances) of, any shares of any
class of its capital stock (including shares held in treasury), any
securities convertible into or exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire, any such shares, or
amend or otherwise modify the terms of any such rights, warrants or options
the effect of which shall be to make such terms more favorable to the
holders thereof;
(e) except as contemplated by Agreements which have been identified in
Section 3.14(a) of the Company Disclosure Schedule, acquire or agree to
acquire, by merging or consolidating with, by purchasing an equity interest
in or a portion of the Assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any Assets of
any other Person (other than the purchase of assets from suppliers or
vendors in the Ordinary Course of Business);
- 50 -
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
subject to any Encumbrance or dispose of, or agree to sell, lease,
exchange, mortgage, pledge, transfer or otherwise subject to any
Encumbrance or dispose of, any of its Assets, except for sales,
dispositions or transfers in the Ordinary Course of Business;
(g) adopt any amendments to its articles or certificate of
incorporation, bylaws or other comparable charter or organizational
documents;
(h) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ended December 31, 1997, except in
either case as may be required by Law, the IRS or GAAP;
(i) make or agree to make any new capital expenditures which are not
included in the Company's 1999 capital budget, a copy of which was
furnished to Acquiror, it being understood that the Company shall provide
prior notice to Acquiror of any expenditures which are individually in
excess of $1,000,000;
(j) (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any Subsidiary, guarantee any debt securities of another Person, enter into
any "keep well" or other Agreement to maintain any financial statement
condition of another Person or enter into any Agreement having the economic
effect of any of the foregoing, except for borrowings incurred in the
Ordinary Course of Business, or (ii) make any loans, advances or capital
contributions to, or investments in, any other Person other than intra-
group loans, advances, capital contributions or investments between or
among the Company and any of its wholly owned Subsidiaries other than in
the Ordinary Course of Business;
(k) except for costs incurred by the Company in connection with the
transactions contemplated by this Merger Agreement but only to the extent
such costs are deducted pursuant to the calculation of Merger Consideration
in Article II hereof, pay, discharge, settle or satisfy any claims,
liabilities or obligations (whether absolute or contingent, matured or
unmatured, known or unknown), other than the payment, discharge or
satisfaction, in the Ordinary Course of Business or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent
- 51 -
Financial Statement or incurred in the Ordinary Course of Business, or
waive any material benefits of, or agree to modify in any material respect,
any confidentiality, standstill or similar Agreements to which the Company
or any Subsidiary is a party;
(l) except in the Ordinary Course of Business, waive, release or
assign any rights or claims, or modify, amend or terminate any Agreement to
which the Company or any Subsidiary is a party;
(m) make any change in any method of accounting or accounting practice
or policy other than those required by GAAP or a Governmental Entity;
(n) take any action or fail to take any action that would have a
Company Material Adverse Effect prior to or after the Effective Time or an
Acquiror Material Adverse Effect after the Effective Time, or that would
adversely affect the ability of the Company or any Subsidiary prior to the
Effective Time, or Acquiror or any of its subsidiaries after the Effective
Time, to obtain consents of third parties or approvals of Governmental
Entities required to consummate the transactions contemplated in this
Merger Agreement; or
(o) authorize, or commit or agree to do any of the foregoing.
SECTION 5.02. Other Actions.
The Company and Acquiror shall not, and shall not permit any of their
respective Affiliates to, take any action that would, or that could reasonably
be expected to, result in (a) any of the representations and warranties of such
party set forth in this Merger Agreement becoming untrue, or (b) any of the
conditions to the Merger set forth in Article VII not being satisfied.
SECTION 5.03. Certain Tax Matters.
From the date hereof until the Effective Time, the Company and the
Subsidiaries (a) will prepare and timely file with the relevant Taxing authority
all Company Tax Returns ("Post-Signing Returns") required to be filed, which
--------------------
Post-Signing Returns shall be accurate in all material respects, or permitted
extensions with respect thereto, (b) will timely pay all Taxes due and payable
with respect to such Post-Signing Returns, (c) will pay or otherwise make
adequate provision for all Taxes payable by the Company and the Subsidiaries for
which no Post-Signing Return is due prior to the Effective Time, and (d) will
promptly notify Acquiror of any action, suit, proceeding, claim or audit pending
against or with respect to the Company or any Subsidiary in respect of any
Taxes.
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SECTION 5.04. Access and Information.
For so long as this Merger Agreement is in effect, the Company shall, and
shall cause each Subsidiary to, (a) afford to Acquiror and its officers,
employees, accountants, consultants, legal counsel and other representatives
reasonable access during normal business hours, subject to reasonable advance
notice, to all of their respective properties, Agreements, books, records and
personnel and (b) furnish promptly to Acquiror (i) a copy of each agreement,
document, certificate or other instrument filed with, or received from any
Governmental Entity and (ii) all other information concerning their respective
businesses, operations, prospects, conditions (financial or otherwise), Assets,
liabilities and personnel as Acquiror may reasonably request.
SECTION 5.05. No Solicitation.
(a) The Company shall, and shall cause its directors, officers,
employees, representatives, agents and Subsidiaries and their respective
directors, officers, employees, representatives and agents to, and the Principal
Company Stockholders shall, and shall cause their respective representatives and
agents to, immediately cease any discussions or negotiations with any Person
that may be ongoing with respect to a Competing Transaction (as defined in this
Section 5.05(a)). While this Merger Agreement is in effect, the Company shall
not, and shall cause the Subsidiaries not to, and the Principal Company
Stockholders shall not, initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Competing Transaction, or enter into discussions or
furnish any information or negotiate with any Person or otherwise cooperate in
any way in furtherance of such inquiries or to obtain a Competing Transaction,
or agree to or endorse any Competing Transaction, or authorize any of the
directors, officers, employees, agents or representatives of the Company or any
Subsidiary to take any such action, and the Company shall, and shall cause the
Subsidiaries to, direct and instruct and use its or their reasonable best
efforts to cause the directors, officers, employees, agents and representatives
of the Company and the Subsidiaries (including, without limitation, any
investment banker, financial advisor, attorney or accountant retained by the
Company or any Subsidiary) not to take any such action, and the Company or the
applicable Principal Company Stockholders shall promptly notify Acquiror if any
such inquiries or proposals are received by the Company, any Subsidiary, or such
Principal Company Stockholders or any of its or their respective directors,
officers, employees, agents, investment bankers, financial advisors, attorneys,
accountants or other representatives, and the Company or the applicable
Principal Company Stockholders shall promptly inform Acquiror as to the material
terms of such inquiry or proposal and, if in writing, promptly deliver or cause
to be delivered to Acquiror a copy of such inquiry or proposal, and the Company
or the applicable Principal Company Stockholders shall keep Acquiror
- 53 -
informed, on a current basis, of the nature of any such inquiries and the status
and terms of any such proposals. For purposes of this Merger Agreement,
"Competing Transaction" shall mean any of the following involving the Company
--------- -----------
or the Subsidiaries (other than the transactions contemplated by this Merger
Agreement): (i) any merger, consolidation, share exchange, business combination,
or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of ten percent (10%) or more of the Assets of the
Company and the Subsidiaries, taken as a whole, or issuance of ten percent (10%)
or more of the outstanding voting securities of the Company or any Subsidiary in
a single transaction or series of transactions; (iii) any tender offer or
exchange offer for ten percent (10%) or more of the outstanding shares of
capital stock of the Company or any Subsidiary or the filing of a registration
statement under the Securities Act in connection therewith; (iv) any
solicitation of proxies in opposition to approval by the Company Stockholders of
the Merger; (v) any Person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of, or any "group" (as such term is defined
-----
under Section 13(d) of the Exchange Act) shall have been formed after the date
of this Merger Agreement which beneficially owns or has the right to acquire
beneficial ownership of, ten percent (10%) or more of the then outstanding
shares of capital stock of the Company or any Subsidiary; or (vi) any Agreement
to, or public announcement by the Company or any other Person of a proposal,
plan or intention to, do any of the foregoing.
(b) Neither the Board of Directors of the Company nor any committee
thereof nor any Principal Company Stockholder shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Acquiror or Acquiror Sub,
the approval or recommendation by such Board of Directors or any such committee
or Principal Company Stockholder of this Merger Agreement or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any Competing
Transaction or (iii) enter into any Agreement with respect to any Competing
Transaction.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Proxy Statement.
(a) As promptly as practicable after the execution of this Merger
Agreement, Acquiror shall prepare and file with the SEC a registration statement
on Form S-4 (such registration statement, together with the amendments thereto
being the "Registration Statement"), containing a proxy statement/prospectus, in
----------------------
connection with the registration under the Securities Act of the shares of
Acquiror Common Stock issuable pursuant to Section 2.01, the vote or consent of
the Company Stockholders with respect to the Merger (such proxy
- 54 -
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms delivered to the Company
Stockholders, being the "Proxy Statement") and the other transactions
---------------
contemplated by this Merger Agreement. Acquiror agrees to provide the Company
with an opportunity to review and comment on the Registration Statement and the
Proxy Statement before filing. Acquiror agrees promptly to provide the Company
with copies of all correspondence from and all responsive correspondence to the
SEC regarding the Registration Statement and Proxy Statement. Acquiror agrees
promptly to notify the Company of all stop orders or threatened stop orders of
which it becomes aware with respect to the Registration Statement. Each of
Acquiror and the Company will use all reasonable best efforts to have or cause
the Registration Statement to become effective as promptly as practicable, and
shall take any action required to be taken under any applicable federal or state
securities Laws in connection with the issuance of shares of Acquiror Common
Stock in the Merger. Each of Acquiror and the Company shall furnish all
information concerning it and the holders of its capital stock as the other may
reasonably request in connection with such actions. As promptly as practicable
after the Registration Statement shall have become effective, the Company shall
mail or otherwise deliver the Proxy Statement to its stockholders, and the
Company shall comply with the proxy solicitation rules and regulations under the
Exchange Act in connection with the solicitation of such stockholders. The
Proxy Statement shall include the recommendation of the Company's Board of
Directors to the Company Stockholders to vote for or consent to the approval of
this Merger Agreement and the transactions contemplated hereby.
(b) The information supplied by the Company for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by the
Company for inclusion in the Proxy Statement to be sent to the Company
Stockholders in connection with securing the vote or consent of the Company
Stockholders to consider the Merger shall not, at the date the Proxy Statement
(or any amendment thereof or supplement hereto) is first delivered to
stockholders, at the time the vote or consent is secured or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. If at any time prior to the Effective Time any event or
circumstance relating to the Company or any of its affiliates, or its or their
respective officers or directors, should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, the Company shall promptly inform Acquiror.
All documents that the Company is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to form and
substance in all material respects with the applicable requirements of the
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Securities Act and the rules and regulations thereunder and the Exchange Act and
the rules and regulations thereunder.
(c) The information supplied by Acquiror for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by
Acquiror for inclusion in the Proxy Statement to be sent to the Company
Stockholders in connection with securing the vote or consent shall not, at the
date the Proxy Statement (or any amendment thereof or supplement thereto) is
first delivered to stockholders, at the time the vote or consent is secured or
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event or circumstance relating to Acquiror or any of its respective affiliates,
or its or their respective officers or directors, should be discovered by
Acquiror which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, Acquiror shall promptly inform the
Company. All documents that Acquiror is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to form and
substance in all material respects with the applicable requirements of the
Securities Act and the rules and regulations thereunder and the Exchange Act and
the rules and regulations thereunder.
(d) The Company and Acquiror each hereby (i) consents to the use of
its name and, on behalf of its subsidiaries and affiliates, the names of such
subsidiaries and affiliates and to the inclusion of financial statements and
business information relating to such party and its subsidiaries and affiliates
(in each case, to the extent required by applicable securities Laws) in any
registration statement or proxy statement prepared by the Company or Acquiror
pursuant to this Merger Agreement; (ii) agrees to use its reasonable best
efforts to obtain the written consent of any Person retained by it which may be
required to be named (as an expert or otherwise) in such registration statement
or proxy statement; and (iii) agrees to cooperate, and to use its reasonable
best efforts to cause its subsidiaries and affiliates to cooperate, with any
legal counsel, investment banker, accountant or other agent or representative
retained by any of the parties specified in clause (i) in connection with the
preparation of any and all information required, as determined after
consultation with each party's counsel, to be disclosed by applicable securities
Laws in any such registration statement or proxy statement.
SECTION 6.02. Stockholder Approval.
The Company shall promptly after the date of this Merger Agreement take all
action necessary in accordance with Delaware Law and its certificate of
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incorporation and bylaws to secure the vote or consent of the Company
Stockholders required by Delaware Law to approve this Merger Agreement and the
transactions contemplated hereby.
SECTION 6.03. Appropriate Action; Consents; Filings.
(a) Upon the terms and subject to the conditions set forth in this
Merger Agreement, the Company and Acquiror shall use their reasonable best
efforts to take, or cause to be taken, all appropriate action, and do, or cause
to be done, and to assist and cooperate with the other parties in doing all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this Merger
Agreement as promptly as practicable, including (i) executing and delivering any
additional instruments necessary, proper or advisable to consummate the
transactions contemplated by, and to carry out fully the purposes of, this
Merger Agreement, (ii) obtaining from any Governmental Entities any material
Licenses required to be obtained or made by Acquiror or the Company or any of
their subsidiaries in connection with the authorization, execution and delivery
of this Merger Agreement and the consummation of the transactions contemplated
herein, including, without limitation, the Merger, and (iii) making all
necessary filings, and thereafter making any other required submissions, with
respect to this Merger Agreement and the Merger required under (A) the
Securities Act, the Exchange Act and any other applicable federal or state
securities Laws, (B) the HSR Act and (C) any other applicable Law; provided that
--------
Acquiror and the Company shall cooperate with each other in connection with the
making of all such filings, including providing copies of all such documents to
the non-filing party and its advisors prior to filing and discussing all
reasonable additions, deletions or changes suggested in connection therewith.
The Company and Acquiror shall furnish to each other all information required
for any application or other filing to be made pursuant to the rules and
regulations of any applicable Law in connection with the transactions
contemplated by this Merger Agreement.
(b) (i) The Company and Acquiror shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, their reasonable best efforts to
obtain any third party consents, approvals or waivers (A) necessary, proper or
advisable to consummate the transactions contemplated in this Merger Agreement,
(B) disclosed or required to be disclosed in the Company Disclosure Schedule or
the Acquiror Disclosure Schedule, as the case may be, or (C) required to prevent
a Company Material Adverse Effect from occurring prior to or after the Effective
Time or an Acquiror Material Adverse Effect from occurring prior to or after the
Effective Time.
(ii) In the event that either the Company or Acquiror shall fail to
obtain any third party consent, approval or waiver described in subsection
(b)(i) above, such party shall use its reasonable best efforts, and shall take
any such
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actions reasonably requested by the other parties hereto, to minimize any
adverse effect upon the Company and Acquiror, their respective subsidiaries, and
their respective businesses resulting, or which could reasonably be expected to
result after the Effective Time, from the failure to obtain such consent,
approval or waiver.
(c) From the date of this Merger Agreement until the Effective Time,
the Company and Acquiror shall promptly notify each other in writing of any
pending or, to the knowledge of the Company or Acquiror (or their respective
subsidiaries), threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages in
connection with the Merger or the conversion of the Company Capital Stock into
the Merger Consideration pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of Acquiror
or its subsidiaries to own or operate all or any portion of the businesses or
Assets of the Company or any Subsidiary. The Company and Acquiror shall
cooperate with each other in defending any such action, proceeding or
investigation, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed.
(d) Concurrently with the Closing, Acquiror shall infuse the Company
with a sufficient amount of cash necessary and otherwise cause the Company and
the Subsidiaries to pay and satisfy in full in cash by wire transfer of
immediately available funds all of the Company's and the Subsidiaries'
indebtedness for borrowed money to (i) AT&T Commercial Finance Corporation
("AT&T CFC") and (ii) Media/Communications Partners III Limited Partnership and
- ----------
M/C Investors, L.L.C.
SECTION 6.04. Amendment to Stockholders' Agreement.
Acquiror shall use reasonable best efforts to amend the Stockholders'
Agreement promptly following the Closing to add those parties who are parties to
the Stockholders' Agreement, dated as of November 18, 1998, among such Persons,
IES Investments Inc., Acquiror, Clark E. McLeod, Mary E. McLeod and Richard A.
Lumpkin as parties to the Stockholders' Agreement for purposes of Section 1
thereof and who are not parties to the Stockholders' Agreement.
SECTION 6.05. Update Disclosure; Breaches.
(a) From and after the date of this Merger Agreement until the
Effective Time, each party hereto shall promptly notify the other parties hereto
by written update to its Disclosure Schedule of (i) any representation or
warranty made by it in connection with this Merger Agreement becoming untrue or
inaccurate, (ii) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be likely to cause any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this
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Merger Agreement not to be satisfied, or (iii) the failure of the Company,
Acquiror or Acquiror Sub, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Merger Agreement which would be likely to result in any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied; provided, however,
-------- -------
that subject to Section 6.05(b), the delivery of any notice pursuant to this
Section 6.05(a) shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this Merger Agreement
or otherwise limit or affect the rights and remedies available hereunder to the
party receiving such notice.
(b) The Company shall be permitted to update, correct or otherwise
modify the contents of the Company Disclosure Schedule up to ten (10) days prior
to the Closing Date to reflect changes or corrections so long as the changes or
corrections do not disclose any information that would have a Company Material
Adverse Effect. The representations and warranties of the Company set forth in
Article III shall be deemed to include, retroactively to the date hereof, any
Company Disclosure Schedule updated or modified consistent with the requirements
of this Section 6.05(b).
SECTION 6.06. Public Announcements.
Acquiror, Acquiror Sub and the Company shall consult with each other before
issuing or making, and shall give each other the opportunity to review and
comment upon, any press release or other public statement with respect to the
Merger and the other transactions contemplated in this Merger Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by Law or any listing agreement
with the NASD (as defined in Article X).
SECTION 6.07. Registration of Company Options.
Acquiror shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Acquiror Common Stock for delivery upon
exercise of the Company Stock Options assumed in accordance with Section 2.04.
Acquiror shall either (i) include such Company Stock Options on Acquiror's
registration statement or Form S-8 relating to Acquiror's 1996 Employee Stock
Option Plan or (ii) file a registration statement on Form S-8 (or any successor
form) or another appropriate form, effective as of the Effective Time, with
respect to shares of Acquiror Common Stock subject to such Company Stock Options
and shall use its reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
Company Stock Options remain outstanding. With respect to those individuals who
subsequent to the Merger will be subject to the reporting requirements under
Section 16(a) of the Exchange Act, Acquiror shall
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administer the Company Stock Options assumed pursuant to Section 2.04 in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act.
SECTION 6.08. Unaudited Financial Information.
The Company will cause to be prepared and will furnish to Acquiror as
promptly as possible an unaudited consolidated balance sheet of the Company and
the Subsidiaries as of the last day of each month ending after November 30, 1998
and the related unaudited consolidated statements of income of the Company and
the Subsidiaries for the one-month period then ended. The Company will ensure
that such Unaudited Statements are complete and correct in all material
respects, have been prepared in accordance with the books and records of the
Company and the Subsidiaries, and present fairly the consolidated financial
position of the Company and the Subsidiaries and their consolidated results of
operations and cash flows as of and for the respective dates and time periods in
accordance with GAAP applied on a basis consistent with prior accounting
periods, except as noted thereon and subject to the absence of footnotes and a
statement of cash flows and normal and recurring year-end adjustments which are
not expected to be material in amount.
SECTION 6.09. Environmental Matters.
(a) The Company will promptly furnish to Acquiror written notice of
any Hazardous Discharge or of any actions or notices described in Section
3.33(b).
(b) The Company will permit Acquiror, in Acquiror's discretion and at
Acquiror's expense, to cause to be prepared a Phase I environmental report on
each parcel of the Real Property or any real property leased by the Company or
any Subsidiary (to the extent the Company or a Subsidiary has the right to allow
Acquiror to do the same) designated by Acquiror and, if recommended under the
Phase I environmental report and so requested by Acquiror, a Phase II
environmental report, in each case prepared by an environmental consultant
designated by Acquiror (the "Environmental Reports"). The Company shall
---------------------
cooperate with, and provide such information or other assistance as may be
requested by, Acquiror or the environmental consultant designated by Acquiror in
connection with the preparation and completion of such Environmental Reports.
Acquiror shall cause all Environmental Reports (including drafts thereof) to be
provided to the Company promptly after their receipt by Acquiror.
SECTION 6.10. Post-Signing SEC Documents.
Acquiror will file with the SEC all reports, schedules, forms, statements
and other documents required to be filed by it after the date of this Merger
Agreement but before the Effective Time (the "Acquiror Post-Signing SEC
-------------------------
Documents").
- ---------
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SECTION 6.11. Indemnification.
(a) After the Effective Time, subject to the terms and conditions set
forth in Sections 6.11 and 6.12, the Company Stockholders shall severally and
not jointly indemnify and hold harmless Acquiror, the Surviving Corporation and
their respective officers and directors, and each person, if any, who controls
or may control Acquiror or the Surviving Corporation within the meaning of the
Securities Act (all such persons hereinafter are referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons," but in no event
------------------ -------------------
shall any stockholder of the Company be such an Indemnified Person), from and
against any and all losses, costs, damages, liabilities and expenses, including
reasonable attorneys' fees and expenses, ("Damages") actually suffered and
-------
arising out of the breach of the representations, warranties, covenants and
agreements given or made by the Company in this Merger Agreement, in the
Articles of Merger or in the Exhibits or Schedules hereto or in any certificate
or document delivered by or on behalf of the Company pursuant hereto; provided
--------
however, that the maximum liability of the Company Stockholders for
- -------
indemnification under this Section 6.11 shall be limited to $37,000,000;
provided, further, that such limitation on the indemnification obligations of
- -------- -------
the Company Stockholders shall not apply to any claim or claims for
indemnification to the extent such claim or claims are based on common law
fraud; provided, further, the Company Stockholders shall have no liability under
-------- -------
this Section 6.11(a) to the extent claims for Damages hereunder do not exceed an
aggregate of $1,750,000 and that if such Damages exceed an aggregate of
$1,750,000 then the indemnification provided for hereunder shall apply only to
Damages to the extent exceeding $1,750,000. It shall be a condition of the
right of each Indemnified Person to indemnification pursuant to this Section
6.11(a) that such Indemnified Person shall deliver to the Company Stockholder
from whom indemnification is sought a written claim for such indemnification,
setting forth in reasonable detail the basis therefor and setting forth the
amount of damages sought, on or prior to the date that the particular
representation, warranty, covenant or agreement for the breach of which the
indemnification is being sought, expires under the terms of this Merger
Agreement.
(b) In addition to the indemnification provided by Company
Stockholders as set forth in Section 6.11(a), each Principal Company Stockholder
shall severally and not jointly indemnify and hold harmless the Indemnified
Persons for Damages actually suffered and arising out of the breach of the
representations, warranties, covenants and agreements given or made by such
Principal Company Stockholder on its own behalf and only with respect to itself
or this Merger Agreement or in its Exhibits or Schedules thereto or in any
certificate or document delivered by or on behalf of such Principal Company
Stockholder pursuant hereto. No Principal Company Stockholder shall have any
liability for any breach of representation, warranty or covenant by any other
Principal Company Stockholder.
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(c) Any payment to be made to an Indemnified Person by a Company
Stockholder or a Principal Company Stockholder under this Section 6.11 may be
made in cash or, in whole or in part, in Acquiror Common Stock having a value
per share equal to the average of the daily closing price, on The Nasdaq Stock
Market's National Market System as reported by Bloomberg, L.P., for the ten (10)
trading days immediately preceding the date of such payment.
(d) Except as set forth in Section 6.11(e), with respect to any
Damages or other amounts payable under this Merger Agreement, a Company
Stockholder shall be liable only for a fraction of such Damages or other amount,
the numerator of which is the number of shares of Company Common Stock (computed
on a fully diluted basis after giving pro forma effect to the exercise of all
options, warrants and rights to acquire Company Common Stock) held by such
Company Stockholder immediately prior to the Effective Time and the denominator
of which is equal to the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (computed on a fully diluted
basis and after giving pro forma effect to the exercise of all options, warrants
and rights to acquire Company Common Stock). After the Effective Time,
indemnification pursuant to this Section 6.11 shall be the sole and exclusive
remedy of Acquiror and the Surviving Corporation under or in connection with
this Merger Agreement or any of the transactions contemplated herein.
(e) With respect to any Damages or other amounts payable under this
Merger Agreement by a Principal Company Stockholder under Section 6.11(b), the
indemnification provided with respect to a representation or warranty shall
apply to all Damages without regard to amount and there shall be no limitation
on the maximum liability for indemnification under Section 6.11(b).
SECTION 6.12. Procedures; Conditions of Indemnification.
With respect to any indemnification provided pursuant to this Merger
Agreement, the Indemnified Person agrees to give prompt written notice to the
Company Stockholder or Principal Company Stockholder, as the case may be, from
whom indemnification is sought of any claim or other assertion of liability by
third parties (hereinafter called collectively "Claims"), it being understood
------
that the failure to give such notice shall not affect the Indemnified Person's
right to indemnification and the indemnifying party's obligation to indemnify as
set forth in this Merger Agreement, unless the Company Stockholders' or
Principal Company Stockholders' rights with respect to such Claim are thereby
materially prejudiced.
The obligations and liabilities of the parties hereto with respect to their
respective indemnities pursuant to this Merger Agreement resulting from any
Claim shall be subject to the following terms and conditions:
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(a) The Company Stockholders or Principal Company Stockholders, as the
case may be, shall have the right to undertake, by counsel or other
representatives of their own choosing, the defense of such Claim.
(b) In the event that the Company Stockholders or Principal Company
Stockholders, as the case may be, shall elect not to undertake such defense, or
within a reasonable time after notice of any such Claim from the Indemnified
Person shall fail to defend, the Indemnified Person (upon further written notice
to the Company Stockholders or Principal Company Stockholders, as the case may
be) shall have the right to undertake the defense, compromise or settlement of
such Claim, by counsel or other representatives of its own choosing, on behalf
of and for the account and risk of the Company Stockholders or Principal Company
Stockholders, as the case may be (subject to the right of the Company
Stockholders or Principal Company Stockholders, as the case may be, to assume
defense of such Claim at any time prior to settlement, compromise or final
determination thereof); provided however, that no settlement or compromise of
-------- -------
such Claim shall be made without the written consent of the Company Stockholders
or Principal Company Stockholders, as the case may be, which consent shall not
be unreasonably withheld.
(c) Anything in this Section 6.12 to the contrary notwithstanding, (i)
if the Indemnified Person notifies the Company Stockholder or Principal Company
Stockholder, as the case may be, that the Indemnified Person has concluded that
a Claim may materially and adversely affect the Indemnified Person other than as
a result of money damages or other money payments, the Indemnified Person shall
have the right, at its own cost and expense, to participate in the defense,
compromise or settlement of the Claim, (ii) the Company Stockholders or
Principal Company Stockholders, as the case may be, shall not, without the
Indemnified Person's written consent, settle or compromise any Claim or consent
to entry of any judgment that does not include as an unconditional term thereof
the giving by the claimant or the plaintiff to the Indemnified Person of a
release from all liability in respect of such Claim, and (iii) in the event that
the Company Stockholders or Principal Company Stockholders, as the case may be,
undertake defense of any Claim, the Indemnified Person, by counsel or other
representative of its own choosing and at its sole cost and expense, shall have
the right to consult with the Company Stockholders or Principal Company
Stockholders, as the case may be, and their counsel or other representatives
concerning such Claim and the Company Stockholders or Principal Company
Stockholders, as the case may be, and the Indemnified Person and their
respective counsel or other representatives shall cooperate with respect to such
Claim.
(d) Notwithstanding any other provision of this Section 6.12, the
Indemnified Person may at any time assume full control over the responsibility
for any Claim (other than a Claim against one or more Company Stockholders or
Principal Company Stockholders, as the case may be), by written notice to the
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Company Stockholders or Principal Company Stockholders, as the case may be,
releasing the Company Stockholders or Principal Company Stockholders, as the
case may be, from any further indemnity obligation pursuant to this Merger
Agreement with respect to said Claim.
(e) Any decision with respect to any matter under this Section 6.12
relating to indemnification by the Company Stockholders (including, without
limitation, the defense, prosecution, settlement or resolution of Claims) shall
be binding on all Company Stockholders if consented to by those Company
Stockholders who, immediately prior to the Effective Time, hold a majority of
the Company Common Stock held by all Company Stockholders.
SECTION 6.13. Affiliates; Tax Treatment.
Prior to the Effective Time, the Company shall use its reasonable best
efforts to obtain Affiliate Agreements from each Person listed in Section 3.41
of the Company Disclosure Schedule and any Person who may be deemed to have
become an affiliate of the Company (under SEC Rule 145 of the Securities Act)
after the date of this Merger Agreement and on or prior to the Effective Time,
provided that the Company shall use its reasonable best efforts to obtain
- --------
Affiliate Agreements from each such Person as soon as practicable after the date
of this Merger Agreement or the date on which such Person attains such status,
as the case may be. Each party hereto shall use its reasonable best efforts to
cause the Merger to qualify, and shall not take any actions which could prevent
the Merger from qualifying, as a reorganization qualifying under the provisions
of Section 368(a) and Section 368(a)(2)(D) of the Code.
SECTION 6.14. Tax Returns.
(a) To the extent permitted under applicable Tax Laws, the Merger
shall be reported as a "reorganization" within the meaning of Section 368(a) and
Section 368(a)(2)(D) of the Code in all federal, state and local Tax Returns
filed after the Effective Time. To the extent permitted under applicable Tax
Laws, no party to this Merger Agreement shall take any position inconsistent
with the foregoing on any Tax Return, in any audits or proceeding or otherwise.
Notwithstanding any other provision of this Merger Agreement, the obligations
set forth in this Section 6.14(a) shall survive the Effective Time without
limitation as to time or in any other respect.
(b) Acquiror and the Company each hereby represents and warrants to
the other that it is not aware of any applicable Tax Law that would require such
party to take any position inconsistent with the foregoing on any Tax Return.
- 64 -
SECTION 6.15. Reorganization.
During the period from the date of this Merger Agreement through the
Effective Time, unless Acquiror and the Company shall otherwise agree in
writing, Acquiror and the Company shall not, and shall cause their respective
subsidiaries not to, and the Principal Company Stockholders shall not, knowingly
take or fail to take any action which action or failure would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
SECTION 6.16. Directors' and Officers' Insurance; Indemnification.
Acquiror agrees that for the entire period from the Effective Time until at
least six (6) years after the Effective Time, (a) Acquiror will cause the
Surviving Corporation to maintain the Company's current directors' and officers'
insurance and indemnification policy and related arrangements, or an equivalent
policy and related arrangements, subject in either case to terms and conditions
no less advantageous to the present and former directors and officers of the
Company than those contained in the policy and arrangements in effect on the
date hereof, for all present and former directors and officers of the Company,
covering claims made and insurable events occurring prior to or within six (6)
years after the Effective Time (provided that the Surviving Corporation will not
be required to maintain such policy except to the extent that the aggregate
annual cost of maintaining such policy is not in excess of two hundred percent
(200%) of the current annual cost, in which case the Surviving Corporation shall
maintain such policies up to an annual cost of two hundred percent (200%) of the
current annual cost); and (b) Acquiror will cause the Surviving Corporation to
maintain indemnification provisions, including, without limitation, provisions
for expense advances, for present and former officers and directors in the
Surviving Corporation's certificate of incorporation and bylaws to the fullest
extent permitted by Delaware Law. In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit
proceeding or investigation in which any of the present or former officers or
directors (the "Managers") of the Company is, or is threatened to be, made a
--------
party by reason of the fact that such Manager is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other entity, whether before or after the
Effective Time, the parties hereto agree to cooperate and use their reasonable
best efforts to defend against and respond thereto. It is understood and agreed
that the Company shall indemnify and hold harmless, and after the Effective Time
each of the Surviving Corporation and Acquiror shall indemnify and hold
harmless, as and to the full extent that the Surviving Corporation would be
permitted by applicable Law (and as to matters arising from or relating to this
Merger Agreement and the possible change in control of the Company, to the full
extent that Acquiror would be permitted under applicable Law), each such Manager
against any losses, claims, damages, liabilities,
- 65 -
costs, expenses (including reasonable attorneys' fees), judgments, fines and
amounts paid in settlement in connection with any such claim, action, suit,
proceeding or investigation; and in the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) the Managers may retain counsel satisfactory to them, and the
Company, or the Surviving Corporation and Acquiror after the Effective Time,
shall pay all reasonable fees and expenses of such counsel for the Managers
promptly as statements therefor are received whether before or after final
determination of the matter, and (ii) the Company, or the Surviving Corporation
and Acquiror after the Effective Time, will use their respective reasonable best
efforts to assist in the vigorous defense of any such matter; provided that
--------
neither the Company nor the Surviving Corporation or Acquiror shall be liable
for any settlement effected without its prior written consent (which consent
shall not be unreasonably withheld); and provided further that the Company's,
-------- -------
the Surviving Corporation's and Acquiror's obligations hereunder shall only be
reduced or relieved when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and non-
appealable, that indemnification of such Manager in the manner contemplated is
prohibited by applicable Law.
SECTION 6.17. Obligations of Acquiror Sub.
Acquiror shall take all action necessary to cause Acquiror Sub to perform
its obligations under this Merger Agreement and to consummate the Merger on the
terms and conditions set forth in this Merger Agreement.
SECTION 6.18. Loan Agreement.
Concurrently with the execution of this Merger Agreement, the Company and
Acquiror shall enter into a Revolving Credit Agreement and Promissory Note in
the form attached hereto as Exhibit B (the "Revolving Credit Agreement"),
--------- --------------------------
pursuant to which the Acquiror shall make available to the Company a loan (the
"Credit Facility") on the terms and subject to the conditions set forth therein.
- ----------------
In connection with the Revolving Credit Agreement, Acquiror shall, within three
(3) days of receiving executed signature pages by the Company and AT&T
Commercial Finance Corporation ("ATT CFC"), enter into a subordination agreement
-------
with the Company and ATT CFC (the "Subordination Agreement") substantially in
-----------------------
the form attached as Exhibit A to the Revolving Credit Agreement or in such
---------
other form as ATT CFC may reasonably request. Pursuant to the Subordination
Agreement, Acquiror shall subordinate the Credit Facility to the prior payment
in full of all of the Company's obligations owing to ATT CFC. Acquiror's
obligation to execute the Subordination Agreement is subject to and conditioned
upon Acquiror's receipt of a subordination agreement executed by the Company,
M/C Investors L.L.C. and Media/Communications Partners III Limited Partnership
(collectively "M/C") pursuant to which subordination agreement the Company and
---
M/C shall
- 66 -
subordinate all indebtedness of the Company to M/C, to the prior payment in full
of all of the Company's obligations owing to Acquiror to the same extent that
the Acquiror subordinates its obligations to ATT CFC.
SECTION 6.19 Letters of Accountants.
The Company shall use its reasonable best efforts to cause to be delivered
to Acquiror "cold comfort" letters of Ernst & Young L.L.P. dated the date on
which the Registration Statement shall become effective and the Effective Time,
respectively, and addressed to Acquiror, reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement and
transactions such as those contemplated by this Merger Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Obligations of Each Party Under This Merger
Agreement.
The respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by agreement of Acquiror and the Company, in whole or in part, to the
extent permitted by applicable Law:
(a) Stockholder Approval. This Merger Agreement and the Merger shall
--------------------
have been approved and adopted by the requisite vote of the Company
Stockholders.
(b) No Order. No Governmental Entity or federal or state court of
--------
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in
any case which is in effect and which prevents or prohibits consummation of
the Merger; provided, however, that each of the parties shall use its
-------- -------
reasonable best efforts to cause any such decree, judgment, injunction or
other order to be vacated or lifted and provided further, that the failure
to obtain a required consent or approval of a Governmental Entity (other
than those specified in Section 7.01(c) and Section 7.01(d)) shall not form
the basis for an assertion that this condition is not satisfied.
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(c) HSR Act. The applicable waiting period with respect to the Merger
-------
and the other transactions contemplated hereby, together with any
extensions thereof, under the HSR Act shall have expired or been
terminated.
(d) Certain Governmental Approvals. All consents, waivers, approvals
------------------------------
and authorizations required to be obtained, and all filings or notices
required to be made, by Acquiror or the Company prior to consummation of
the transactions contemplated in this Merger Agreement (other than the
filing of the Articles of Merger in accordance with Delaware Law) shall
have been obtained from and made with the FCC and each of the public
utility commissions of the states of Illinois, Michigan, Minnesota and
Wisconsin.
(e) Company Securities. Other than (i) 23,971,756 shares of Company
------------------
Common Stock (which number of shares may be increased between the date of
the Merger Agreement and the Closing in connection with the exercise of
Company Stock Options described in clause (iii) below in accordance with
their terms), (ii) 240,000 shares of Series A Preferred Stock, and (iii)
Company Stock Options exercisable for 806,845 shares of Company Common
Stock (which number of Company Stock Options may be decreased between the
date of the Merger Agreement and the Closing in connection with the
exercise of Company Stock Options in accordance with their terms), there
shall be no other securities of the Company outstanding that are securities
convertible into or exchangeable for Company Common Stock or any other
equity securities of the Company and no outstanding options, rights
(preemptive or otherwise), or warrants to purchase or to subscribe for any
shares of such stock or other equity securities of the Company.
(f) Effectiveness of the Registration Statement. The Registration
-------------------------------------------
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated or, to the knowledge of Acquiror
or the Company, threatened by the SEC. Acquiror shall have received all
other federal or state securities permits and other authorizations
necessary to issue Acquiror Common Stock in exchange for Company Common
Stock and to consummate the Merger.
(g) Accountant Letters. Acquiror shall have received from the Company
------------------
"cold comfort" letters of Ernst & Young L.L.P. dated the date on which the
Registration Statement shall become effective and the Effective Time,
respectively, and addressed to Acquiror, reasonably customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration
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Statement and transactions such as those contemplated by this Merger
Agreement.
SECTION 7.02. Additional Conditions to Obligations of Acquiror and
Acquiror Sub.
The obligations of Acquiror and Acquiror Sub to effect the Merger and the
other transactions contemplated herein are also subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by Acquiror, in whole or in part, to the extent permitted by
applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company and the Principal Company Stockholders contained
in this Merger Agreement shall be true and correct as of the date of this
Merger Agreement and shall be true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of the Effective
Time as though made as of the Effective Time, except that those
representations and warranties which address matters only as of a
particular date shall be true and correct in all material respects (except
that where any statement in a representation or warranty expressly includes
a standard of materiality, such statement shall be true and correct in all
respects giving effect to such standard) as of such date, and except (A)
for changes permitted by or consistent with this Merger Agreement, or (B)
in a representation and warranty that does not expressly include a standard
of a Company Material Adverse Effect, any untrue or incorrect statements
therein that, considered in the aggregate, do not indicate a Company
Material Adverse Effect. Acquiror shall have received a certificate of the
chief executive officer or chief financial officer of the Company to that
effect.
(b) Updated Company Disclosure Schedule. The revised versions of the
-----------------------------------
Company Disclosure Schedules delivered to Acquiror pursuant to Section
6.05(b) shall not disclose any Company Material Adverse Effect as compared
to such Sections of the Company Disclosure Schedule as of the date of this
Merger Agreement.
(c) Agreements and Covenants. The Company and the Principal Company
------------------------
Stockholders shall have performed or complied in all respects with all
agreements and covenants required by this Merger Agreement to be performed
or complied with by them on or prior to the Effective Time except for such
noncompliance that does not have a Company Material Adverse Effect.
Acquiror shall have received a certificate of each Principal Company
Stockholder and the chief executive officer or chief financial officer of
the Company (as to the Company) to that effect.
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(d) Opinion of Counsel. Acquiror shall have received from Edwards &
------------------
Angell, LLP, counsel to the Company, an opinion dated the Closing Date,
which is reasonable and customary for transactions of the type contemplated
by this Merger Agreement.
(e) No Challenge. There shall not be pending any enforcement action
------------
or similar proceeding by any Government Entity that is likely to place
limitations on the ownership of shares of Company Capital Stock (or shares
of common stock of the Surviving Corporation) by Acquiror or Acquiror Sub
such that consummation of the Merger would violate any provisions of
Acquiror's indentures relating to its outstanding public indebtedness.
There shall not be pending any enforcement action or similar proceeding by
any state or federal Governmental Entity that is likely to have a Company
Material Adverse Effect or, if such action arises in connection with the
transactions contemplated hereby, an Acquiror Material Adverse Effect.
(f) Company Material Adverse Effect. Since December 31, 1997, there
-------------------------------
shall not have occurred a Company Material Adverse Effect (or any
development that, insofar as reasonably can be foreseen, is reasonably
likely to result in any Company Material Adverse Effect) not disclosed in
the Company Disclosure Schedule.
(g) Tax Opinion. Acquiror shall have received the opinion of Hogan &
-----------
Hartson L.L.P., counsel to Acquiror, in the form of Exhibit C, dated the
---------
Closing Date, to the effect that the Merger will not result in taxation to
Acquiror or Acquiror Sub under the Code. In rendering such opinion, Hogan
& Hartson L.L.P. shall require delivery of and rely upon the representation
letters delivered by Acquiror, Acquiror Sub and the Company substantially
in the forms of Exhibit D and Exhibit E hereto.
--------- ---------
(h) Environmental Matters. The Environmental Reports shall indicate
---------------------
that the Real Property does not contain any Hazardous Materials and is not
subject to any risk of contamination from any off-site Hazardous Materials,
except to the extent that the presence of any such Hazardous Materials or
the risk of such contamination would not have a Company Material Adverse
Effect or an Acquiror Material Adverse Effect. This Section 7.02(h) shall
be deemed waived by Acquiror and Acquiror Sub if Acquiror shall not have
caused the Phase I environmental reports to be prepared pursuant to Section
6.09(b) within fifteen (15) days following the date of this Merger
Agreement and the Phase II environmental reports, if requested by Acquiror,
to be prepared pursuant to Section 6.09(b) within thirty-five (35) days
following the date hereof, or if Acquiror shall have failed to give an
Environmental Problem Notice within the period provided in Section 8.01(e).
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(i) Claims Certificate. The Company shall have delivered to Acquiror
------------------
and Acquiror Sub a certificate dated as of the Closing Date signed by a
duly authorized officer stating that (i) to its knowledge, except as
specified in such certificate in reasonable detail, the Company is aware of
no breach of any representation, warranty or covenant by Acquiror or
Acquiror Sub under this Merger Agreement or under any agreement or
instrument executed in connection herewith that could be reasonably
expected to result in a claim for indemnification under this Merger
Agreement and (ii) the Company and the Principal Company Stockholders
irrevocably waive any and all rights to indemnification against Acquiror
and Acquiror Sub to the extent any Damages arising from the matters
described in such certificate or any other matters of which the Company
then has knowledge exceed $5,000,000 in the aggregate.
(j) Affiliate Agreements. Acquiror shall have received, after the
--------------------
date of this Merger Agreement and on or prior to the Closing Date, a signed
Affiliate Agreement from each Person listed in Section 3.41 of the Company
Disclosure Schedule and any other Person who may be deemed to have become
an affiliate of the Company (under Rule 145 of the Securities Act).
SECTION 7.03. Additional Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and the other
transactions contemplated herein are also subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Acquiror and Acquiror Sub contained in this Merger Agreement
shall be true and correct as of the date of this Merger Agreement and shall
be true and correct in all material respects (except that where any
statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects
giving effect to such standard) as of the Effective Time as though made as
of the Effective Time, except that those representations and warranties
which address matters only as of a particular date shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects giving effect to
such standard) as of such date, and except (A) for changes permitted by or
consistent with this Merger Agreement or (B) in a representation and
warranty that does not expressly include a standard of an Acquiror Material
Adverse Effect, any untrue or incorrect statements therein that, considered
in the aggregate, do not indicate an Acquiror Material Adverse Effect. The
Company shall have
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received a certificate of the chief executive officer or chief financial
officer of Acquiror to that effect.
(b) Agreements and Covenants. Acquiror and Acquiror Sub shall have
------------------------
performed or complied in all respects with all agreements and covenants
required by this Merger Agreement to be performed or complied with by them
on or prior to the Effective Time except for such noncompliance that does
not have an Acquiror Material Adverse Effect. The Company shall have
received a certificate of the chief executive officer or chief financial
officer of Acquiror and Acquiror Sub to that effect.
(c) Opinion of Counsel. The Company shall have received from Hogan &
------------------
Hartson L.L.P. an opinion dated the Closing Date, which is reasonable and
customary for transactions of the type contemplated by the Merger
Agreement.
(d) Intentionally Deleted.
---------------------
(e) Tax Opinion. The Company shall have received the opinion of
-----------
Edwards & Angell, LLP, counsel to the Company, in the form of Exhibit F,
---------
dated the Closing Date, to the effect that the Merger will not result in
taxation to the Company or the Company Stockholders under the Code. In
rendering such opinion, Edward & Angell, LLP may require delivery of and
rely upon the representation letters delivered by Acquiror, Acquiror Sub
and the Company substantially in the forms of Exhibit G and Exhibit H
--------- ---------
hereto.
(f) Acquiror Material Adverse Effect. Since December 31, 1997, there
--------------------------------
shall not have occurred an Acquiror Material Adverse Effect (or any
development that, insofar as reasonably can be foreseen, is reasonably
likely to result in any Acquiror Material Adverse Effect) not disclosed in
the Acquiror Disclosure Schedule.
(g) Claims Certificate. Acquiror and Acquiror Sub shall have
------------------
delivered to the Company a certificate dated as of the Closing Date signed
by a duly authorized officer stating that (i) to their knowledge, except as
specified in such certificate in reasonable detail, Acquiror and Acquiror
Sub are aware of no breach of any representation, warranty or covenant by
the Company or any Principal Company Stockholder under this Merger
Agreement or under any agreement or instrument executed in connection
herewith that could be reasonably expected to result in a claim for
indemnification under this Merger Agreement and (ii) Acquiror and Acquiror
Sub irrevocably waive any and all rights to indemnification against the
Principal Company Stockholders and the Company Stockholders to the extent
any Damages arising from the matters described in such certificate or any
other matters of which Acquiror or Acquiror Sub then has knowledge exceed
$5,000,000 in the aggregate.
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(h) No Challenge. There shall not be pending any enforcement action
------------
or similar proceeding by any Government Entity that is likely to place
limitations on the ownership of shares of Company Capital Stock (or shares
of common stock of the Surviving Corporation) by Acquiror or Acquiror Sub
such that consummation of the Merger would violate any provisions of
Acquiror's indentures relating to its outstanding public indebtedness.
There shall not be pending any enforcement action or similar proceeding by
any state or federal Governmental Entity that is likely to have an Acquiror
Material Adverse Effect or, if such action arises in connection with the
transactions contemplated hereby, a Company Material Adverse Effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination.
This Merger Agreement may be terminated at any time (except where otherwise
indicated) prior to the Effective Time, whether before or after approval of this
Merger Agreement and the Merger by the Company Stockholders:
(a) by mutual written consent of Acquiror and the Company;
(b) (i) by Acquiror, if there has been a breach by the Company of
any of its representations, warranties, covenants or agreements contained
in this Merger Agreement, or any such representation and warranty shall
have become untrue, in any such case such that Section 7.02(a), Section
7.02(b) or Section 7.02(c) will not be satisfied and such breach or
condition has not been cured such that Section 7.02(a), Section 7.02(b), or
Section 7.02(c), as the case may be, will be satisfied within twenty (20)
business days following receipt by the Company of written notice of such
breach describing the extent and nature thereof in reasonable detail;
(ii) by the Company, if there has been a breach by Acquiror or
Acquiror Sub of any of its representations, warranties, covenants or
agreements contained in this Merger Agreement, or any such representation
and warranty shall have become untrue, in any such case such that Section
7.03(a) or Section 7.03(b) will not be satisfied and such breach or
condition has not been cured such that Section 7.03(a) or Section 7.03(b),
as the case may be, will be satisfied within twenty (20) business days
following receipt by Acquiror of written notice of such breach describing
the extent and nature thereof in reasonable detail;
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(c) by either Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any other federal or state (but not county or municipal)
Governmental Entity preventing or prohibiting consummation of the Merger
shall have become final and non-appealable;
(d) by either Acquiror or the Company if this Merger Agreement shall
fail to receive the requisite vote for approval and adoption by the Company
Stockholders;
(e) by either Acquiror or the Company if the Merger shall not have
been consummated by the earlier to occur of the Scheduled Closing Date or
May 1, 1999; provided however, that the right to terminate this Merger
-------- -------
Agreement under this Section 8.01(e) shall not be available to (i)
Acquiror, where Acquiror's willful failure to fulfill any obligation under
this Merger Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date, or (ii) the Company,
where the Company's willful failure to fulfill any obligation under this
Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(f) by either the Company or the Acquiror upon written notice to the
other party if (i) having performed the Phase I and Phase II Environmental
Reports contemplated in Section 6.09(b) within the time periods provided in
Section 7.02(h) and (ii) having reasonably concluded that the Real Property
does contain Hazardous Materials or is subject to a risk of contamination
from off site Hazardous Materials that, in either case, would be reasonably
expected to have a Company Material Adverse Effect, the Acquiror notifies
the Company of such conclusion specifying the basis therefor in reasonable
detail in writing (the "Environmental Problem Notice") within two (2)
business days following the completion of such Environmental Reports;
provided, however, that this Section 8.01(f) shall be deemed waived by
-------- -------
Acquiror if the Company Stockholders representing at least 85% of the
Merger Consideration agree in writing to indemnify and hold harmless the
Indemnified Persons from and against any and all Damages actually suffered
and arising out of the existence of any Hazardous Materials on the Real
Property or the contamination of the Real Property from any off-site
Hazardous Materials (without regard to any deductibles or caps on liability
set forth in Section 6.11);
(g) by either Acquiror or the Company upon written notice to the other
if such party does not receive the certificate containing the information
specified in clause (i) of Section 7.02(i) or 7.03(g), respectively;
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(h) by either Acquiror or the Company upon written notice to the other
party if such party does not receive the certificate containing the waiver
specified in clause (ii) of Sections 7.02(i) or 7.03(g), respectively.
SECTION 8.02. Effect of Termination.
In the event of termination of this Merger Agreement by either Acquiror or
the Company as provided in Section 8.01, this Merger Agreement shall forthwith
become void and there shall be no liability or obligation on the part of
Acquiror, Acquiror Sub or the Company or any of their respective directors or
officers except (i) nothing herein shall relieve any party from liability for
any breach hereof, (ii) each party shall be entitled to any remedies at law or
in equity for such breach and (iii) Sections 8.02 and 8.03 and Article IX shall
remain in full force and effect and survive any termination of this Merger
Agreement. Notwithstanding the foregoing, if this Merger Agreement is
terminated pursuant to (x) Section 8.01(f), then the Company shall have no
liability to Acquiror or Acquiror Sub for a breach of the representation and
warranty set forth in Section 3.33, (y) Section 8.01(g), then neither the
Company, on the one hand, nor Acquiror and Acquiror Sub, on the other hand,
shall have any liability under this Agreement or (z) Section 8.01(h), then
neither the Company, on the one hand, nor Acquiror and Acquiror Sub, on the
other hand, shall be entitled to any recovery for such liability in excess of
$750,000.
SECTION 8.03. Expenses.
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with this Merger Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expense.
SECTION 8.04. Amendment.
Subject to applicable Law, this Merger Agreement may be amended by the
parties hereto at any time prior to the Effective Time. This Merger Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
SECTION 8.05. Extension; Waiver.
At any time prior to the Effective Time, the parties hereto may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any agreements, documents, certificates or
other instruments delivered pursuant hereto and (c) waive compliance with any of
the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby. The
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failure of any party to assert any of its rights under this Merger Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Survival of Representations and Warranties.
The representations and warranties of the Company and the Principal Company
Stockholders contained in the Merger Agreement shall survive the Effective Time
for a period of eighteen (18) months; provided, however, that the
representations and warranties of the Company contained in Sections 3.16
(Pension and Benefits Plan), Section 3.17 (Taxes and Tax Matters), and Section
3.33 (Environmental Matters), shall survive until the expiration of the
applicable statute of limitations, it being understood that after the Effective
Time any claim for Damages resulting from a breach of any representation and
warranty of the Company shall be subject to the limitations contained in Section
6.11 and Section 6.12. The representations and warranties of Acquiror contained
in the Merger Agreement shall survive the Effective Time for a period of
eighteen (18) months; it being understood that after the Effective Time the
maximum liability of Acquiror for any breach of the representations, warranties,
covenants and agreements given or made by Acquiror in this Merger Agreement, in
the Articles of Merger or in the Exhibits or Schedules hereto or in any
certificate or document delivered by or on behalf of Acquiror pursuant hereto,
shall be limited to an amount equal to $37,000,000. Notwithstanding anything
herein to the contrary, any representation, warranty, covenant or agreement
which is the subject of a claim which is asserted in writing in compliance with
Section 6.11(a) or Section 6.11(b) prior to the expiration of the applicable
period set forth above shall survive with respect to such claim or dispute until
the final resolution thereof.
SECTION 9.02. Notices.
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted if delivered personally, mailed by registered
or certified mail (postage prepaid, return receipt requested) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses or sent by electronic transmission to the following telecopier numbers
(or at such other address or telecopy number for a party as shall be specified
by like notice):
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(a) If to Acquiror or Acquiror Sub:
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW
PO Box 3177
Cedar Rapids, Iowa 52406-3177
Telecopier No.: (319) 298-7901
Attention: Randall Rings
Vice President, General Counsel and Secretary
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Joseph G. Connolly, Jr.
(b) If to the Company:
Ovation Communications, Inc.
400 South Highway 169
Suite 750
Minneapolis, MN 55426
Telecopier No.: (612) 252-5150
Attention: Timothy T. Devine
With a copy (which shall not constitute notice) to:
Edwards & Angell, LLP
101 Federal Street
Boston, Massachusetts 02110
Telecopier No.: (617) 439-4170
Attention: Stephen O. Meredith, Esq.
(c) If to any Principal Company Stockholder, to it at the address set
forth in the Company Disclosure Schedule.
- 77 -
With copies (which shall not constitute notice) to:
Edwards & Angell, LLP
101 Federal Street
Boston, Massachusetts 02110
Telecopier No.: (617) 439-4170
Attention: Stephen O. Meredith, Esq.
(d) If to a Company Stockholder (other than the Principal Company
Stockholders whose notice shall be made pursuant to paragraph (c)
above) to it at the last known address on the Company's books and
records.
SECTION 9.03. Headings.
The headings contained in this Merger Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Merger Agreement.
SECTION 9.04. Severability.
If any term or other provision of this Merger Agreement is invalid, illegal
or incapable of being enforced by any rule of Law or public policy, all other
conditions and provisions of this Merger Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Merger Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.05. Entire Agreement.
This Merger Agreement (together with the Exhibits, Schedules, the Company
Disclosure Schedule and the Acquiror Disclosure Schedule and the other documents
delivered pursuant hereto) and the Confidentiality Agreement (as defined in
Article X) constitute the entire agreement of the parties and supersede all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other Person any
rights or remedies hereunder.
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SECTION 9.06. Assignment.
This Merger Agreement shall not be assigned by operation of Law or
otherwise.
SECTION 9.07. Parties in Interest.
This Merger Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Merger Agreement, express or implied,
other than the right to receive the consideration payable in the Merger pursuant
to Article II, is intended to or shall confer upon any other Person any right,
benefit or remedy of any nature whatsoever under or by reason of this Merger
Agreement.
SECTION 9.08. Mutual Drafting.
Each party hereto has participated in the drafting of this Merger
Agreement, which each party acknowledges is the result of extensive negotiations
between the parties.
SECTION 9.09. Specific Performance.
In addition to any other remedies which any party may have at law or in
equity, (a) the Company hereby acknowledges that the Company Capital Stock and
the Company and the Subsidiaries are unique, and that the harm to Acquiror
resulting from breaches by the Company of its obligations cannot be adequately
compensated by damages and (b) Acquiror and Acquiror Sub hereby acknowledge that
the Acquiror Common Stock and Acquiror and Acquiror Sub are unique, and that the
harm to the Company resulting from breaches by the Acquiror or Acquiror Sub of
their respective obligations cannot be adequately compensated by damages.
Accordingly, (i) the Company agrees that Acquiror and Acquiror Sub shall have
the right to have all obligations, undertakings, agreements, covenants and other
provisions of this Merger Agreement specifically performed by the Company and
that Acquiror and Acquiror Sub shall have the right to obtain an order or decree
of such specific performance in any of the courts of the United States of
America or of any state or other political subdivision thereof and (ii) Acquiror
and Acquiror Sub agree that the Company shall have the right to have all
obligations, undertakings, agreements, covenants and other provisions of this
Merger Agreement specifically performed by Acquiror and Acquiror Sub and that
the Company shall have the right to obtain an order or decree of such specific
performance in any of the courts of the United States of America or of any state
or other political subdivision thereof.
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SECTION 9.10. Governing Law.
This Merger Agreement shall be governed by, and construed in accordance
with, the Laws of the State of Delaware, regardless of the Laws that might
otherwise govern under applicable principles of conflicts of law.
SECTION 9.11. Counterparts.
This Merger Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 9.12. Confidentiality.
All information delivered to or obtained by or on behalf of any party to
this Merger Agreement shall be held pursuant to the Confidentiality Agreement.
SECTION 9.13. General Exclusion.
(a) Company Exclusion. Notwithstanding anything to the contrary set
-----------------
forth in this Agreement, in no event shall it constitute a breach of any
representation, warranty or covenant of the Company set forth herein, or a
failure of any condition to Acquiror's or Acquiror Sub's obligations herein if
any fact, matter or thing referred to herein changes or results in the failure
of any condition to Acquiror's or Acquiror Sub's obligations to the extent that
such change or failure of condition results from (i) changes that are applicable
to the competitive local exchange carrier industry generally in the states in
which the Company or its Subsidiaries operate (including, without limitation,
changes in federal or state Law) or (ii) any act or omission following the date
of this Merger Agreement on the part of any incumbent local exchange carrier
with which the Company or any of its Subsidiaries has an Agreement, against or
affecting the Company or its Subsidiaries, whether (aa) in connection with an
effective or anticipated change in Law (such as the cessation of reciprocal
compensation payments), (bb) as a result of the transactions contemplated in
this Merger Agreement or (cc) otherwise; provided that the Company or the
Subsidiaries are otherwise materially in compliance with their Agreement with
such incumbent local exchange carrier.
(b) Acquiror and Acquiror Sub Exclusion. Notwithstanding anything to
-----------------------------------
the contrary set forth in this Agreement, in no event shall it constitute a
breach of any representation, warranty or covenant of Acquiror or Acquiror Sub
set forth herein, or a failure of any condition to the Company's obligations
herein if any fact, matter or thing referred to herein changes or results in the
failure of any condition to the Company's obligations to the extent that such
change or failure of condition results from (i) changes that are applicable to
the telecommunications or
- 80 -
directory publishing industries generally (including, without limitation,
changes in federal or state Law), (ii) any act or omission following the date of
this Merger Agreement on the part of any incumbent local exchange carrier with
which Acquiror or any of its subsidiaries has an Agreement, against or affecting
Acquiror or its subsidiaries, whether (aa) in connection with an effective or
anticipated change in Law (such as the cessation of reciprocal compensation
payments), (bb) as a result of the transactions contemplated in this Merger
Agreement or (cc) otherwise; provided that Acquiror or its subsidiaries are
otherwise materially in compliance with their Agreement with such incumbent
local exchange carrier, or (iii) any decrease in the trading price of the
Acquiror Common Stock on The Nasdaq Stock Market's National Market System as
reported by Nasdaq.
ARTICLE X
DEFINITIONS
For purposes of this Merger Agreement, the following terms, and the
singular and plural thereof, shall have the meanings set forth below:
"Acquiror" is defined in the Preamble to this Merger Agreement.
--------
"Acquiror Common Stock" is defined in Section 2.01.
---------------------
"Acquiror Common Stock Closing Price" is defined in Section 2.01(a)(iv).
-----------------------------------
"Acquiror Disclosure Schedule" is defined in Article IV.
----------------------------
"Acquiror Material Adverse Effect" means any event, change or effect that,
--------------------------------
individually or when taken together with any and all other events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of
Acquiror and its subsidiaries, taken as a whole; provided, however, the parties
-------- -------
expressly agree that an Acquiror Material Adverse Effect shall not mean or be
deemed to include any event, change or effect described in Section 9.13(b).
"Acquiror Options" is defined in Section 2.04.
----------------
"Acquiror Post-Signing SEC Documents" is defined in Section 6.10.
-----------------------------------
"Acquiror SEC Documents" is defined in Section 4.07.
----------------------
"Acquiror Sub" is defined in the Preamble to this Merger Agreement.
------------
"Affiliate" means: (a) with respect to an individual, any member of such
---------
individual's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and
- 81 -
(c) with respect to a Person, any Person which directly or indirectly, through
one or more intermediaries, Controls, is Controlled by, or is under common
Control with such person or entity.
"affiliate" means, with respect to any Person, a Person that directly or
---------
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such Person.
"Agreement" means any agreement between two or more Persons with respect to
---------
their relative rights and/or obligations or with respect to a thing done or to
be done, including, without limitation, agreements denominated as contracts,
leases, promissory notes, covenants, easements, rights of way, covenants,
commitments, arrangements and understandings.
"Articles of Merger" is defined in Section 1.02.
------------------
"Assets" means assets of every kind and everything that is or may be
------
available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
"Audited Balance Sheet" is defined in Section 3.08(a).
---------------------
"Audited Statements" is defined in Section 3.08(a)
------------------
"Average Trading Price" is defined in Section 2.02(e).
---------------------
"beneficial owner" means, with respect to any shares of Company Common
----------------
Stock or Company Preferred Stock, a Person who shall be deemed to be the
beneficial owner of such shares (i) which such Person or any of its affiliates
or associates beneficially owns, directly or indirectly, (ii) which such Person
or any of its affiliates or associates (as such term is defined in Rule 12b-2
under the Exchange Act) has, directly or indirectly, (A) the right to acquire
(whether such right is exercisable immediately or subject only to the passage of
time), pursuant to any Agreement or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any Agreement, (iii) which are beneficially owned, directly or
indirectly, by any other Persons with whom such Person or any of its affiliates
or associates has any Agreement for the purpose of acquiring, holding, voting or
disposing of any such shares, or (iv) pursuant to Section 13(d) of the Exchange
Act and any rules or regulations promulgated thereunder.
"business day" means a day other than a Saturday, a Sunday or any other day
------------
on which commercial banks in the State of Minnesota and in the State of Iowa are
authorized or obligated to be closed.
- 82 -
"Blue Sky Laws" means state securities or blue sky laws and the rules and
-------------
regulations thereunder.
"Cash Election" is defined in Section 2.01(a)(i).
-------------
"Cash Election Shares" is defined in Section 2.01(a)(i).
--------------------
"Certificates" is defined in Section 2.02(b).
------------
"Claims" is defined in Section 6.12.
------
"Closing" is defined in Section 2.05.
-------
"Closing Date" is defined in Section 1.02.
------------
"Code" is defined in the Preamble to this Merger Agreement.
----
"Common Control Entity" means any trade or business under common control
---------------------
(as such term is defined in Section 414(b) or 414(c) of the Code) with the
Company or any Subsidiary.
"Common Stock Cash Amount" means the result of:
------------------------
(A) the total of $289 million minus (1) the amount to payoff the
subordinated debt owed by the Company to M/C Investors L.L.C. and
Media/Communications Partners III Limited Partnership (collectively,
"M/C"); and, minus (2) the amount paid in exchange for the conversion
of all of the Company Series A Preferred Stock pursuant to Section
2.01(a)(ii); and, minus (3) costs incurred by the Company in connection
with the transactions contemplated by this Merger Agreement;
(B) divided by the number of shares of Company Common Stock validly issued
and outstanding and fully paid and nonassessable at the close of
business on the business day before the Closing Date.
"Common Stock Exchange Ratio" means the ratio with:
---------------------------
(A) the numerator being the result of (1) the total of $289 million minus
(a) the amount to payoff the subordinated debt owed by the Company to
M/C Investors L.L.C. and Media/Communications Partners III Limited
Partnership (collectively, "M/C"); and, minus (b) the amount paid in
exchange for the conversion all of the Company Series A Preferred Stock
pursuant to Section 2.01(a)(ii); and, minus (c) costs incurred by the
Company in connection with the transactions contemplated by this Merger
Agreement; divided by (2) $29.00; and,
- 83 -
(B) the denominator being the number of shares of Company Common Stock
validly issued and outstanding and fully paid and nonassessable at the
close of business on the business day before the Closing Date.
"Common Stock Merger Consideration" means the Common Stock Cash Amount
---------------------------------
together with the Common Stock Exchange Ratio.
"Communications Act" means the Communications Act of 1934, as amended, and
------------------
all Laws promulgated pursuant thereto or in connection therewith.
"Company" is defined in the Preamble to this Merger Agreement.
-------
"Company Affiliates" is defined in Section 3.41.
------------------
"Company Capital Stock" is defined in Section 3.04.
---------------------
"Company Common Stock" is defined in Section 2.01(a).
--------------------
"Company Contracts" is defined in Section 3.14(a).
-----------------
"Company Disclosure Schedule" is defined in Article III.
---------------------------
"Company Dissenting Shares" means shares of Company Capital Stock held by
-------------------------
any Company Stockholder who elects to exercise appraisal rights in compliance
with Delaware Law.
"Company Dissenting Stockholder" is defined in Section 2.06.
------------------------------
"Company Licenses" is defined in Section 3.07(a).
----------------
"Company Material Adverse Effect" means any event, change or effect that,
-------------------------------
individually or when taken together with any and all other events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of the
Company and the Subsidiaries, taken as a whole; provided, however, the parties
-------- -------
expressly agree that a Company Material Adverse Effect shall not mean or be
deemed to include any event, change or effect described in Section 9.13(a).
"Company Series A Preferred Stock" is defined in Section 2.01.
--------------------------------
"Company Stock Options" is defined in Section 2.04.
---------------------
"Company Stockholders" is defined in the Preamble to this Merger Agreement.
--------------------
- 84 -
"Company Tax Returns" means all Tax Returns required to be filed by the
-------------------
Company or any of the Subsidiaries (without regard to extensions of time
permitted by law or otherwise).
"Company Year 2000 Review" is defined in Section 3.40(b).
------------------------
"Competing Transaction" is defined in Section 5.05(a).
---------------------
"Confidentiality Agreement" means the letter agreement, signed in December
-------------------------
1998, between Acquiror and the Company relating to the exchange of confidential
information.
"Control" (including the terms "Controlled by" and "under common Control
------- ------------- --------------------
with") means, as used with respect to any Person, possession, directly or
- ----
indirectly or as a trustee or executor, of power to direct or cause the
direction of management or policies of such Person (whether through ownership of
voting securities, as trustee or executor, by Agreement or otherwise).
"Damages" is defined in Section 6.11.
-------
"Defined Benefit Plan" means a Plan that is or was a "defined benefit plan"
--------------------
as such term is defined in Section 3(35) of ERISA.
"Delaware Law" is defined in the Preamble to this Merger Agreement.
------------
"DOL" means the United States Department of Labor and its successors.
---
"Effective Time" is defined in Section 1.02.
--------------
"Encumbrance" means any mortgage, lien, pledge, encumbrance, security
-----------
interest, deed of trust, option, encroachment, reservation, order, decree,
judgment, condition, restriction, charge, Agreement, claim or equity of any
kind.
"Environmental Laws" means any Laws (including, without limitation, the
------------------
Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to Hazardous Materials generation,
production, use, storage, treatment, transportation or disposal, or noise
control, or the protection of human health or the environment.
"Environmental Reports" is defined in Section 6.09(b).
---------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"ESOP" means an "employee stock ownership plan" as such term is defined in
----
Section 407(d)(6) of ERISA or Section 4975(e)(7) of the Code.
- 85 -
"Exchange Agent" is defined in Section 2.02(a).
--------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
all Laws promulgated pursuant thereto or in connection therewith.
"Exchange Fund" is defined in Section 2.02(a).
-------------
"FAA" means the United States Federal Aviation Administration and its
---
successors.
"FCC" means the United States Federal Communications Commission and its
---
successors.
"Federal Aviation Act" means the Federal Aviation Act of 1958, as amended,
--------------------
and all Laws promulgated pursuant thereto or in connection therewith.
"Financial Statements" is defined in Section 3.08.
--------------------
"Form of Election" is defined in Section 2.01(a)(i).
----------------
"GAAP" means United States generally accepted accounting principles.
----
"Governmental Entities" (including the term "Governmental") means any
--------------------- ------------
governmental, quasi-governmental or regulatory authority, whether domestic or
foreign.
"group" is defined in Section 5.05(a).
-----
"Hazardous Discharge" means any emission, spill, release or discharge
-------------------
(whether on Real Property, on property adjacent to the Real Property, or at any
other location or disposal site) into or upon the air, soil or improvements,
surface water or groundwater, or the sewer, septic system, or waste treatment,
storage or disposal systems servicing the Real Property, in each case of
Hazardous Materials used, stored, generated, treated or disposed of at the Real
Property.
"Hazardous Materials" means any wastes, substances, radiation or materials
-------------------
(whether solids, liquids or gases) that are regulated by a Governmental Entity
or defined or listed by a Governmental Entity as hazardous, toxic, pollutants or
contaminants, including, without limitation, substances defined as "hazardous
wastes," "hazardous substances," "toxic substances," "radioactive materials," or
other similar designations in, or otherwise subject to regulation under, any
Environmental Laws. "Hazardous Materials" includes polychlorinated biphenyls
-------------------
(PCBs), asbestos, lead-based paints, and petroleum and petroleum products
(including, without limitation, crude oil or any fraction thereof).
- 86 -
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended, and all Laws promulgated pursuant thereto or in connection
therewith.
"Indemnified Persons" is defined in Section 6.11.
-------------------
"Individual Account Plan" means a Plan that is or was an "individual
-----------------------
account plan" as such term is defined in Section 3(34) of ERISA.
"Intellectual Property" means (a) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, all rights to database
information, and all applications, registrations, and renewals in connection
therewith, (d) all mask works and all applications, registrations, and renewals
in connection therewith, (e) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all rights,
including rights of privacy and publicity, to use the names, likenesses and
other personal characteristics of any individual, (h) all other proprietary
rights, and (i) all copies and tangible embodiments thereof (in whatever form or
medium) existing in any part of the world.
"Inventory" means all new materials, work in progress and finished goods
---------
and inventorable supplies.
"IRS" means the United States Internal Revenue Service and its successors.
---
"IT" is defined in Section 3.40(b).
--
"knowledge" will be deemed to be present with respect to the Company and
---------
the Subsidiaries when the matter in question (i) is actually known to M/C
Investors L.L.C. or Media/Communications Partners III Limited Partnership or
(ii) was brought to the attention of or, if due diligence had been exercised by
the persons named in this clause (ii), would have been brought to the attention
of any of Timothy T. Devine, Kenneth A. Kirley, Nicholas Lenoci, Jr., Charles M.
Osborne, Scott A. Rediger or John Biasetti; "knowledge" will be deemed to be
---------
present with respect to Acquiror when the matter in question was brought to the
attention of or,
- 87 -
if due diligence had been exercised by the persons named in this clause (ii),
would have been brought to the attention of, any of Stephen C. Gray, J. Lyle
Patrick, John Wray, Randall Rings, Laura J. Hahn or Joseph H. Ceryanec.
"Laws" means all foreign, federal, state and local statutes, laws,
----
ordinances, regulations, rules, resolutions, orders, tariffs, determinations,
writs, injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified Person and to the
businesses and Assets thereof (including, without limitation, Laws relating to
securities registration and regulation; the sale, leasing, ownership or
management of real property; employment practices, terms and conditions, and
wages and hours; building standards, land use and zoning; safety, health and
fire prevention; and environmental protection, including Environmental Laws).
"License" means any franchise, grant, authorization, license, tariff,
-------
permit, easement, variance, exemption, consent, certificate, approval or order
of any Governmental Entity, except non-material Agreements allowing the
installation, maintenance or operation of the Company's or the Subsidiaries'
fiber optic network on, over, under or across a specific parcel of real
property.
"Managers" is defined in Section 6.15.
--------
"Merger" is defined in the Preamble to this Merger Agreement.
------
"Merger Agreement" is defined in the Preamble to this Merger Agreement.
----------------
"Merger Consideration" means the aggregate Common Stock Merger
--------------------
Consideration together with the aggregate Preferred Stock Cash Amount.
"Minimum-Funding Plan" means a Pension Plan that is subject to Title I,
--------------------
Subtitle B, Part 3, of ERISA (concerning "funding").
"Multiemployer Plan" means a "multiemployer plan" as such term is defined
------------------
in Section 3(37) of ERISA.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Ordinary Course of Business" means ordinary course of business consistent
---------------------------
with past practices and reasonable business operations.
"Other Arrangement" means a benefit program or practice providing for
-----------------
bonuses, incentive compensation, vacation pay, severance pay, insurance,
restricted stock, stock options, employee discounts, company cars, tuition
reimbursement or any other perquisite or benefit (including, without limitation,
any fringe benefit under Section 132 of the Code) to employees, officers or
independent contractors that is not a Plan.
- 88 -
"PBGC" means the Pension Benefit Guaranty Corporation or its successors.
----
"Pension Plan" means an "employee pension benefit plan" as such term is
------------
defined in Section 3(2) of ERISA.
"Permitted Encumbrance" means (i) easements, rights of way, minor
---------------------
irregularities of title, and liens for taxes not yet due and payable, (ii)
landlord, warehouse and materialmen's liens and (ii) other Encumbrances similar
to clauses (i) and (ii); provided, however, that any or all of the foregoing do
not materially affect the utility or value of the Assets or other matters to
which they relate.
"Person" means an individual, corporation, partnership, limited liability
------
company, joint venture, trust, unincorporated organization or other entity, or a
Governmental Entity.
"Plan" means any plan, program or arrangement, whether or not written, that
----
is or was an "employee benefit plan" as such term is defined in Section 3(3) of
ERISA and (a) which was or is established or maintained by the Company or any
Subsidiary; (b) to which the Company or any Subsidiary contributed or was
obligated to contribute or to fund or provide benefits; or (c) which provides or
promises benefits to any person who performs or who has performed services for
the Company or any Subsidiary and because of those services is or has been (i) a
participant therein or (ii) entitled to benefits thereunder.
"Post-Signing Returns" is defined in Section 5.03.
--------------------
"Preferred Liquidation Preference" means the amount to be paid upon
--------------------------------
liquidation of the Series A Preferred Stock in accordance with the Company's
Certificate of Incorporation.
"Principal Company Stockholders" means the following stockholders of the
------------------------------
Company; M/C Investors L.L.C., Media/Communications Partners III Limited
Partnership, Timothy T. Devine, Kenneth A. Kirley, Nicholas Lenoci, Jr., Charles
M. Osborne and Scott A. Rediger.
"Proxy Statement" is defined in Section 6.01(a).
---------------
"Qualified Plan" means a Pension Plan that satisfies, or is intended by the
--------------
Company to satisfy, the requirements for Tax qualification described in Section
401 of the Code.
"Real Property" means the real property owned in fee by the Company or any
-------------
of the Subsidiaries as of December 31, 1996, and any additional real property
owned since that date, and, for purposes of Section 3.33, any real property
formerly owned by the Company or any of the Subsidiaries, except non-material
Agreements allowing the installation, maintenance or operation of the Company's
or the
- 89 -
Subsidiaries' fiber optic network on, over, under or across a specific parcel of
real property.
"Registration Statement" is defined in Section 6.01(a).
----------------------
"Representative" is defined in Section 2.01(a)(i).
--------------
"Scheduled Closing Date" is defined in Section 2.05.
----------------------
"SEC" means the United States Securities and Exchange Commission and its
---
successors.
"Securities Act" means the Securities Act of 1933, as amended, and all Laws
--------------
promulgated pursuant thereto or in connection therewith.
"Significant Subsidiary" means any subsidiary of Acquiror disclosed in its
----------------------
most recent Annual Report on Form 10-K, and any other subsidiary that would
constitute a "Significant Subsidiary" of Acquiror within the meaning of
Rule 1-02 of Regulation S-X of the SEC.
"Statutory-Waiver Plan" means a Pension Plan that is not subject to Title
---------------------
I, Subtitle B, Part 3, of ERISA (concerning "funding").
"Stock Adjustment Amount" is defined in Section 2.01(a)(iv).
-----------------------
"Stockholders' Agreement" is defined in the Preamble to the Agreement.
-----------------------
"Stock Option Exchange Ratio" is defined in Section 2.04.
---------------------------
"Subsidiary" means a corporation, partnership, joint venture or other
----------
entity of which the Company owns, directly or indirectly, at least 50% of the
outstanding securities or other interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body or otherwise exercise Control of such entity.
"Survey" means a current, as-built survey of each parcel of the Real
------
Property.
"System" means the telecommunication system described in the Confidential
------
Offering Memorandum (relating to certain senior credit facilities) dated
December 1998.
"Taxes" (including the terms "Tax" and "Taxing") means all federal, state,
----- --- ------
local and foreign taxes (including, without limitation, income, profit,
franchise, sales, use, real property, personal property, ad valorem, excise,
employment, social security and wage withholding taxes) and installments of
estimated taxes, assessments, deficiencies, levies, imports, duties, license
fees, registration fees, withholdings, or other similar charges of every kind,
character or description
- 90 -
imposed by any Governmental Entity, and any interest, penalties or additions to
tax imposed thereon or in connection therewith but does not include municipal or
county franchise fees or similar payments due or payable in connection with the
construction of the System.
"Tax Returns" means all federal, state, local, foreign and other applicable
-----------
returns, declarations, reports and information statements with respect to Taxes
required to be filed with the IRS or any other Governmental Entity or Tax
authority or agency, including, without limitation, consolidated, combined and
unitary tax returns.
"Title I Plan" means a Plan that is subject to Title I of ERISA.
------------
"Unaudited Balance Sheets" is defined in Section 3.08(a).
------------------------
"Unaudited Financial Statements" is defined in Section 3.08(a).
------------------------------
"Welfare Plan" means an "employee welfare benefit plan" as such term is
------------
defined in Section 3(1) of ERISA.
"Year 2000 Compliant" means that neither performance nor functionality is
-------------------
affected by dates prior to, during or after the year 2000; in particular (i) no
value for current date will cause any interruption in operation; (ii) date-based
functionality must behave consistently for dates before, during and after the
year 2000; (iii) in all interfaces and data storage, the century in any date is
specified either explicitly or by unambiguous algorithms or inferencing rules;
and (iv) the year 2000 must be recognized as a leap year.
- 91 -
IN WITNESS WHEREOF, Acquiror, Acquiror Sub, the Company and each of the
Principal Company Stockholders have only executed and delivered or have caused
this Merger Agreement to be duly executed and delivered as of the date first
written above.
McLEODUSA INCORPORATED
By: /s/ Stephen C. Gray
--------------------------------------------
Name: Stephen C. Gray
Title: President and Chief Operating Officer
BRAVO ACQUISITION CORPORATION
By: /s/ Stephen C. Gray
--------------------------------------------
Name: Stephen C. Gray
Title: President
OVATION COMMUNICATIONS, INC.
By: /s/ Timothy T. Devine
--------------------------------------------
Name: Timothy T. Devine
Title: President and Chief Executive Officer
M/C INVESTORS L.L.C.
By: /s/ James F. Wade
-------------------------------------
Name: James F. Wade
Title:
- 92 -
MEDIA/COMMUNICATIONS PARTNERS III LIMITED
PARTNERSHIP
By: M/C III L.L.C., its General Partner
By: /s/ James F. Wade
-------------------------------------
Name: James F. Wade
Title:
/s/ Timothy T. Devine
-------------------------------------
Timothy T. Devine
/s/ Kenneth A. Kirley
-------------------------------------
Kenneth A. Kirley
/s/ Nicholas Lenoci, Jr.
-------------------------------------
Nicholas Lenoci, Jr.
/s/ Charles M. Osborne
-------------------------------------
Charles M. Osborne
/s/ Scott A. Rediger
-------------------------------------
Scott A. Rediger
- 93 -