EXHIBIT (10)(AX)
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
PAETEC COMMUNICATIONS, INC
AND
COVISTA, INC., COVISTA OF NEW YORK, INC.,
AND CAPSULE COMMUNICATIONS, INC.
MAY 25, 2004
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of May
25, 2004, by and between PAETEC COMMUNICATIONS, INC., a Delaware corporation
with its headquarters located at One PAETEC Plaza, 600 Willowbrook Office Park,
Fairport, NY 14450 ("Buyer"), and COVISTA, INC., a New Jersey corporation
("Covista"), COVISTA OF NEW YORK, INC., a New Jersey corporation ("Covista NY"),
and CAPSULE COMMUNICATIONS INC., a Delaware corporation ("Capsule"), each with
offices located at 721 Broad Street, Suite 200, Chattanooga, TN 37403.
Hereafter, Covista, Covista NY and Capsule are sometimes referred to
individually as a "Seller" and collectively as "Sellers."
RECITALS:
A. Covista and Covista NY are telecommunications companies in the business
of providing local, long-distance and other telecommunications services to
business and residential customers in New Jersey and Pennsylvania (Covista) and
in New York (Covista NY). Covista NY also owns a switch used to service the New
York based customers and Capsule owns a switch used to service the New Jersey
and Pennsylvania Customers.
B. Buyer is a telecommunications company in the business of providing
local, long-distance and other telecommunications services in various markets
throughout the United States.
C. Sellers wish to sell, and Buyer wishes to buy, all long-distance
commercial customers of Sellers other than customers hereafter rejected by Buyer
because they fail to meet criteria hereafter set forth in Section 2.2
(collectively, the "Customers"), including all Customer Contracts, rights, and
business records relating to the Customers, as well as the Equipment and other
assets listed on the attached Schedule 2 (the "Equipment"), and the accounts
receivable due from the Customers as of Closing (the "Customer ARs). A list of
the customers included in this sale shall be attached to this Agreement at
Closing as Schedule 1.
D. This Agreement is subject to receipt of certain Regulatory Approvals as
hereinafter provided.
TERMS:
NOW, THEREFORE, in consideration of the matters recited and the mutual
representations, warranties, covenants and agreements set forth in this
Agreement, intending to be legally bound, the parties agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires: (i) the following terms shall have the
meanings assigned to them in this Section, and include the plural as well as the
singular, (ii) all accounting terms not otherwise defined shall have the
meanings assigned under GAAP as hereinafter defined, (iii) the expression "this
Agreement" means the body of this Agreement and the Schedules and Exhibits
hereto, and (iv) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any Section or
other subdivision.
"Agreement Not to Compete" means the agreement to be entered by Sellers and
Buyer as provided in Section 2.6(a).
"Closing" means the transfer of title to the COVISTA Assets by Sellers,
payment of a portion of the Purchase Price by Buyer as hereafter provided, and
the execution and delivery of all documents, instruments and agreements
necessary or appropriate to consummate the transactions contemplated by this
Agreement. More detailed provisions concerning the Closing are set forth in
Article 6 of this Agreement.
"Closing Date" means the date the Closing occurs.
"Circuits" means the interconnection agreements with third parties listed
on Schedule 4, which agreements are to be assigned to, and assumed by Buyer, as
hereafter provided.
"COVISTA Assets" means all long-distance commercial customers of Sellers
that are not rejected by Buyer pursuant to Section 2.2 of this Agreement,
(collectively, the "Customers"), all Customer Contracts, rights, and business
records relating to the Customers, the Equipment, Leases and Circuits specified
herein, and all Customer ARs.
"Customers" means all commercial customers of Sellers not rejected by Buyer
pursuant to Section 2.2 of this Agreement.
"Customer ARs" means bona fide accounts receivable due Sellers from the
Customers as of the Closing Date.
"Customer Contracts" means all service contracts and agreements between
Sellers and the Customers.
"Equipment" means the equipment and other assets listed on the attached
Schedule 2.
"GAAP" means Generally Accepted Accounting Principles in effect in the
United States as of the date of this Agreement.
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"Gross Operating Revenues" means the total amount invoiced to a Customer
minus local, state and federal Taxes and Universal Service Fund (USF) charges.
"Leases" means the Leases assigned to, and assumed by, Buyer as hereafter
provided.
"Material," when used in connection with any representation, warranty or
condition, shall mean any event, occurrence, circumstance or effect having a
monetary value or cost of $10,000 or more.
"Material Adverse Change or Effect," when used in connection with a party,
shall mean any event, change or effect that is or is reasonably likely to become
materially adverse to the condition (financial or otherwise), properties,
assets, liabilities, businesses, operations or results of operations of the
party, or to the party's ability to perform its obligations under this
Agreement.
"Monthly Run Rate" means Gross Operating Revenues derived from Customers
during a particular month.
"No Solicitation Agreements" means the agreements to be entered by the
individuals listed on Schedule 5 hereto and Buyer as provided in Section 2.6(b).
"Person" shall mean any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association or
enterprise, joint venture, joint stock company, governmental or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Purchase Price" means the price to be paid to Sellers by Buyer for the
COVISTA Assets as provided in Section 2.2.
"Regulatory Approvals" means all governmental approvals, consents and/or
permits required with respect to the transactions contemplated by this
Agreement, including those listed in Schedule 6 hereto as well as such other
regulatory approvals, consents, or permits as Buyer may hereafter determine are
reasonably necessary or required for consummation of this Agreement.
"Taxes" shall mean taxes, fees, levies, duties, tariffs, imposts, and other
governmental impositions or charges of any kind in the nature of Taxes, payable
to any federal, state, local or foreign taxing authority, including (without
limitation) (i) income, franchise, profits, gross receipts, ad valorem, net
worth, value added, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains Taxes, and
(ii) interest, penalties, additional Taxes and additions to Tax imposed with
respect thereto.
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ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets. Subject to the provisions of this
Agreement, Sellers agree to sell, and Buyer agrees to purchase, at the Closing
all of Sellers' right, title and interest, in and to the COVISTA Assets, free
and clear of encumbrances.
2.2 Customers Included.
(a) Upon execution of this Agreement by both parties, Sellers shall
furnish Buyer with a list of all of its commercial customers together with true
and correct copies of all Customer Contracts relating to these customers. Buyer
shall have forty five (45) days following delivery of the customer list and
Customer Contracts to perform due diligence with respect to these matters and by
written notice to Sellers given within this forty five day due diligence period,
Buyer may reject any customers which (i) do not meet Buyer's standard credit
criteria, (ii) are in litigation or other Material dispute with Sellers, (iii)
have given notice of their intention to terminate their Customer Contact; or
(iv) are paying an average rate per minute of service that is less than Sellers
cost to provide the service. Such customers will then be excluded from the
Customers to be sold under this Agreement.
(b) Sellers shall promptly advise Buyer of all new commercial customers
obtained by Sellers between the date of this Agreement and Closing, and shall
furnish true and correct copies of the Customer Contracts relating to these new
customers. Buyer may accept or exclude any of these new customers based on the
same criteria set forth in (a) above by written notice to Sellers prior to
Closing.
(c) All customers not expressly excluded by Buyer as provided in (a) or
(b) above shall be listed as Customers on Schedule 1 to be signed by Covista and
Covista NY and Buyer at Closing and this Schedule shall be attached to and part
of this Agreement.
(d) For a period of one year following the Closing, Buyer shall not
solicit business from any of Sellers' commercial customers excluded from the
sale as herein provided. The foregoing limitation shall not apply to: (i) any of
Sellers' customers that are existing customers or affiliates of existing
customers of Buyer or any of Buyer's affiliates as of the execution date of this
Agreement or (ii) any of Sellers' customers that are solicited by Buyer without
use of any information learned by Buyer pursuant to this Agreement as evidenced
by the written records of Buyer which records shall be made available to Seller
in the event of any dispute regarding the foregoing. In the event of a dispute
as to whether Buyer has violated its covenant not to solicit Seller's customers
under this section 2.2 (d), the burden of proof to establish the applicability
of either exception (i) or (ii) shall be on Buyer.
2.3 Purchase Price.
(a) Subject to adjustment as hereafter provided, the "Purchase Price"
to be paid for the COVISTA Assets other than the Customer ARs shall be an amount
equal to 5.6
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times the Gross Operating Revenues from the Customers as determined under
Sections 2.2(a) and (b) (the "Monthly Run Rate") during April, 2004, plus or
minus 5.6 times the Monthly Run Rate for Customers added or lost between the
date of this Agreement and the last day of the month prior to Closing for which
Monthly Run Rate numbers are available.
(b) The Purchase Price for the COVISTA Assets other than the Customer
ARs shall be paid as follows: (i) 62.5% of the Purchase Price shall be paid in
cash at Closing, (ii) 25% of the Purchase Price shall be paid in cash without
interest ninety days after Closing without offset or defense except for any
Material breach of this Agreement, and (iii) subject to adjustment as provided
in subsection (c) below, the balance of the Purchase Price (12.5%) shall be paid
in cash without interest 270 days after Closing.
(c) Purchase Price Adjustments. Buyer shall be entitled to a reduction
of the Purchase Price if Buyer's average Monthly Run Rate (including revenues
from any new products or services provided by Buyer and after normalizing the
periods compared to provide an equivalent number of business days) for the
Customers (including Customers added between the date hereof and Closing that
are accepted by Buyer) during the seventh, eighth and ninth months following
Closing does not exceed the Monthly Run Rate amount used in calculating the
Purchase Price under Section 2.3(a), in which event Buyer shall be entitled to a
reduction of the Purchase Price equal to 5.6 times the shortfall in the average
Monthly Run Rate during the seventh, eight and ninth months. Buyer shall then be
entitled to deduct the amount of this reduction in the Purchase Price from the
final payment due Sellers.
(d) Customer ARs. The Purchase Price for the Customer ARs shall equal
the amount actually collected by, or remitted to, Buyer on these receivables
during the ninety day period following Closing. The Purchase Price for the
Customer ARs shall be paid as follows:
(i) Fifty percent of the face amount of the Customer ARs as of the
close of business on the last business day prior to Closing shall be paid at
Closing;
(ii) Twenty-five percent of such face amount shall be paid thirty
days following closing; and
(iii) The balance of the Purchase Price for the Customer ARs,
which shall equal the amount of cash collected by, or remitted to, Buyer during
the ninety day period following Closing, minus amounts paid under subsections
(i) and (ii) above, shall be paid to Buyer within five business days following
the end of such ninety day period.
(e) Security Deposits. Buyer shall reimburse Sellers for any security
deposits made by Sellers under the Leases, and Sellers shall assign all their
rights relating to these deposits to Buyer.
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2.4 Liabilities of Sellers.
(a) Buyer shall assume Sellers' obligations to service the Customers
from and after the Closing. Further, Buyer will assume Sellers' obligations
under the Leases and Circuits listed on the attached Schedules 3 and 4 from and
after the Closing. See section (c) below.
(b) Except as expressly provided in Subsection (a), Buyer shall not
assume or be liable for any debts, liabilities or obligations of Sellers of any
kind or nature, whether accrued or unaccrued, absolute or contingent, and
Sellers shall remain responsible for all debts, liabilities and liabilities
arising from or relating to Sellers' ownership or use of the COVISTA Assets for
all periods prior to the Closing (collectively, "Sellers' Liabilities"). Sellers
agree that they will pay and satisfy all of Sellers' Liabilities, and that they
will indemnify, defend and hold Buyer harmless from and against all of Sellers'
Liabilities. Without limiting the foregoing, Sellers shall pay and discharge,
when due or upon adjudication or resolution of any disputed terms, all of the
following Liabilities of Sellers:
(1) accounts payable, obligations for borrowed money, and all
operating expenses;
(2) liabilities incurred by Sellers in connection with the
transactions contemplated by this Agreement, including Taxes, professional fees
and, if any, brokers' fees;
(3) liabilities for federal, state and local income Taxes, excise
or franchise taxes, sales and use taxes and all other governmental Taxes, levies
and assessments due or to become due from Sellers with respect to any period
prior to the Closing or any transaction occurring prior to the Closing.
(4) liabilities with respect to Sellers' employees whether arising
before or after the Closing Date (including without limitation payroll and
payroll taxes, liabilities or obligations under any of Sellers' employee benefit
plans, and accrued vacation due Sellers employees), except for wage and salary
obligations arising after the Closing Date with respect to Seller's employees
(if any) specifically hired by Buyer;
(5) obligations and liabilities of Sellers whether arising before
or after the Closing Date for products liability and contractual warranty and
service repairs in connection with products and services sold, distributed or
provided by Sellers prior to the Closing.
(6) bligations and liabilities of the Sellers for periods prior
to the Closing pursuant to the terms of all contracts, agreements, leases,
licenses, permits, purchase orders, and sales orders.
(c) As of the Closing Date, Buyer prospectively will assume the
following costs and obligations associated with the operation of the New York
and Philadelphia switch sites: lease expenses, equipment maintenance charges,
special access circuit charges for the Circuits listed on Schedule 4 (including
monthly recurring charges and all charges related to the Covista assigned and
existing ACNA TTU/USW and their underlying CICs for services
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originating or terminating on such Circuits) and switched access circuit charges
for the Circuits listed on Schedule 4 (including all costs (fixed and variable)
associated with the FGDs and all charges related to the Sellers assigned and
existing ACNA TTU/USW and their underlying CICs for services originating or
terminating on such Circuits) provided that if Seller receives invoices for any
such expenses Seller shall promptly forward any such invoices to Buyer for
payment. Seller shall use its best efforts to identify and detail all circuits
to be acquired at Closing in Schedule 4 as well as all maintenance and other
contract obligations with respect to the lease or any equipment. The omission of
a Circuit in Schedule 4 does not release Buyer from the obligation of assuming
the financial responsibilities associated with the unidentified Circuit so long
as the omitted Circuit is regularly used in serving the Customers. Buyer shall
not be responsible for any costs, obligations or liabilities for the switch
sites: (a) for vendor Circuits identified in Schedule 4 that will solely carry
Sellers' traffic or (b) for any switch site expenses paid by Seller after the
Closing Date.
2.5 Allocation of Purchase Price. At or prior to Closing, the parties shall
mutually agree upon an allocation of the Purchase Price among the COVISTA Assets
in accordance with regulations under Section 1060 of the Internal Revenue Code
and the agreed upon allocation shall be set forth on a schedule to be appended
as Schedule 7 to this Agreement. Buyer and Sellers agree to report the purchase
and sale of the Assets for all purposes in a manner consistent with such
allocation and shall not take any position inconsistent with such allocation.
2.6 Additional Agreements. At Closing and as conditions to Closing:
(a) Non-Compete Agreement. Sellers and Buyer shall enter into an
Agreement Not to Compete in the form attached as Exhibit A.
(b) No Solicitation Agreement. Sellers and the individuals listed on
the attached Schedule 5 shall enter into No Solicitation Agreements in the form
of the attached Exhibit B.
(c) Wholesale Services Agreement. Sellers and Buyer shall enter into a
Wholesale Services Agreement in the form attached as Exhibit C, pursuant to
which Buyer shall sell, and Sellers shall purchase, wholesale telecommunications
services on an exclusive basis for resale to the portion of the Sellers'
commercial customer base that will remain with Sellers. As part of this
Wholesale Services Agreement, Sellers shall agree to purchase a minimum of
$12,000,000 of such wholesale services during the 24 months following Closing.
The obligations of the parties pursuant to this paragraph shall terminate upon
the earlier of Sellers purchase and payment of $16,000,000 for such services, or
the second anniversary of the Closing so long as the $12,000,000 minimum
purchase commitment has been met by this anniversary date. If, after 24 months
the minimum purchase commitment of $12,000,000 has not been met, the Sellers
shall be obligated to purchase wholesale services equal to 150% of the shortfall
during the subsequent 12 month period.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally represent and warrant to Buyer that:
3.1 Organization; Good Standing; Qualification and Power. Covista and
Covista NY are each corporations duly organized, validly existing and in good
standing under the laws of the State of New Jersey, and Capsule is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each Seller has all requisite corporate power and authority
to own, lease and operate its properties and to carry on business relating to
the COVISTA Assets as it is presently being conducted, and is duly qualified to
do business and is in good standing in each jurisdiction where it provides
services to the Customers. Sellers have delivered to Buyer complete and correct
copies of their Certificates of Incorporation and Bylaws, as amended to the date
of this Agreement.
3.2 Authority.
(a) Corporate Authority. Sellers have all requisite corporate power and
authority to enter into this Agreement, and to perform their obligations
hereunder. The execution and delivery of this Agreement by Sellers and the
consummation by Sellers of the transactions contemplated hereunder have been
duly authorized by the Board of Directors of Sellers and the approval of
Sellers' shareholders is not required. This Agreement, when duly executed and
delivered by Sellers, will constitute valid and binding obligations of Sellers,
enforceable in accordance with its terms.
(b) No Conflict. Neither the execution, delivery and performance of
this Agreement, nor the consummation of the transactions contemplated hereby,
will conflict with, or result in any violation of, or cause a default, or give
rise to a right of termination, amendment, cancellation or acceleration of, any
obligation contained in, or the loss of any Material benefit under, or result in
the creation of any lien, security interest, charge or encumbrance upon, any of
the COVISTA Assets under any term, condition or provision of (i) the
Certificates of Incorporation or Bylaws of Sellers, (ii) subject to the receipt
of the consents listed in Schedule 3.2(b) ("Third Party Consents"), any loan or
credit agreement, note, bond, mortgage, indenture, Lease, Circuit or other
Material agreement to which Sellers are a party or by which it or any of its
properties or assets may be bound, or (iii) any license, permit, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Sellers
or any of their properties or assets.
(c) Governmental Consents. Except as set forth in Schedule 6, to the
best of Sellers knowledge after reasonable inquiry, no consent, approval, order
or authorization of, or registration or filing with, any court, administrative
agency, commission or other governmental authority is required to be obtained by
Sellers or Buyer in connection with the execution, delivery and performance of
this Agreement.
3.3 Compliance with Law. Sellers have not conducted business relating to
the COVISTA Assets in Material violation of any statute, law, ordinance, rule,
regulation or order of
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any governmental entity, and Sellers have not received any notice of any
violations of law by Sellers. There is currently no investigation or review by a
governmental entity with respect to Sellers pending or, to the knowledge of
Sellers threatened.
3.4 Litigation. There is no Material suit, action, arbitration, demand,
claim, dispute, investigation or proceeding pending against Sellers nor that
relates to or could affect this Agreement or the Covista Assets, to the
knowledge of Sellers, is any such suit, investigation or proceeding threatened
against Sellers; nor is there any judgment, decree, injunction, rule or order of
any governmental entity, court or arbitrator outstanding against Sellers that
relates to or affects this Agreement or the Covista Assets.
3.5 Customer Relations. There exists no actual or, to the knowledge of
Sellers, threatened termination, cancellation or limitation of, or any adverse
modification or change in, the business relationship of Sellers with any
Customer and, to the knowledge of Sellers, no such termination, cancellation, or
limitation, or any adverse modification or change could reasonably be expected
to arise as a result of the execution, delivery or performance of this
Agreement.
3.6 Customer Contracts. All Customer Contracts are in full force and effect
and Sellers are not in default under, and there exists no event, condition or
occurrence which, after notice or lapse of time, or both, would constitute a
default by Sellers under, any contract or agreement with any Customer or
relating to the Equipment.
3.7 Leases. Sellers have furnished Buyer with true, correct and complete
copies of the Leases to be assumed by Buyer. Each of the Leases is in full force
and effect and there is no default under any of the Leases. Schedule C correctly
lists the landlords, the addresses, the square footage, and the use of each
leased property and whether the landlord's consent to the assignment of each
Lease is required.
3.8 Fees and Expenses. Sellers are not obligated to pay any fee or
commission to any broker, finder, intermediary or financial adviser in
connection with the transactions contemplated by this Agreement.
3.9 Insurance. Sellers have in effect fire and casualty insurance policies
on all Equipment which falls under this Agreement. The insurance coverage and
amounts are customary and adequate for the business engaged in by Sellers and
are in full force and effect.
3.10 Ownership of Property. Except for liens and security interests in
favor of Sellers' lenders, all of which shall be released at or prior to
Closing, Sellers have good and marketable title to all of the COVISTA Assets,
free and clear of all security interests, liens, equipment leases, charges,
claims, options and encumbrances.
3.11 Equipment. All Equipment is generally in good repair and is
operational and usable in the operations of Sellers, subject to ordinary wear
and tear.
3.12 Books and Records. All accounts, books, ledgers and official records
prepared and kept by Sellers relating to the COVISTA Assets have been truthfully
and properly kept and
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completed in all Material respects, and there are no Material inaccuracies or
discrepancies of any kind contained or reflected therein.
3.13 Warranties. Except for those contained in standard Customer Contracts,
Sellers have not made any written warranty or representation in respect of any
of its services or products furnished to the Customers.
3.14 Disclosure. No representation or warranty made by Sellers in this
Agreement, nor any Exhibit or Schedule hereto, or in any certificate to be
delivered by Sellers, contains or will contain any untrue statement of a
Material fact, or omits or will omit to state a Material fact necessary to make
the statements or facts contained herein or therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers that:
4.1 Organization; Good Standing; Qualification and Power. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and Buyer has all requisite corporate power and
authority to own its properties and to carry on its business as it is presently
being conducted.
4.2 Corporate Authority. Buyer has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder
and to consummate the Closing and the other transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action on the part of Buyer.
This Agreement has been duly executed and delivered by Buyer and represents the
valid and binding obligations of Buyer, enforceable against it in accordance
with its terms. Subject to the receipt of Regulatory Approvals necessary to
consummate the transactions contemplated by this Agreement, Buyer has all
licenses and permits required to continue serving the Customers following
Closing.
4.3 No Conflict. Neither the execution, delivery and performance of this
Agreement, nor the consummation of the transactions contemplated hereby, will
conflict with, or result in any violation of, or cause a default, or give rise
to a right of termination, amendment, cancellation or acceleration of, any
obligation contained in, or the loss of any Material benefit under, any term,
condition or provision of (i) the Certificate of Incorporation or Bylaws of
Buyer, (ii) any loan or credit agreement, note, bond, mortgage, indenture, Buyer
is a party or by which it or any of its properties or assets may be bound, or
(iii) any license, permit, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Buyer or any of its properties or assets.
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4.4 Financial Capability. Buyer has the financial capability to pay the
Purchase Price in cash when due as provided herein.
4.5 (c) Governmental Consents. Except as set forth in Schedule 6, to
the best of Buyer's knowledge after reasonable inquiry, no consent, approval,
order or authorization of, or registration or filing with, any court,
administrative agency, commission or other governmental authority is required to
be obtained by Sellers or Buyer in connection with the execution, delivery and
performance of this Agreement.
4.5 Disclosure. No representation or warranty made by Buyer in this
Agreement, nor any exhibit or schedule hereto or any certificate to be delivered
by Buyer pursuant hereto, contains or will contain any untrue statement of a
Material fact, or omits or will omit to state a Material fact necessary to make
the statements or facts contained herein or therein not.
ARTICLE 5
COVENANTS
5.1 Advice of Changes. During the period from the date of this Agreement
until the Closing, Sellers will promptly advise Buyer in writing (a) of any
event occurring subsequent to the date of this Agreement that would render any
representation or warranty of Sellers contained in this Agreement, if made on or
as of the date of such event or the Closing Date, untrue or inaccurate in any
Material respect, (b) of fact, event or circumstance that could have a Material
Adverse Effect on Sellers or the COVISTA Assets and (c) of any Material breach
by Sellers of any covenant or agreement contained in this Agreement.
5.2 Maintenance of Business. During the period from the date of this
Agreement until the Closing, Sellers will continue to serve the Customers in the
ordinary course consistent with current practice, and will use commercially
reasonable efforts to preserve its business and its relationships with the
Customers. If Sellers become aware of any Material deterioration in the
relationship with any Customer, it will promptly bring this information to the
attention of Buyer in writing and will exert commercially reasonable efforts to
restore the relationship.
5.3 Necessary Consents; Cooperation. During the period from the date of
this Agreement until the Closing, Sellers and Buyer shall each cooperate and use
their commercially reasonable efforts to obtain such written Regulatory
Approvals and Third Party Consents, and shall take such other actions, as may be
necessary or appropriate to facilitate the Closing and the transfer of the
Customers, and to allow the Buyer to carry on the business related to the
COVISTA Assets after the Closing.
5.4 Due Diligence. During the period from the date of this Agreement until
the Closing, Sellers will allow Buyer and its agents reasonable access to the
files, books, records, offices of Sellers relating to the Customers, the
Equipment, the Leases, the Circuits, and the Customer ARs.
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5.5 Transition Period.
(a) Invoicing and Service. During a period of approximately six (6)
months after Closing (the "Transition Period"), Sellers will aid Buyer in the
transfer of all Customers to Buyer's billing system. Sellers and Buyer shall
each use commercially reasonable business efforts to complete this transition as
soon as practicable. During the Transition Period, Sellers shall continue to
invoice, and to provide back office, order processing, call data translation,
billing, collection and customer services relating to the Customers on the same
frequency and at the same service levels as provided prior to Closing, and Buyer
shall pay Sellers a fee of $10.00 per month per Customer for these services.
(b) Customer Payments. All payments received by Sellers on the Customer
ARs shall be remitted to Buyer no less frequently than Wednesday and Friday of
each week, by wire transfer to an account to be designated by Buyer.
ARTICLE 6
CLOSING AND CLOSING DELIVERIES
6.1 The Closing. Subject to the termination of this Agreement as provided
in Article 9, the consummation of the transactions contemplated by this
Agreement (the "Closing") will take place by mail and electronic exchange or, at
the option of either party, at Sellers headquarters in Chattanooga, Tennessee,
on or before August 2, 2004, at a time to be mutually agreed upon by the
parties, unless another place, time and date is mutually selected by Sellers and
Buyer (the "Closing Date"). Buyer shall have the right to extend the Closing
Date to September 1, 2004, if additional time is necessary in order to obtain
all requisite Regulatory Approvals, upon written notice to Sellers given by July
26, 2004.
6.2 Closing Deliveries.
(a) By Sellers. At the Closing, Sellers shall deliver to Buyer:
(1) Such assignments, bills of sale, and other documents of
conveyance and transfer as are reasonably necessary or appropriate to transfer
the COVISTA Assets to Buyer;
(2) Sellers' records relating to the Customers, Equipment,
Circuits, and Customer ARs, provided, however, that Sellers may retain
duplicates of these records for the sole purpose of providing services during
the Transition Period as provided in Section 5.5;
(3) Any Third Party Consents required under the Customer Contracts,
Leases, Circuits or any other contracts or agreements to be assigned to Buyer;
12
(4) A list of all accounts receivable due Sellers from Customers
as of the close of business on the day prior to Closing.
(5) Sellers' Bring Down Certificate required under Section 8.6;
(6) The legal opinion of Sellers' counsel pursuant to Section 8.7;
and
(7) Such other agreements, instruments, certificates, opinions and
documents as Buyer's attorney may reasonably request to effectuate the
transactions contemplated by this Agreement.
(b) By Buyer. At the Closing, Buyer shall deliver to Sellers:
(1) 62.5% of the Purchase Price for the Covista Assets other than
the Customer ARs, plus 50% of the face amount of the Customer ARs, in
immediately available funds by wire transfer to an account to be designated by
Sellers;
(2) Buyer's Bring Down Certificate as provided in Section 7.4;
(3) The legal opinion of Buyer's counsel as provided in Section
7.5; and
(4) Such other agreements, instruments, certificates, opinions and
documents as Sellers' attorney may reasonably request to effectuate the
transactions contemplated by this Agreement.
(c) Additional Agreements. At the Closing, the applicable parties shall
execute and deliver:
(1) Non-Compete and No Solicitation Agreements as provided in
Section 2.6(a) and (b);
(2) The Wholesale Service Agreement as provided in Section 2.6(c);
(3) An Assignment and Assumption Agreement with respect to the
Customer Contracts, the Leases, and the Circuits.
6.3 Possession. Possession of all COVISTA Assets shall be delivered to
Buyer as of the Closing.
6.4 Approval of Counsel. All Closing documents shall be reasonably
acceptable in form and substance to counsel for Sellers and Buyer.
13
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
The obligations of Sellers hereunder are subject to the fulfillment or
satisfaction on or before the Closing Date of each of the following conditions
(any one or more of which may be waived by Sellers, but only in a writing signed
by Sellers):
7.1 Accuracy of Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and accurate in
all Material respects on and as of the Closing Date with the same force and
effect as if they had been made at the Closing.
7.2 Compliance with Law. There shall be no order, decree or ruling by any
governmental entity or threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the transactions contemplated
by this Agreement, which would prohibit or render illegal the transactions
contemplated by this Agreement.
7.3 No Legal Action. No temporary restraining order, injunction or other
order preventing the Closing of this Agreement shall have been issued by any
Federal or state court and remain in effect, nor shall any proceeding seeking
any of the foregoing be pending.
7.4 Bring Down Certificate. Sellers shall have received a certificate as to
the matters covered by Sections 7.1 through 7.3 executed by Buyer's Chief
Executive Officer.
7.5 Opinion of Buyer's Counsel. Sellers shall have received from Bond,
Schoeneck & King, PLLC, counsel to Buyer, an opinion as to the matters set forth
in Sections 4.1 and 4.2, which opinion shall be reasonably acceptable to Sellers
in form and substance.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are subject to the fulfillment or
satisfaction on or before the Closing Date of each of the following conditions
(any one or more of which may be waived by Buyer, but only in a writing signed
by Buyer):
8.1 Covenants. Sellers shall have performed and complied with all of its
covenants contained in this Agreement.
8.2 Accuracy of Representations and Warranties. The representations and
warranties of Sellers in this Agreement, or in any certificate executed and
delivered by Sellers pursuant to this Agreement shall be true and accurate in
all Material respects on and as of the Closing Date with the same force and
effect as if they had been made at the Closing.
14
8.3 Satisfactory Due Diligence. The results of Buyer's due diligence
investigation concerning the COVISTA Assets shall have been satisfactory to
Buyer in its sole discretion.
8.4 Regulatory Approvals. All Regulatory Approvals required to consummate
the transactions contemplated by this Agreement shall have been obtained and be
final.
8.5 Compliance with Law. There shall be no order, decree or ruling by any
governmental entity or threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to this Agreement, which would
prohibit or render illegal the transactions contemplated by this Agreement.
8.6 No Legal Action. No temporary restraining order, injunction or other
order preventing the consummation of this Agreement shall have been issued by
any Federal or state court and remain in effect, nor shall any proceeding
seeking any of the foregoing be pending.
8.7 Bring Down Certificate. Buyer shall have received a certificate as to
the matters covered by Sections 8.1 through 8.6 executed by Sellers' Chief
Executive Officer.
8.8 Opinion of Sellers Counsel. Buyer shall have received from Jay J.
Miller, Esq., counsel to Sellers, an opinion in the form of the attached Exhibit
D as to the matters set forth in Sections 3.1, 3.2, 3.3 and 3.4.
ARTICLE 9
TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual agreement of Sellers and Buyer;
(b) by Buyer, if the Closing shall not have occurred on or before
September 1, 2004, other than as a result of a breach of this Agreement by
Buyer;
(c) by either party in the event of a Material breach or breaches of
any representation, warranty, covenant or other obligation of the other party
under this Agreement that can reasonably be expected to have an adverse monetary
cost, value or effect of $250,000 or more;
(d) by either party, if a permanent injunction or other order by any
Federal or state court which would make illegal or otherwise restrain or
prohibit the consummation of the Closing shall have been issued and shall have
become final and nonappealable, or
(e) by either party, if all requisite Regulatory Approvals are not
obtained by September 1, 2004, unless this date is extended by mutual written
agreement of the parties.
15
9.2 Notice of Termination. Any termination of this Agreement under Section
9.1 will be effective by the delivery of written notice of the terminating party
to the other parties to this Agreement.
9.3 Effect of Termination. In the case of any termination of this Agreement
as provided in this Article 9, this Agreement shall be of no further force and
effect, provided that this section shall not relieve any party from liability
for any breach of this Agreement. Further, in the event of termination by either
party, Buyer will not solicit business from any of Sellers commercial customers
for a period of one year from the date of termination, and will not use or
disclose any confidential information of Sellers provided to Buyer during its
due diligence investigation of Sellers.
ARTICLE 10
INDEMNITY AND POST-CLOSING ADJUSTMENTS
10.1 Survival. The representations and warranties contained in this
Agreement and any Exhibit or Schedule to this Agreement, and any certificate
delivered pursuant to this Agreement shall survive any audit or investigation by
any party hereto and shall not be affected or deemed waived by reason of the
fact that any such party or his or its representatives knew or should have known
that any such representation or warranty is or might be inaccurate in any
respect. Further, the representations and warranties of the parties under this
Agreement shall survive through the second anniversary of the Closing.
10.2 Indemnification by the Sellers. Sellers jointly and severally agree to
indemnify, defend and hold Buyer harmless from and against, any and all damages,
losses, liabilities, costs and expenses (including, without limitation,
reasonable expenses of investigation and reasonable attorneys' fees and expenses
in connection with any action, suit or proceeding, (collectively, "Damages")
incurred or suffered by Buyer arising out of (i) any breach of any
representation, warranty, covenant or agreement of Sellers to any third party,
(ii) any breach of any representation, warranty, covenant or agreement of
Sellers contained in this Agreement, (iii) any other liabilities, claims, or
damages of or against Sellers that relate to any period prior to the Closing,
including, but not limited to, liabilities for products liability or breach of
warranty claims arising from or relating to any products sold or distributed, or
services provided, by Sellers prior to the Closing, and any liabilities relating
to environmental matters. The foregoing notwithstanding, Buyer shall not be
entitled to indemnification with respect to Damages suffered or incurred under
(i) or (iii) above until such Damages exceed $100,000 in the aggregate (the
"Indemnification Threshold"), in which case Buyer shall be entitled to recovery
of all Damages without deduction for the Indemnification Threshold. Further, in
no event shall Sellers indemnification obligations hereunder exceed the Purchase
Price actually paid to Sellers. In no event shall Seller be liable to Buyer for
any punitive, special, indirect, consequential or incidental losses or damages,
whether foreseeable or not (including without limitation lost revenues, goodwill
or profits) arising out of this Agreement.
16
10.3 Indemnification by Buyer. Buyer agrees to indemnify Sellers, and to
hold the Sellers harmless from and against, any and all Damages incurred or
suffered by Sellers arising out of any breach of any representation, warranty,
covenant or agreement of Buyer contained in this Agreement. In no event shall
Buyer's indemnification obligations hereunder exceed the Purchase Price actually
paid to Sellers. In no event shall Buyer be liable to Sellers for any punitive,
special, indirect, consequential or incidental losses or damages, whether
foreseeable or not (including without limitation lost revenues, goodwill or
profits) arising out of this Agreement.
10.4 Bulk Sales Indemnification. Sellers shall indemnify, defend and hold
Buyer harmless from any and against any damages suffered by Buyer by reason of
any failure to comply with any bulk sales laws applicable to the transactions
contemplated by this Agreement.
10.5 Right of Offset. Any amounts due Buyer pursuant to Section 10.2 of
this Agreement, or for damages for a breach of the Agreement Not to Compete or a
No Solicitation Agreement, may be offset against amounts due Sellers for the
unpaid portion of the Purchase Price as set forth in Section 2.3. Buyer shall
promptly notify Sellers of any exercise of its right of offset pursuant to this
section, setting forth the basis for its claim that the amount offset is due
Buyer pursuant to Section 10.2, the Agreement Not to Compete, or a No
Solicitation Agreement, as the case may be. If Sellers disputes the offset
claimed by Buyer, Sellers shall notify Buyer of the dispute (including the basis
of the dispute) within ten days after Buyer's notice of offset. Sellers and
Buyer shall negotiate in good faith to resolve any dispute concerning Buyer's
claimed right of offset, and if they are unable to do so within thirty days
after Sellers notice to Buyer of the dispute, either party may seek judicial
relief to determine the dispute.
ARTICLE 11
MISCELLANEOUS
11.1 Governing Law; Venue; Jurisdiction. The laws of the State of New York
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms and the interpretation and enforcement
of the rights and duties of the parties hereto. This Agreement shall be
enforceable in any court of competent jurisdiction.
11.2 Assignment; Binding Upon Successors and Assigns. Neither of the
parties hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party. This Agreement will be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns.
11.3 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will
17
achieve, to the greatest extent possible, the economic, business and other
purposes of the void or unenforceable provision.
11.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which, when taken together, will constitute
one and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, bears the signatures of
both the parties.
11.5 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with,
and not exclusive of, any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
11.6 Amendment and Waivers. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by a writing signed by the party to be bound. The waiver by
a party of any breach or default will not be deemed to constitute a waiver of
any other breach or default.
11.7 Expenses. Sellers and Buyer shall each bear its respective expenses
and fees incurred with respect to this Agreement, and the transactions
contemplated hereby.
11.8 Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address, person's attention
or telecopier number for a party as shall be specified by like notice):
If to any or all of Sellers, to:
COVISTA Communications, Inc.
721 Broad Street
Suite 200
Chattanooga, TN 37402
Attention: A. John Leach, Jr., President and
Chief Executive Officer
Telecopier:
With a copy to:
Jay J. Miller, Esq.
430 E. 57th Street
Suite 5D
New York, NY 10022
Telecopier: (212) 758-0624
18
And if to Buyer, to:
PAETEC Communications, Inc.
Plaza 1000 at Main Street
Suite 600
Voorhees, NJ 08043
Attention: Bradford M. Bono, Co-Chief Operating Officer
Telecopier: (856) 673-2304
With a copy to:
PAETEC Communications, Inc.
One PAETEC Plaza
600 Willowbrook Office Park
Fairport, NY 14450
Attention: General Counsel
Telecopier: (585) 340-2563
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the telecopier of the party receiving such copy
shall have confirmed receipt of the telecopies of the communication, (c) in the
case of delivery by nationally recognized overnight courier, on the business day
following dispatch, and (d) in the case of mailing, on the third business day
following such mailing.
11.9 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, and to take such further action, as
may be reasonably requested by any other party to evidence and reflect the
transactions described herein and contemplated hereby, to carry into effect the
intents and purposes of this Agreement and to place Buyer in operating control
of the business, properties and assets of Sellers.
11.10 Public Announcement. The parties shall cooperate with respect to any
public announcement relating to the transactions contemplated hereby; and none
of the parties hereto will issue any public statement announcing such
transaction without the prior consent of the others, except as any such party in
good faith (based upon advice of counsel) believes to be required by law and
following notice to the other parties.
11.11 Entire Agreement. This Agreement constitutes the entire understanding
and agreement of the parties with respect to its subject matter and supersedes
all prior and contemporaneous agreements or understandings, inducements or
conditions, express or implied, written or oral, between the parties.
11.12 Joint and Several. All obligations of Sellers under this Agreement
and the other agreements contemplated herein shall be joint and several.
19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BUYER:
PAETEC COMMUNICATIONS, INC.
By: ________________________________
Name: Bradford M. Bono
Title: Co-Chief Operating Officer
SELLERS:
COVISTA, INC.
By: ________________________________
Name: John Leach
Title: President and Chief Executive Officer
COVISTA OF NEW YORK, INC.
By: ________________________________
Name: John Leach
Title: President and Chief Executive Officer
CAPSULE COMMUNICATIONS, INC.
By: ________________________________
Name: John Leach
Title: President and Chief Executive Officer
20
EXHIBIT A
AGREEMENT NOT TO COMPETE
THIS AGREEMENT NOT TO COMPETE (this "Agreement") is entered into as of
May __, 2004, by and between PAETEC COMMUNICATIONS, INC., a Delaware corporation
with its headquarters located at One PAETEC Plaza, 600 Willowbrook Office Park,
Fairport, New York 14450 ("Buyer") and COVISTA, INC., a New Jersey corporation
("Covista"), COVISTA OF NEW YORK, INC., a New Jersey corporation ("Covista NY"),
and CAPSULE COMMUNICATIONS, INC., a Delaware corporation ("Capsule"), each with
offices located at 721 Broad Street, Suite 200, Chattanooga, TN 37403.
Hereafter, Covista, Covista NY and Capsule are sometimes referred to
individually as a "Seller" and collectively as "Sellers."
RECITALS:
A. Buyer and Sellers are parties to an Asset Purchase Agreement, dated
May 24, 2004 (the "Asset Purchase Agreement"), pursuant to which Buyer will
purchase certain assets of Sellers.
B. Sellers will each receive substantial economic benefit from the
transactions contemplated by the Asset Purchase Agreement.
C. Sellers wish to induce Buyer to consummate the transactions contemplated
by the Asset Purchase Agreement and Buyer desires to preserve the value of the
COVISTA Assets, as defined in the Asset Purchase Agreement.
D. Under Section 2.6(a) of the Asset Purchase Agreement, it is a condition
to Buyer's obligations to consummate the transactions contemplated by the Asset
Purchase Agreement that Sellers enter into this Agreement.
E. Capitalized terms used in this Agreement shall have the meanings set
forth in the Asset Purchase Agreement unless otherwise expressly provided herein
or unless the context otherwise requires:
TERMS:
NOW, THEREFORE, in consideration of the matters recited and for other good
and valuable consideration, receipt of which is acknowledged, the parties,
intending to be legally bound, agree as follows:
1. Restrictions; Non-Compete Periods.
E-27
(a) Prohibited Activities. During the applicable Non-Compete Periods
set forth in subparagraph (b) below, Sellers jointly and severally agree that
they will not directly or indirectly:
(i) sell or furnish facilities based local telecommunications
services to business or commercial entities, either through resale or through
their own switching equipment, in any geographic area serviced by Buyer as of
the Closing Date, whether on their own or as a shareholder, partner, member or
owner of an equity interest in a corporation, partnership, joint venture,
limited liability company, trust or any other entity, or otherwise;
(ii) participate in, serve as a manager of, or employee, agent
or representative for, or provide consulting or advisory services to (whether
paid or unpaid), invest in, lend money to, or be connected in any manner with,
any corporation, partnership, joint venture, limited liability company, trust or
other business entity which sells or furnishes such services to such entities;
(iii) solicit, recruit, induce or attempt to persuade any employee
or sales agent of Buyer or any of its affiliates to terminate his or her
employment or engagement with Buyer, or hire or engage any then current employee
or sales agent of Buyer or any of its affiliates, or any former employee or
sales agent whose employment or engagement with Buyer or any of its affiliates
ended less than 12 months before the date of such hiring or engagement; or
(iv) serve or solicit on its own behalf or that of any third party,
for any purpose, any Customer transferred to Buyer pursuant to the Asset
Purchase Agreement, or solicit, induce or attempt to persuade any such Customer
to discontinue its business relationship with Buyer or any of its affiliates.
(b) Non-Compete Periods. The restrictions contained in subsection (i)
above shall be applicable for a period of two years following the Closing Date,
and the restrictions contained in subsections (ii), (iii) and (iv) shall be
applicable for five years after the Closing Date.
2. Right of Offset. Buyer may offset all losses, costs, damages, and
expenses, including reasonable attorneys fees and costs incurred in enforcing
this Agreement, incurred by reason of a breach of this Agreement by Sellers
against amounts otherwise due Sellers under the Asset Purchase Agreement.
3. Injunctive Relief. Without limiting the right of Buyer to pursue all
other legal and equitable rights available for violation of this Agreement, it
is agreed that other remedies cannot fully compensate Buyer for violation of
this Agreement and Buyer shall be entitled to injunctive relief to prevent a
violation or threatened violation thereof, without posting a bond or proving
actual damages.
4. Acknowledgement. Sellers acknowledge and agree that the terms and
provisions of this Agreement are reasonable in scope and duration and agrees not
to challenge the reasonableness or enforceability of this Agreement in any
proceeding to enforce the terms
28
hereof. Sellers further acknowledge that the provisions contained in this
Agreement are critical to Buyer in its decision to enter into the Asset Purchase
Agreement and consummate the transactions contemplated thereby and that a
portion of the consideration being paid to Sellers is in consideration of such
provisions.
5. Modification. Notwithstanding the foregoing, if any term, restriction,
covenant or promise contained herein is found to be unreasonable and/or
unenforceable by a court of competent jurisdiction such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to make it
enforceable by such court and, if determined by such court to be wholly
unenforceable, shall be severed in its entirety from this Agreement as though it
never existed.
6. Binding Effect;. This Agreement shall inure to the benefit of Buyer and
its respective successors and assigns.
7. No Waiver. The waiver by Buyer of any failure on the part of Sellers to
perform any of their obligations under this Agreement shall not be construed as
a waiver of any future continuing failure or failures.
8. Amendment. This Agreement may only be amended or modified by a written
agreement signed by the parties.
9. Governing Law. The Agreement shall be governed by the laws of the State
of New York.
10. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter of this Agreement and supersedes all
agreements and understandings between the parties concerning the subject matter.
11. Waiver of Jury Trial. EACH OF THE PARTIES HEREBY WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING AND COUNTERCLAIMS ARISING OUT OF OR
RELATED TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
29
BUYER:
PAETEC COMMUNICATIONS, INC.
By: ______________________________
Name: Bradford M. Bono
Title: Co-Chief Operating Officer
SELLER:
COVISTA, INC.
By: ______________________________
Name:_____________________________
Title:____________________________
COVISTA OF NEW YORK, INC.
By: ______________________________
Name:_____________________________
Title:____________________________
CAPSULE COMMUNICATIONS, INC.
By: ______________________________
Name:_____________________________
Title:____________________________
30
EXHIBIT B
NO SOLICITATION AGREEMENT
EXCLUDED - BUSINESS PROPRIETARY
31
EXHIBIT C
WHOLESALE SERVICES AGREEMENT
EXCLUDED - BUSINESS PROPRIETARY
32
EXHIBIT D
OPINION OF SELLERS' COUNSEL
_________, 2004
PAETEC Communications, Inc.
One PAETEC Plaza
600 Willowbrook Office Park
Fairport, NY 14450
Re: Covista Sale to PAETEC Communications, Inc.
Gentlemen:
I have acted as counsel to Covista Communications, Inc. and Covista of New
York, Inc. each a New Jersey corporation, and Capsule Communications, Inc., a
Delaware corporation (individually referred to as a "Seller" and collectively as
"Sellers") in connection with the negotiation and execution of an Asset Purchase
Agreement dated as of May 25, 2004, between Sellers and PAETEC Communications,
Inc. ("Buyer"), relating to the purchase of COVISTA Assets of Seller by Buyer
(the "Agreement"). This opinion is given pursuant to Section 8.8 of the
Agreement. All capitalized terms not otherwise defined in this opinion shall
have the meanings given to them in the Agreement.
In rendering this opinion, I have reviewed the executed Agreement and the
Schedules, Exhibits and the following Closing Documents executed and delivered
by Sellers pursuant to the Agreement: [to be listed]
I have also reviewed the originals, or copies certified to my satisfaction,
of such certificates of public officials, corporate documents and records and
other certificates and instruments and have made such other investigations, as I
have deemed necessary in order to render the opinion set forth below. Whenever
the phrase "to the best of my knowledge" is used in this opinion, it refers to
actual knowledge based upon reasonable inquiries of officers of Sellers, a
review of my files with the respect to Sellers and other reasonable inquiries
undertaken by me during the preparation of this opinion.
For purposes of this opinion, I have assumed that the Agreement and, to the
extent applicable, the Closing Documents have been duly and validly authorized,
executed, and delivered by you and constitute your legal, valid and binding
obligations, enforceable against you in accordance with its terms. I have also
assumed (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to me as originals, and (iii) the conformity to authentic
original documents of all documents submitted to me as certified, conformed or
photostatic copies.
33
Based upon the foregoing, and subject to the qualifications hereafter set
forth, I am of the opinion that:
1. Each of the Sellers is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on business relating to the COVISTA Assets as it is presently being
conducted, and is duly qualified to do business and is in good standing in each
jurisdiction where it provides services to the Customers.
2. Each Seller has all requisite corporate power and authority to enter
into the Agreement, and to perform its obligations hereunder. The execution and
delivery of the Agreement and the Closing Documents by Sellers and the
consummation by Sellers of the transactions contemplated thereunder have been
duly authorized by their respective Boards of Directors and the approval of
Sellers' shareholders is not required. The Agreement and Closing Documents, duly
executed and delivered by each Seller, constitute valid and binding obligations
of each Seller, enforceable in accordance with their terms.
I am licensed to practice law in the State of New York, and I do not
purport to be an expert on, or to express any opinion herein concerning, any law
other than the laws of the State of New York, or the federal laws of the United
States.
This opinion is provided to you solely for your benefit and may not be
relied upon by any other person or quoted in whole or in part or filed with any
governmental agency or other person without our prior written consent.
Very truly yours,
Jay J. Miller
34
SCHEDULE 1
CUSTOMERS
EXCLUDED - BUSINESS PROPRIETARY
S-1
SCHEDULE 2
EQUIPMENT
EXCLUDED - BUSINESS PROPRIETARY
SCHEDULE 3
LEASES
EXCLUDED - BUSINESS PROPRIETARY
S-2
SCHEDULE 3.2(b)
THIRD PARTY CONSENTS
Landlords
Brandywine Operating Partnership, L.P. - Bensalem, PA
Callowhill Management - Philadelphia (Switch)
Mack-Cali Realty, L.P. - Paramus, NJ
40 Rector Holdings, LLC - NYC (Switch)
Sellers' Lender
CAPITALSOURCE FINANCE, LLC
Where required, Sellers will also obtain Consents from providers of Circuits
listed on Schedule 4.
S-3
SCHEDULE 4
CIRCUITS
A separate list of Circuits to be transferred to Buyer has been signed by
Sellers and Buyer. Because of its length, it is not attached hereto, but is
incorporated by reference.
EXCLUDED - BUSINESS PROPRIETARY
S-4
SCHEDULE 5
INDIVIDUALS TO ENTER NO SOLICITATION AGREEMENTS
EXCLUDED - BUSINESS PROPRIETARY
S-5
SCHEDULE 6
REGULATORY APPROVALS
Federal Communications Commission, the state public service commissions of New
York, New Jersey and Pennsylvania and any other states as may be required based
on the Customer base purchased by Buyer.
S-6
SCHEDULE 7
ALLOCATION OF PURCHASE PRICE
[To be added at Closing.]
EXCLUDED - BUSINESS PROPRIETARY
S-7
TABLE OF CONTENTS
RECITALS....................................................................1
TERMS.......................................................................1
ARTICLE I DEFINITIONS......................................................2
ARTICLE 2 PURCHASE AND SALE OF ASSETS......................................4
2.1 Purchase and Sale of Assets.................................4
2.2 Customers Included..........................................4
2.3 Purchase Price..............................................5
2.4 Liabilities of Seller.......................................6
2.5 Allocation of Purchase Price................................7
2.6 Additional Agreements.......................................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.........................8
3.1 Organization; Good Standing; Qualification and Power........8
3.2 Authority...................................................8
3.3 Compliance with Law.........................................9
3.4 Litigation..................................................9
3.5 Customer Relations..........................................9
3.6 Customer Contracts..........................................9
3.7 Leases......................................................9
3.8 Fees and Expenses...........................................9
3.9 Insurance...................................................9
3.10 Ownership of Property.......................................9
3.11 Equipment..................................................10
3.12 Books and Records..........................................10
3.13 Warranties.................................................10
3.14 Disclosure.................................................10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER.........................10
4.1 Organization; Good Standing; Qualification and Power.......10
4.2 Authority..................................................10
4.3 Financial Capability.......................................11
4.4 Disclosure.................................................11
ARTICLE 5 COVENANTS......................................................11
5.1 Advice of Changes..........................................11
5.2 Maintenance of Business....................................11
5.3 Necessary Consents.........................................12
5.4 Due Diligence..............................................12
5.5 Transition Period..........................................12
ARTICLE 6 CLOSING AND CLOSING DELIVERIES..................................13
6.1 The Closing................................................13
6.2 Closing Deliveries.........................................13
6.3 Possession.................................................14
6.4 Approval of Counsel........................................14
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF PINNACLE.................14
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7.1 Accuracy of Representations and Warranties.................14
7.3 Compliance with Law........................................15
7.4 No Legal Action............................................15
7.5 Bring Down Certificate.....................................15
7.6 Opinion of Pinnacle's Counsel..............................15
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER....................15
8.1 Covenants..................................................15
8.2 Accuracy of Representations and Warranties.................15
8.3 Satisfactory Due Diligence.................................15
8.4 Governmental Consents......................................16
8.5 Compliance with Law........................................16
8.6 No Legal Action............................................16
8.7 Bring Down Certificate.....................................16
8.8 Opinion of Pinnacle's Counsel..............................16
ARTICLE 9 TERMINATION OF AGREEMENT........................................16
9.1 Termination................................................16
9.2 Notice of Termination......................................17
9.3 Effect of Termination......................................17
ARTICLE 10 INDEMNITY AND POST-CLOSING ADJUSTMENT..........................17
10.1 Survival...................................................17
10.2 Indemnification by the Shareholders........................17
10.3 Indemnification by Buyer...................................18
10.4 Bulk Sales Indemnification.................................18
10.5 Right of Offset............................................18
ARTICLE 11 MISCELLANEOUS..................................................18
11.1 Governing Law; Venue; Jurisdiction.........................18
11.2 Assignment; Binding Upon Successors and Assigns............19
11.3 Severability...............................................19
11.4 Counterparts...............................................19
11.5 Other Remedies.............................................19
11.6 Amendment and Waivers......................................19
11.7 Expenses...................................................19
11.8 Notices....................................................19
11.9 Further Assurances.........................................20
11.10 Public Announcement........................................21
11.11 Entire Agreement...........................................21
11.12 Joint and Several..........................................21
EXHIBIT A - AGREEMENT NOT TO COMPETE......................................E-1
EXHIBIT B - NO SOLICITATION AGREEMENT.....................................E-5
EXHIBIT C - WHOLESALE SERVICES AGREEMENT..................................E-8
EXHIBIT D - OPINION OF SELLERS' COUNSEL...................................E-28
SCHEDULE 1 - CUSTOMERS....................................................S-1
SCHEDULE 2 - EQUIPMENT....................................................S-2
SCHEDULE 3 LEASES.......................................................S-5
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SCHEDULE 3.2(b) THIRD PARTY CONSENTS....................................S-6
SCHEDULE 4 CIRCUITS.....................................................S-7
SCHEDULE 5 INDIVIDUALS TO ENTER NO SOLICITATION AGREEMENTS..............S-8
SCHEDULE 6 REGULATORY APPROVALS.........................................S-10
SCHEDULE 7 ALLOCATION OF PURCHASE PRICE..................................S-10
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