AGREEMENT AND PLAN OF MERGER
AMONG
RCN CORPORATION,
21ST HOLDING CORP.
AND
21ST CENTURY TELECOM GROUP, INC.
DATED AS OF DECEMBER 12, 1999
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TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Closing; Effective Time of the Merger . . . . . . . . 1
Section 1.3 Effects of Merger . . . . . . . . . . . . . . . . . . 2
Section 1.4 Directors and Officers . . . . . . . . . . . . . . . 2
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock . . . . . . . . . . . . . 2
Section 2.2 Exchange of Certificates . . . . . . . . . . . . . . 6
Section 2.3 Options . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4 Contingent Deferred Payment . . . . . . . . . . . . 10
Section 2.5 Payment of Contingent Deferred Payment . . . . . . 12
Section 2.6 Franchise Amount . . . . . . . . . . . . . . . . . 13
Section 2.7 Shares of Dissenting Shareholders . . . . . . . . . 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization . . . . . . . . . . . . . . . . . . . 16
Section 3.2 Company Subsidiaries . . . . . . . . . . . . . . . 16
Section 3.3 Company Capital Structure . . . . . . . . . . . . . 17
Section 3.4 Authority; No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . . . . . 19
Section 3.5 SEC Filings . . . . . . . . . . . . . . . . . . . . 22
Section 3.6 Financial Statements . . . . . . . . . . . . . . . 22
Section 3.7 Absence of Undisclosed Liabilities . . . . . . . . 22
Section 3.8 Absence of Certain Changes or Events . . . . . . . 23
Section 3.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.10 Real Properties; Title to and Condition of Assets . 26
Section 3.11 Intellectual Property . . . . . . . . . . . . . . . 28
Section 3.12 Agreements, Contracts and Commitments . . . . . . . 28
Section 3.13 Litigation . . . . . . . . . . . . . . . . . . . . 30
Section 3.14 Environmental Matters . . . . . . . . . . . . . . . 30
Section 3.15 Transactions with Affiliates . . . . . . . . . . . 31
Section 3.16 Employee Benefit Plans . . . . . . . . . . . . . . 31
Section 3.17 Labor Matters . . . . . . . . . . . . . . . . . . . 34
Section 3.18 Compliance with Laws; Regulatory Approvals . . . . 34
Section 3.19 Systems Information . . . . . . . . . . . . . . . . 38
Section 3.20 Outside Plant/Network; CLEC; Internet Related
Systems . . . . . . . . . . . . . . . . . . . . . 41
Section 3.21 No Other Operators . . . . . . . . . . . . . . . . 43
Section 3.22 Franchises; Licenses . . . . . . . . . . . . . . . 43
Section 3.23 Bonds . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.24 Commitments . . . . . . . . . . . . . . . . . . . . 45
Section 3.25 Brokers . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.26 Insurance . . . . . . . . . . . . . . . . . . . . . 45
Section 3.27 Fairness Opinion . . . . . . . . . . . . . . . . . 46
Section 3.28 Year 2000 Compliance . . . . . . . . . . . . . . . 46
Section 3.29 Full Disclosure . . . . . . . . . . . . . . . . . . 47
Section 3.30 Registered Securities . . . . . . . . . . . . . . . 47
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . 47
Section 4.2 Authority; No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . . . . . 48
Section 4.3 SEC Documents . . . . . . . . . . . . . . . . . . . 49
Section 4.4 Parent Common Stock Issued in the Merger . . . . . 49
Section 4.5 Litigation . . . . . . . . . . . . . . . . . . . . 49
Section 4.6 Interim Operations of Sub . . . . . . . . . . . . . 49
Section 4.7 Brokers . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.8 Tax Matters . . . . . . . . . . . . . . . . . . . . 50
Section 4.9 Financial Statements . . . . . . . . . . . . . . . 50
Section 4.10 Absence of Undisclosed Liabilities . . . . . . . . 51
Section 4.11 Absence of Certain Changes or Events . . . . . . . 51
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of the Company . . . . . . . . . . . . . 51
Section 5.2 Cooperation . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation . . . . . . . . . . . . . . . . . . 53
Section 6.2 Access to Information . . . . . . . . . . . . . . . 54
Section 6.3 Consents . . . . . . . . . . . . . . . . . . . . . 55
Section 6.4 Public Disclosure . . . . . . . . . . . . . . . . . 55
Section 6.5 Tax-Free Reorganization . . . . . . . . . . . . . . 55
Section 6.6 Affiliate Agreements . . . . . . . . . . . . . . . 55
Section 6.7 Commercially Reasonable Efforts . . . . . . . . . . 56
Section 6.8 Certain Filings . . . . . . . . . . . . . . . . . . 56
Section 6.9 Further Assurances . . . . . . . . . . . . . . . . 56
Section 6.10 Notification of Certain Matters . . . . . . . . . . 56
Section 6.11 Affiliate Transactions . . . . . . . . . . . . . . 57
Section 6.12 Shareholders Meeting . . . . . . . . . . . . . . . 57
Section 6.13 Proxy Statement; Registration Statement; Board
Recommendation . . . . . . . . . . . . . . . . . 57
Section 6.14 Nasdaq Listing . . . . . . . . . . . . . . . . . . 58
Section 6.15 Letter of Independent Auditors . . . . . . . . . . 58
Section 6.16 Treatment of Company Debt and Exchangeable
Preferred . . . . . . . . . . . . . . . . . . . 59
Section 6.17 Employee Matters . . . . . . . . . . . . . . . . . 61
Section 6.18 280G Approval . . . . . . . . . . . . . . . . . . . 61
Section 6.19 Director and Officer Liability . . . . . . . . . . 61
Section 6.20 Employee Benefits after the Effective Time . . . . 62
Section 6.21 ISP Plan . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect
the Merger . . . . . . . . . . . . . . . . . . . 63
Section 7.2 Additional Conditions to Obligations of Parent and
Sub . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.3 Additional Conditions to Obligations of the Company 66
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . 67
Section 8.2 Procedure and Effect of Termination . . . . . . . . 68
Section 8.3 Amendment . . . . . . . . . . . . . . . . . . . . . 68
Section 8.4 Extension; Waiver . . . . . . . . . . . . . . . . . 69
Section 8.5 Fees and Expenses . . . . . . . . . . . . . . . . . 69
ARTICLE IX
INDEMNIFICATION
Section 9.1 Survival . . . . . . . . . . . . . . . . . . . . . 69
Section 9.2 Obligations of the Shareholders . . . . . . . . . . 69
Section 9.3 Indemnification Procedures . . . . . . . . . . . . 70
Section 9.4 Shareholder Representative . . . . . . . . . . . . 72
Section 9.5 Certain Definitions . . . . . . . . . . . . . . . . 73
ARTICLE X
TAX MATTERS
Section 10.1 Indemnification by the Company Shareholders . . . . 73
Section 10.2 Allocation of Taxes . . . . . . . . . . . . . . . . 74
Section 10.3 Mutual Cooperation; Contests . . . . . . . . . . . 74
Section 10.4 Other Tax Agreements . . . . . . . . . . . . . . . 75
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.2 Interpretation; Certain Definitions . . . . . . . . 77
Section 11.3 Counterparts . . . . . . . . . . . . . . . . . . . 77
Section 11.4 Entire Agreement; No Third Party Beneficiaries . . 78
Section 11.5 Governing Law . . . . . . . . . . . . . . . . . . . 78
Section 11.6 Jurisdiction . . . . . . . . . . . . . . . . . . . 78
Section 11.7 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . 78
Section 11.8 Assignment . . . . . . . . . . . . . . . . . . . . 78
Section 11.9 Severability . . . . . . . . . . . . . . . . . . . 79
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of December
12, 1999 by and among RCN Corporation, a Delaware corporation ("Parent"),
21st Holding Corp., an Illinois corporation and a wholly owned subsidiary
of Parent ("Sub"), and 21st Century Telecom Group, Inc., an Illinois
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved this Agreement and deem it advisable and in the best interests of
each corporation and its respective stockholders and shareholders to enter
into this Agreement and the other agreements contemplated herein and
consummate the transactions contemplated hereby and thereby; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the Business
Corporation Act of the State of Illinois (the "Illinois Statute"), Sub
shall be merged with and into the Company (the "Merger"). As a result of
the Merger, the outstanding shares of capital stock of Sub and the Company
shall be converted or canceled in the manner provided in Article II of this
Agreement, the separate corporate existence of Sub shall cease and the
Company shall be the surviving corporation in the Merger.
Section 1.2 Closing; Effective Time of the Merger. Unless
this Agreement shall have been terminated pursuant to Section 8.1, the
closing of the Merger (the "Closing") will take place at 10:00 a.m., New
York time, on a date to be specified in writing by Parent and the Company
(the "Closing Date"), which shall be no later than the third business day
after satisfaction (or waiver in accordance with Section 8.4) of all
conditions set forth in Article VII, at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036,
unless another date or place is agreed to in writing by Parent and the
Company. Subject to the provisions of this Agreement, a certificate of
merger (the "Certificate of Merger") shall be duly prepared and executed in
accordance with the Illinois Statute and simultaneously with or as soon as
practicable following the Closing delivered to the Secretary of State of
the State of Illinois for filing. The Merger shall become effective upon
the later of: (a) the date and time of the filing of the Certificate of
Merger with the Secretary of State of the State of Illinois, or (b) such
other date and time as is provided in this Agreement (the "Effective
Time").
Section 1.3 Effects of Merger.
(a) At the Effective Time: (i) the separate existence of Sub
shall cease and Sub shall be merged with and into the Company (Sub and the
Company are sometimes referred to collectively herein as the "Constituent
Corporations" and the Company is sometimes referred to herein as the
"Surviving Corporation"); and (ii) the articles of incorporation and bylaws
of the Company in effect immediately prior to the Effective Time shall be
the articles of incorporation and bylaws of the Surviving Corporation until
amended in accordance with the terms thereof and in accordance with
applicable law.
(b) The Merger shall have the effects set forth in this
Agreement and the Illinois Statute.
Section 1.4 Directors and Officers. The directors of Sub and
the officers of the Company immediately prior to the Effective Time shall
be the initial directors and officers of the Surviving Corporation, and
shall hold office in accordance with the articles of incorporation and
bylaws of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the
Constituent Corporations or the holder of any shares of capital stock of
the Constituent Corporations (other than Dissenting Shares (as defined in
Section 2.7)):
(a) Capital Stock of Sub. Each issued and outstanding share of
the capital stock of Sub shall be converted into and become one fully paid
and nonassessable share of common stock, no par value, of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All
shares of Company Stock (as defined below) that are owned by the Company as
treasury stock and any shares of Company Stock owned by Parent, Sub or any
other wholly owned Subsidiary (as defined in Section 3.1 below) of Parent
shall be canceled and retired and shall cease to exist and no stock of
Parent or other consideration shall be delivered in exchange therefor.
(c) Company Common Stock. Each issued and outstanding share of
Company Common Stock (as defined in Section 3.3) shall be converted into
the right to receive the sum of:
(i) that number of shares of Common Stock, par
value $1.00 per share, of Parent ("Parent Common Stock") equal to
(A) the Exchange Ratio (as defined below) multiplied by (B) one
minus the Indemnification Percentage (as defined below);
(ii) subject to offset in accordance with the
provisions of Section 2.1(l) and Articles IX and X hereof and the
Escrow Agreement (as defined below), that number of shares of
Parent Common Stock equal to (A) the Exchange Ratio multiplied by
(B) the Indemnification Percentage (the "Escrowed Common
Consideration");
(iii) its applicable share of the Contingent
Deferred Payment (as defined below), if any; and
(iv) its applicable share of the Franchise Amount
(as defined below), if any.
(d) Class A Preferred Stock. Each issued and outstanding share
of Class A Preferred Stock (as defined in Section 3.3) shall be converted
into the right to receive the sum of:
(i) that number of shares of Parent Common Stock
equal to (A) the Exchange Ratio multiplied by (B) one minus the
Indemnification Percentage multiplied by (C) the Preferred
Conversion Number (as defined below);
(ii) subject to offset in accordance with the
provisions of Section 2.1(l) and Articles IX and X hereof and the
Escrow Agreement, that number of shares of Parent Common equal to
(A) the Exchange Ratio multiplied by (B) the Indemnification
Percentage multiplied by (C) the Preferred Conversion Number
(the "Escrowed Preferred Consideration");
(iii) its applicable share of the Contingent
Deferred Payment (as defined below), if any; and
(iv) its applicable share of the Franchise Amount,
if any.
(e) Warrants. Each Warrant (as defined in Section 3.3(a)) to
acquire shares of Company that is outstanding immediately prior to the
Effective Time, whether or not then exercisable, shall, effective as of the
Effective Time, be cancelled and in exchange therefor, shall be converted
into the right to receive the sum of:
(i) that number of shares of Parent Common Stock
equal to (1) the Exchange Ratio multiplied by (2) one minus the
Indemnification Percentage multiplied by (3) the difference
between (A) the total number of shares of Company Common Stock
subject to such Warrant less (B) the quotient obtained by
dividing (i) the product of (x) the total number of shares of
Company Common Stock subject to such Warrant multiplied by (y)
the exercise price of such Warrant, by (ii) the Net Equity Value;
(ii) subject to offset in accordance with the
provisions of Section 2.1(l) and Articles IX and X hereof and the
Escrow Agreement, that number of shares of Parent Common equal to
(1) the Exchange Ratio multiplied by (2) the Indemnification
Percentage multiplied by (3) the difference between (A) the total
number of shares of Company Common Stock subject to such Warrant
less (B) the quotient obtained by dividing (i) the product of (x)
the total number of shares of Company Common Stock subject to
such Warrant multiplied by (y) the exercise price of such
Warrant, by (ii) the Net Equity Value (the "Escrowed Warrant
Consideration");
(iii) its applicable share of the Contingent
Deferred Payment (as defined below), if any; and
(iv) its applicable share of the Franchise Amount,
if any.
(f) As used herein, the term "Company Stock" shall mean the
Company Common Stock, the Class A Preferred Stock and, as applicable, the
Warrants and the shares of Company Common Stock subject to the Warrants.
(g) As used herein, the term "Exchange Ratio" means a fraction,
the numerator of which is the Net Equity Value (as defined below) and the
denominator of which is $45.441667 (the "Parent Stock Price"). The
aggregate shares of Parent Common Stock into which all shares of Company
Stock will be converted into the right to receive is referred to herein as
the "Merger Consideration." The aggregate Escrowed Common Consideration,
Escrowed Preferred Consideration, Escrowed Warrant Consideration, Escrowed
CDP (as defined in Section 2.5(a)) and Escrowed Franchise Amount (as
defined in Section 2.6(c)) are collectively referred to as the "Escrowed
Consideration."
(h) As used herein, the term "Net Equity Value" means a
fraction, the numerator of which is (A) the excess of (i) $212,377,112.50
less (ii) in the event that the Company shall not have delivered the
Franchise Certificate (as defined in Section 2.6(b)) to Parent prior to the
Closing, the Initial Franchise Amount (as defined in Exhibit A-1 hereto),
and (B) the denominator of which is the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time assuming, in each
case, immediately prior to the Effective Time and at the then applicable
exercise or conversion prices, whether or not then vested, exercisable or
convertible: (i) conversion of all shares of Class A Preferred into Company
Common Stock; (ii) the exercise of all outstanding options to acquire
shares of Company Common Stock; (iii) the exercise of all warrants to
acquire shares of Company Common Stock; and (iv) the exercise or
conversion, as applicable, of all other securities convertible into or
exchangeable for shares of Company Common Stock.
(i) As used herein, (i) the term "Indemnification Percentage"
means ten percent (10%) and (ii) the term "Preferred Conversion Number"
means 1,000.
(j) Effect on Company Stock. All such shares of Company Stock,
when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Parent
Common Stock and any cash in lieu of fractional shares of Parent Common
Stock to be issued or paid in consideration therefor upon the surrender of
such certificate in accordance with Section 2.2, without interest.
(k) Adjustment of Exchange Ratio for Dilution and Other Matters.
If between the date of this Agreement and the Effective Time, the
outstanding shares of Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, stock dividend, stock
combination, exchange of shares, readjustment or otherwise, then the
Exchange Ratio shall be correspondingly adjusted.
(l) Escrow of Shares. At the Effective Time, any Franchise
Amount Payment Date and any CDP Payment Date, as applicable, Parent shall
deposit the number of shares of Parent Common Stock comprising the Escrowed
Consideration (the "Escrow Shares") with an escrow agent reasonably
satisfactory to the Company and Parent to be held and disbursed by that
escrow agent in accordance with the form of escrow agreement attached as
Exhibit B (the "Escrow Agreement"). Those shares will be withheld from the
shares of Parent Common Stock allocable to each former holder of the
Company Stock in accordance with the provisions of Sections 2.1(c)(ii), 2.1
(d)(ii), 2.1(e)(ii), 2.5(a) and 2.6(c). To the extent Parent is entitled
to indemnification out of the Escrow Shares pursuant to Articles IX or X of
this Agreement and subject to the conditions and limitations therein,
Parent shall set off and apply against Indemnified Losses (as defined in
Section 9.2) the Escrow Shares in accordance with the terms hereof and of
the Escrow Agreement. Pursuant to the terms of the Escrow Agreement, the
Escrow Shares shall be valued for purposes of set off against any
Indemnified Losses at the Parent Stock Price.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall
deposit with an exchange agent designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Stock, for exchange in accordance with this
Article II, through the Exchange Agent, (A) certificates representing the
shares of Parent Common Stock (such shares of Parent Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") issuable pursuant to this Article II in
exchange for the shares of Company Stock and (B) cash in an amount
sufficient for payment in lieu of fractional shares as contemplated by this
Article II.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Stock (each a
"Certificate" and collectively, the "Certificates") whose shares were
converted pursuant to this Article II into the right to receive shares of
Parent Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of (1) the Certificates or (2) an affidavit
in accordance with Section 2.2(h) to the Exchange Agent and shall be in
such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates or affidavits in exchange for certificates
representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents reasonably acceptable to the Company as may be appointed by
Parent, together with such letter of transmittal, duly executed, and such
other documents as may be reasonably required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange
therefor (x) a certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to receive, pursuant to
the provisions of this Article II, and (y) cash in lieu of any fractional
shares of Parent Common Stock in accordance with Section 2.2(e), and the
Certificate so surrendered shall immediately be canceled. In the event of
a transfer of ownership of Company Stock which is not registered in the
transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock may be issued to a transferee if
the Certificate representing such Company Stock is 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 Article
II, each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the certificate
representing shares of Parent Common Stock and cash in lieu of any
fractional shares of Parent Common Stock as contemplated by this Article
II.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time
with respect to Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate or
affidavit pursuant to Section 2.2(h) with respect to the shares of Parent
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to paragraph (e) below
until the holder of record of such Certificate shall surrender such
Certificate or affidavit. Subject to the effect of applicable laws,
following surrender of any such Certificate or affidavit, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to paragraph (e) below and the amount of dividends or other
distributions with a record date after the Effective Time previously paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole
shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of
Company Stock in accordance with the terms hereof (including any cash paid
pursuant to paragraph (c) or (e) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Company Stock,
subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by the Company on such
shares of Company Stock in accordance with the terms of this Agreement on
or prior to the date hereof and which remain unpaid at the Effective Time,
and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Stock
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this
Article II.
(e) No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
Parent. Notwithstanding any other provision of the Agreement, each holder
of shares of Company Stock, exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Parent
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive from Parent, in lieu thereof, cash (without interest)
in an amount equal to such fractional part of a share of Parent Common
Stock multiplied by the average of the closing prices of Parent Common
Stock, as reported on the Nasdaq, on each of the fifteen trading days
immediately preceding the date of the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the shareholders of the Company for one
year after the Effective Time shall be delivered to Parent, upon demand,
and any former shareholders of the Company who have not previously complied
with this Article II shall thereafter look only to Parent for payment of
their claim for Parent Common Stock, any cash in lieu of fractional shares
of Parent Common Stock, and any dividends or distributions with respect to
Parent Common Stock.
(g) No Liability. Neither the Exchange Agent, Parent, Sub nor
the Company shall be liable to any holder of shares of Company Stock or
Parent Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(h) Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof, such
shares of Parent Common Stock, cash in lieu of fractional shares of Parent
Common Stock, to which such holder is entitled pursuant to paragraph (e)
above and any dividends or other distributions with respect to Parent
Common Stock to which such holder is entitled.
Section 2.3 Options.
(a) Except as may otherwise be agreed upon between a holder of
Company Stock Options and Parent, each option granted to a Company employee
to acquire shares of Company Common Stock ("Company Stock Option") that is
outstanding immediately prior to the Effective Time, whether or not then
vested or exercisable, shall, effective as of the Effective Time, become
and represent an option to acquire the number of shares of Parent Common
Stock (a "Substitute Option"), rounded up or down to the nearest whole
share, determined by multiplying (i) the number of shares of Company Common
Stock subject to such Company Stock Option immediately prior to the
Effective Time by (ii) the Exchange Ratio, at an exercise price per share
of Parent Common Stock (increased to the nearest whole cent) equal to the
exercise price per share of such Company Stock Option divided by the
Exchange Ratio; provided, however, that in the case of any Company Stock
Option to which Section 421 of the Code applies by reason of its
qualification as an incentive stock option under Section 422 of the Code,
the conversion formula shall be adjusted if necessary to comply with
Section 424(a) of the Code; and provided, further, that the conversion
formula shall be further adjusted as provided in Section 2.3(d). After the
Effective Time, except as provided in this Section 2.3, each Substitute
Option shall be exercisable upon the same terms and conditions as were
applicable to the related Company Stock Option immediately prior to the
Effective Time.
(b) Prior to the Effective Time, the Company shall (i) obtain
any consents from holders of Company Stock Options and (ii) amend the terms
of its equity incentive plans or arrangements, in each case to the extent,
if any, necessary to give effect to the provisions of Section 2.3(a).
(c) As soon as reasonably practicable after the Effective Time,
Parent shall (i) file with the Securities and Exchange Commission (the
"SEC") a registration statement on Form S-8 or another appropriate form
with respect to the shares of Parent Common Stock subject to such options,
(ii) as soon as reasonably practicable, prepare and file with the Nasdaq
listing applications covering the shares of Parent Common Stock issuable
upon the exercise of Substitute Options and use all reasonable efforts to
obtain approval for the listing of such shares of Parent Common Stock,
subject only to official notice of issuance and (iii) amend the terms of
its equity incentive plans or arrangements, in each case to the extent, if
any, necessary to give effect to the provisions of Section 2.3(a). Parent
shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon
exercise of Substitute Options.
(d) In the event that any Franchise Amount becomes due in
accordance with the provisions of Section 2.6, the conversion formula
applicable to each Substitute Option shall be adjusted by recalculating
such formula in accordance with clauses (i) and (ii) of Section 2.3(a) as
if the Exchange Ratio had been determined at the Effective Time to include
the value of the Franchise Amount that is actually due in accordance with
Section 2.6.
(e) On any date on which either (i) a Contingent Deferred
Payment is paid or (ii) the Escrow Agent releases any portion of the Escrow
Account (as it may be increased) to Parent in respect of any Indemnified
Losses, the conversion formula applicable to each Substitute Option shall
be adjusted by recalculating such formula in accordance with clauses (i)
and (ii) of Section 2.3(a) hereof as if the Exchange Ratio had been
determined at the Effective Time to include the value of any Contingent
Deferred Payment that is actually paid in accordance with Section 2.5 and
to exclude the value of any portion of the Escrow Account that is released
to Parent in respect of any Indemnified Losses.
Section 2.4 Contingent Deferred Payment.
(a) For purposes of this Agreement, the Contingent Deferred
Payment shall have the meaning set forth in Exhibit A hereto. Capitalized
terms used herein and not otherwise defined in this Agreement shall have
the meanings set forth in Exhibit A hereto.
(b) As promptly as practicable, but no later than ninety (90)
days after the end of the twelve month period ended March 31, 2001, the
Company shall prepare and deliver to the Shareholder Representative (as
defined in Section 9.4) the financial statements of the Company for the
twelve month period ended March 31, 2001, which shall include a statement
of the Indicators set forth on Exhibit A hereto and the calculation thereof
(the "Company March 2001 Financials"). Such financial statements shall be
prepared in accordance with GAAP based upon the books and records of the
Company in a manner consistent with the Company's past practice as of the
date hereof and shall be certified by the Chief Financial Officer of the
Company. Concurrently with delivery of the Company March 2001 Financials,
the Company shall deliver to the Shareholder Representative a statement
setting forth the calculation of the Contingent Deferred Payment (the "CDP
Statement"). Following the delivery of the CDP Statement, the Company
shall give the Shareholder Representative and any independent auditors of
the Shareholder Representative access at all reasonable times to the
properties, books, records and personnel of the Company for purposes of
reviewing the CDP Statement. The Shareholder Representative shall have
thirty (30) days following delivery of the CDP Statement during which to
notify the Company of any dispute regarding the calculation of the
Contingent Deferred Payment set forth in the CDP Statement or the Company's
calculation of the Indicators, as the case may be, which notice shall set
forth in reasonable detail the basis for such dispute. If the Shareholder
Representative fails to notify the Company of any such dispute within such
30-day period, the CDP Statement and the Indicator calculations shall be
deemed to be final and binding upon the Company, Shareholder Representative
and the shareholders. In the event that the Shareholder Representative
shall so notify the Company of any dispute, the Shareholder Representative
and the Company shall cooperate in good faith to resolve such dispute as
promptly as possible.
(c) If the Shareholder Representative and the Company are unable
to resolve any such dispute within thirty (30) days of the delivery of
notice of a dispute, such dispute shall be resolved by an independent
accounting firm (the "Accounting Firm") reasonably acceptable to the
Company and the Shareholder Representative, and such determination shall be
final and binding on the Company, the shareholders and the Shareholder
Representative. If the Shareholder Representative and the Company cannot
mutually agree on the identity of the Accounting Firm, the Shareholder
Representative and the Company shall each submit to the other party's
independent auditor the name of a "big five accounting firm" which does not
at such time and has not in the two years prior to such time provided
material services to any of the Shareholder Representative, the Company or
any of their respective affiliates, and the Accounting Firm shall be
selected by lot from these two firms by the independent auditors of the two
parties. Any expenses relating to the engagement of the Accounting Firm
shall be paid by the party whom the Accounting Firm determines to be the
non-prevailing party with respect to such dispute. The shareholders'
portion, if any, of such expenses shall be deducted from the Contingent
Deferred Payment, if any, and if sufficient funds are not available
therein, Parent and the Shareholder Representative shall instruct the
Escrow Agent to surrender to Parent a sufficient number of Escrowed Shares,
valued at the Parent Stock Price, as payment for the shareholders' portion
of such expenses. The Accounting Firm shall be instructed to use every
reasonable effort to perform its services within thirty (30) days of
submission of the CDP Statement to it and, in any case, as promptly as
practicable after such submission.
(d) The Company shall make the Contingent Deferred Payment, if
any, in shares of Parent Common Stock to the Exchange Agent for
distribution to the shareholders in accordance with the provisions of
Section 2.5. For purposes of this Agreement, a "Final Determination" shall
mean the earliest of (i) the expiration of the applicable time periods for
notifying parties of disputes pursuant to Section 2.4(b) (assuming no such
notification has been made during such time periods), (ii) the parties
reaching a final agreement on such amount or (iii) the Accounting Firm
rendering its determination pursuant to paragraph (c) above.
Section 2.5 Payment of Contingent Deferred Payment.
(a) Exchange Agent; CDP Exchange Fund. On the later of (i)
fifteen (15) business days following a Final Determination and (ii) the
Escrow Termination Date (as defined in the Escrow Agreement) (such date
being hereinafter referred to as the "CDP Payment Date"), Parent shall
deposit with the Exchange Agent certificates representing a number of
shares of Parent Common Stock equal to the quotient of the Contingent
Deferred Payment divided by the average of the closing prices of Parent
Common Stock, as reported on the Nasdaq, on each of the fifteen trading
days immediately preceding the date on which such shares are deposited with
the Exchange Agent (such shares of Parent Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred
to as the "CDP Exchange Fund") issuable pursuant to this Section 2.5 in
respect of the Contingent Deferred Payment, and cash in an amount
(determined in accordance with Section 2.2(e)) sufficient for payment in
lieu of fractional shares. Notwithstanding the foregoing, if, on the CDP
Payment Date, the aggregate amount of unpaid and unresolved claims for
Indemnified Losses (as defined in Section 9.2(a)), as determined in
accordance with Articles IX and X hereof, and subject to the conditions and
limitations therein, and the Escrow Agreement, exceeds the value of the
Escrow Account as it then exists, then the portion of the Contingent
Deferred Payment which would be necessary to satisfy such claims shall be
excluded from the CDP Exchange Fund and shall be deposited with the Escrow
Agent (such shares of Parent Common Stock to be deposited in respect
thereof, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Escrowed CDP") and shall be added to
the Escrow Account to be released in accordance with the terms of the
Escrow Agreement.
(b) Payment Amount. The Exchange Agent shall pay to each person
who held shares of Company Stock (other than Dissenting Shares) immediately
prior to the Effective Time, out of the CDP Exchange Fund, a number of
shares of Parent Common Stock (together with cash in lieu of fractional
shares) equal to the product of (A) the number of shares of Parent Common
Stock comprising the CDP Exchange Fund multiplied by (B) a fraction, (x)
the numerator of which is the number of shares of Company Stock held by
each such shareholder immediately prior to the Effective Time and (y) the
denominator of which is the aggregate number of shares of Company Stock
outstanding immediately prior to the Effective Time.
(c) Payment Procedure. The Exchange Agent shall make such
payment of shares of Parent Common Stock (together with cash in lieu of
fractional shares) to each such shareholder in the manner and at the
location specified in the letter of transmittal previously delivered by
each such shareholder to the Exchange Agent pursuant to Section 2.2 (unless
the Exchange Agent has otherwise been notified in writing by the
Shareholder Representative) and otherwise in accordance with the applicable
provisions of Section 2.2.
Section 2.6 Franchise Amount.
(a) Computation. For purposes of this Agreement, the "Franchise
Amount" and "Partial Franchise Amount" shall have the respective meanings
set forth in Exhibit A-1 hereto. Capitalized terms used herein and not
otherwise defined in this Agreement shall have the meanings set forth in
Exhibit A-1 hereto.
(b) Franchise Certificate. In the event that the Company
obtains franchises for any or all of Chicago Areas 2, 3 and 4, in each
case, on terms generally no less favorable than the terms of the Company's
franchise with respect to Chicago Area 1 or otherwise approved by Parent,
the Company shall prepare and deliver to Parent a certificate (each a
"Franchise Certificate") executed by the Chief Executive Officer and the
Chief Financial Officer of the Company and in form and substance reasonably
satisfactory to Parent, certifying as to (i) the receipt of such franchise
or franchises on such terms, (ii) the date on which such franchises shall
have been obtained (each a "Franchise Receipt Date") and that such
franchise or franchises are in full force and effect and (iii)
documentation evidencing such franchise or franchises.
(c) Exchange Agent; Franchise Exchange Fund. Within ten (10)
business days following Parent's receipt of a Franchise Certificate in form
and substance reasonably satisfactory to Parent (each such date being
hereinafter referred to as a "Franchise Amount Payment Date"), Parent shall
deposit with the Exchange Agent certificates representing a number of
shares of Parent Common Stock equal to the quotient of (A) the product of
(i) the Franchise Amount or a Partial Franchise Amount, as the case may be,
multiplied by (ii) one minus the Indemnification Percentage divided by (B)
the Parent Stock Price (such shares of Parent Common Stock, together with
any dividends or distributions with respect thereto, being hereinafter
referred to as the "Franchise Exchange Fund") issuable pursuant to this
Section 2.6 in respect of the Franchise Amount or a Partial Franchise
Amount, and cash in an amount (determined in accordance with Section
2.2(e)) sufficient for payment in lieu of fractional shares.
Simultaneously therewith, Parent shall deposit with the Escrow Agent
pursuant to Section 2.1(l) certificates representing a number of shares of
Parent Common Stock equal to the quotient of (A) the product of (i) the
Franchise Amount or a Partial Franchise Amount, as the case may be,
multiplied by (ii) the Indemnification Percentage divided by (B) the Parent
Stock Price (such shares of Parent Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred
to as the "Escrowed Franchise Amount") to be included in the Escrowed
Consideration and to be held and disbursed by the Escrow Agent in
accordance with the Escrow Agreement. Notwithstanding the foregoing, in
the event that the Franchise Amount, or any Partial Franchise Amount, as
the case may be, is payable after the first anniversary of the Closing,
then, if on such date or dates the aggregate amount of unpaid and
unresolved claims for Indemnified Losses (as defined in Section 9.2), as
determined in accordance with Articles IX and X hereof, and subject to the
conditions and limitations therein, and the Escrow Agreement, exceeds the
value of the Escrow Account as it then exists, the portion the Escrowed
Franchise Amount which would be necessary to satisfy such claims shall be
deposited with the Escrow Agent and the remainder of the Escrowed Franchise
Amount, if any, shall be included in the Franchise Exchange Fund.
(d) Payment Amount. The Exchange Agent shall pay to each person
who held shares of Company Stock (other than Dissenting Shares) immediately
prior to the Effective Time, out of the Franchise Exchange Fund, a number
of shares of Parent Common Stock (together with cash in lieu of fractional
shares) equal to the product of (A) the number of shares of Parent Common
Stock comprising the Franchise Exchange Fund multiplied by (B) a fraction,
(x) the numerator of which is the number of shares of Company Stock held by
each such shareholder immediately prior to the Effective Time and (y) the
denominator of which is the aggregate number of shares of Company Stock
outstanding immediately prior to the Effective Time.
(e) Payment Procedure. The Exchange Agent shall make such
payment of shares of Parent Common Stock (together with cash in lieu of
fractional shares) to each such shareholder in the manner and at the
location specified in the letter of transmittal previously delivered by
each such shareholder to the Exchange Agent pursuant to Section 2.2 (unless
the Exchange Agent has otherwise been notified in writing by the
Shareholder Representative) and otherwise in accordance with the applicable
provisions of Section 2.2.
Section 2.7 Shares of Dissenting Shareholders.
Notwithstanding anything in this Agreement to the contrary, any shares of
Company Stock that are issued and outstanding as of the Effective Time and
that are held by a shareholder that has exercised its right (to the extent
such right is available by law) to demand and to receive the fair value of
such shares (the "Dissenting Shares") under Section 5/11.70 of the Illinois
Statute shall not be converted into the right to receive the Merger
Consideration unless and until the holder shall have failed to perfect, or
shall have effectively withdrawn or lost, his right to dissent from the
Merger under the Illinois Statute and to receive such consideration as may
be determined to be due with respect to such Dissenting Shares pursuant to
and subject to the requirements of the Illinois Statute. If any such holder
shall have so failed to perfect or have effectively withdrawn or lost such
right, each share of such holder's Company Stock shall thereupon be deemed
to have been converted into and to have become, as of the Effective Time,
without any interest thereon, the right to receive the Merger
Consideration. The Company shall give Parent (i) prompt notice of any
notice or demands for appraisal or payment for shares of Company Stock
received by the Company and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands or
notices. The Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands. Except as provided in Section 6.5
hereof, provided that the Company has sufficient assets to, and actually
does pay all holders of Dissenting Shares in accordance with the Illinois
Statute and this Agreement, no assets of Parent will be used in the payment
for Dissenting Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedules (as defined in
Section 3.2), the Company represents and warrants to Parent and Sub as
follows:
Section 3.1 Organization. Each of the Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted or as its present business
(excluding expansions or additions to that business) is contemplated to be
conducted ("Conducted"), and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect (as defined
below). When used in connection with the Company or any of its
Subsidiaries, the term "Material Adverse Effect" means any change, event or
effect that is materially adverse to the business, assets (including
intangible assets), liabilities, condition (financial or otherwise),
operations or results of operations of the Company and its Subsidiaries
taken as a whole except for such changes, events or effects which are
directly the result of (i) the entering into or the public announcement of
this Agreement or the transactions contemplated hereby, (ii) changes in the
telecommunications industry generally or (iii) changes in general economic
(excluding changes in the capital markets), regulatory or political
conditions in the United States; except, in the case of each of (ii) and
(iii), if the impact on the Company is more than insignificantly
disproportionate to the more general impact of the change, event or effect.
The Company has provided complete and correct copies of the articles of
incorporation, by-laws or other organizational documents of the Company and
each of its Subsidiaries as currently in effect. As used herein,
"Subsidiary" means, with respect to any person, any entity of which such
person owns, directly or indirectly, at least a majority of the voting
securities or economic interests or which is directly or indirectly owned
or controlled by such person.
Section 3.2 Company Subsidiaries. All of the issued and
outstanding shares of capital stock or other equity interest of each of the
Company's Subsidiaries are owned by the Company or by a Subsidiary of the
Company free and clear of all Liens (as defined in Section 3.3(a)) and are
validly issued, fully paid and nonassessable, and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants
with respect to any such Subsidiary's capital stock or other equity
interest, including any right obligating any such Subsidiary to issue,
deliver or sell additional shares of its capital stock. A list of the
Subsidiaries of the Company (including the authorized capital stock and
beneficial and record owner thereof) is set forth in Section 3.2 of the
disclosure schedules delivered by the Company to Parent in connection with
this Agreement (the "Company Disclosure Schedules"). Neither the Company
nor any of its Subsidiaries, directly or indirectly, owns any equity or
similar interest, or any interest convertible into or exchangeable for any
such equity or similar interest, in any entity other than a Subsidiary.
Section 3.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of:
(i) 50,000,000 shares of Voting Common Stock, no par value, of the Company
(the "Company Voting Common Stock") and 1,000,000 shares of Non Voting
Common Stock, no par value, of the Company (the "Company Non Voting Common
Stock" and, together with the Company Voting Common Stock, the "Company
Common Stock"); (ii) 500,000 shares of Class A Convertible 8% Cumulative
Preferred Stock, no par value, of the Company (the "Class A Preferred
Stock"); (iii) 500,000 shares of Class B Convertible 8% Cumulative
Preferred Stock, no par value, of the Company, ("Class B Preferred Stock");
and (iv) 100,000 shares of 133/4 Senior Cumulative Exchangeable Preferred
Stock, $0.01 par value, of the Company ("Exchangeable Preferred"). As of
the date hereof, (x) 3,728,666.2150 shares of Company Voting Common Stock;
552,271.8965 shares of Company Non Voting Common Stock; 1554.8710 shares of
Class A Preferred Stock and 65,668.2 shares of Exchangeable Preferred were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable, and no shares of Class B Preferred Stock were issued and
outstanding; (y) no shares of Company Common Stock were held in the
treasury of the Company or by Subsidiaries of the Company; and (z)
6,518,486.6 shares of Company Voting Common Stock were reserved for
issuance pursuant to the following: (A) 145,235.8330 shares pursuant to
the 1998 Employee Stock Option Plan; (B) 140,375 shares pursuant to the
1998 Key Management Stock Option Plan; (C) 331,200 shares pursuant to the
1998 Stock Option Agreement entered into between the Company and each of
Robert J. Currey and Ronald D. Webster; (D) 575,758.5360 shares pursuant to
the 1997 Stock Option Plan; (E) 53,640 shares pursuant to the Company 1999
Stock Incentive Plan; (F) subjection to the provisions of Section 6.21
hereof, 599,916 shares pursuant to the Company 1999 ISP Stock Plan; (G)
97,830.00 shares pursuant to the Company ISP Employee Stock Option Plan;
(H) 322,000.00 shares pursuant to an option agreement entered into with
Robert J. Currey dated December 10 , 1999; (I) 1,554,871 shares pursuant to
the conversion of the Class A Preferred Stock; (J) 3,016,060.35 shares
pursuant to Warrants (as defined below), of which 1,308,195.65 are
attributable to Warrants issued in connection with the Class A Preferred
Stock, 438,870 are attributable to Warrants issued in connection with the
Exchangeable Preferred, 18,994.7 are attributable to Warrants issued to
Carr, Nickey & Company and 1,250,000 are attributable to the LaSalle
Options (as defined below). As used herein, the term "Warrants" means (i)
warrants to purchase Company Common Stock and (ii) options (the "LaSalle
Options") issued pursuant to a Contribution and Indemnity Agreement, dated
June 24, 1996, and any amendments thereto. All shares of Company Voting
Common Stock subject to issuance as specified above, upon issuance on the
terms and conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any such shares of capital stock or the capital stock of any of the
Company's Subsidiaries or make any investment (in the form of a loan,
capital contribution or otherwise) in any such Subsidiary or any other
entity. All of the outstanding shares of capital stock of each Subsidiary
of the Company are duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company or another
Subsidiary of the Company free and clear of all security interests, liens,
claims, pledges, agreements, limitations on voting rights, limitations on
transfer, charges or other encumbrances of any nature (collectively
"Liens").
(b) Section 3.3 of the Company Disclosure Schedules sets forth a
complete and accurate list of each of the record and beneficial holders of
(i) each class or series of the Company's capital stock and the number of
shares of the Company's capital stock held by each holder as of the date
hereof and the number of shares or other securities into which such capital
stock is convertible, (ii) options and warrants and the exercise price,
date of grant, and number of shares and class of capital stock of the
Company into which such options and warrants are exercisable by each such
holder as of the date hereof and the vesting schedules of each such option
or warrant and (iii) the percentage of each class or series of capital
stock of the Company held by each holder as of the date hereof, the
percentage of the total outstanding capital stock of the Company held by
each holder as of the date hereof, and the percentage of each such class or
series and the percentage of the total outstanding capital stock as of the
date hereof, assuming, at the then applicable exercise or conversion
prices, whether or not then vested, exercisable or convertible: (A)
conversion of all shares of Class A Preferred; (B) the exercise of all
outstanding options; (C) the exercise of all warrants; and (D) the exercise
or conversion, as applicable, of all other securities convertible into or
exchangeable for shares of capital stock of the Company. No shares of
capital stock of the Company and no securities convertible into or
exercisable for shares of capital stock of the Company are convertible into
or exercisable for any other class or series of capital stock of the
Company other than Company Common Stock. Immediately prior to the
Effective Time, the Company shall provide Parent with a revised
capitalization table substantially in the form of Section 3.3 of the
Company Disclosure Schedules and setting forth any changes made in the
capitalization of the Company after the date hereof and prior to the
Effective Time.
(c) Except as set forth in this Section 3.3, there are no equity
securities of any class of the Company or any of its Subsidiaries, or any
security exchangeable into or exercisable for such equity securities,
issued and outstanding or, reserved for issuance and the Company has not
authorized the issuance of such security. Except as set forth in this
Section 3.3, there are no options, warrants, equity securities, calls,
rights commitments or agreements of any character to which the Company or
any of its Subsidiaries is a party or by which it is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of the
Company or any of its Subsidiaries or obligating the Company or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such option, warrant, equity, security, call, right, commitment or
agreement, and to the knowledge of the Company, there are no voting trusts,
proxies or other agreements or understandings with respect to the shares of
capital stock of the Company.
(d) Each share of Class A Preferred Stock is, and immediately
prior to the Effective Time will be, convertible into 1,000 shares of
Company Voting Stock.
(e) On January 9, 1998, the Company effected a 1,000 for 1 share
split with respect to the Company Common Stock and no other splits or
similar adjustments with respect to any of the Company's capital stock or
securities convertible thereinto have otherwise occurred. The Board of
Directors of the Company has rescinded, or will prior to the Effective Time
rescind, the 3 for 1 share split described on the Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended September 30, 1999 and
will file a Current Report on Form 8-K reflecting the foregoing and
revising the disclosure contained in the Company's Quarterly Report on Form
10-Q for the Quarterly Period ended September 30, 1999.
Section 3.4 Authority; No Conflict; Required Filings and
Consents.
(a) The Company has all requisite corporate power and authority
to enter into and deliver this Agreement and the other agreements
contemplated herein, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the other
agreements contemplated herein and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company and each of its Subsidiaries,
subject only (in the case of this Agreement) to the approval of the Merger
by the Company's shareholders under the Illinois Statute. This Agreement
and the other agreements contemplated herein have been duly executed and
delivered by the Company and constitute valid and binding obligations of
the Company, enforceable in accordance with the terms hereof and thereof,
except as such enforceability may be limited by (i) bankruptcy laws and
other similar laws affecting creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in
equity or at law.
(b) The only vote of the Company's shareholders required for the
approval of the Merger and the consummation of the transactions
contemplated hereby is the affirmative vote of (i) two-thirds of the
outstanding shares of Company Voting Common Stock and Class A Preferred
Stock, voting together as a class, and (ii) a majority of the outstanding
shares of Class A Preferred Stock. This Agreement and the transactions
contemplated hereby have been approved by (i) at least a majority of the
directors comprising the Company's Board of Directors and (ii) at least a
majority of the directors appointed by the holders of the Class A Preferred
Stock, which are the only votes of the Company's Board of Directors
required for approval of this Agreement and the consummation of the
transactions contemplated hereby. The Company has taken all appropriate
action so that the restrictions on business combinations contained in
Section 5/11.75 of the Illinois Statute and in any other applicable laws
will not apply to Parent or Sub and their respective associates and
affiliates with respect to or as a result of this Agreement and the
transactions contemplated hereby.
(c) Persons holding, beneficially and of record, (i) (A) two-
thirds of the outstanding shares of Company Voting Common Stock and Class A
Preferred Stock, voting together as a class, and (B) two-thirds of the
shares of Company Voting Common Stock and Class A Preferred Stock, voting
together as a class, that would be outstanding assuming the exercise or
conversion, as the case may be, of any and all options, warrants or other
securities exercisable or convertible into Company Voting Common Stock or
Class A Preferred Stock, whether or not then convertible or exercisable and
(ii) (A) a majority of the outstanding shares of Class A Preferred Stock
and (B) a majority of the shares of Class A Preferred Stock that would be
outstanding assuming the exercise or conversion, as the case may be, of any
and all options, warrants or other securities exercisable or convertible
into Class A Preferred Stock, whether or not then convertible or
exercisable, have each validly executed and delivered a Voting and Lock-Up
Agreement substantially in the form attached hereto as Exhibit C and each
such agreement is enforceable against each such person that is a party
thereto in accordance with its terms except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law and the votes
represented thereby represent the only approval required by the Company's
shareholders as of the date hereof and at any time prior to the Effective
Time necessary to approve the Merger and the other transactions
contemplated hereby and thereby.
(d) Except as set forth in Section 3.4 of the Company Disclosure
Schedules, the execution and delivery of this Agreement and the other
agreements contemplated herein does not, and the consummation of the
transactions contemplated hereby and thereby will not, (i) conflict with,
or result in any violation or breach of any provision of the certificates
of incorporation or bylaws of the Company or any of its Subsidiaries, (ii)
result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default or conflict with (or give rise to a
right of termination, amendment, cancellation or acceleration of any
obligation or loss of any benefit) or require any consent or notice to any
person, under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound, (iii)
conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their
properties or assets or (iv) result in the imposition of any Lien (except
the claims, agreements, limitations on voting rights or transfer and other
encumbrances contemplated by this Agreement) against any of the properties
or assets of the Company or any of its Subsidiaries.
(e) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal, county or local government, any instrumentality,
subdivision, court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority (each such entity shall hereinafter be referred to as a
"Governmental Entity"), is required by or with respect to the Company or
any of its Subsidiaries in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of a pre-merger notification report under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Illinois Articles of Merger with, and the
issuance of the Illinois Certificate of Merger by, the Secretary of State
of the State of Illinois in accordance with Illinois Statute, (iii) the
filing of documents to satisfy the applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state
takeover laws, (iv) the filing with the SEC of the Registration Statement
(as defined in Section 6.13(d)), (v) approval by the Illinois Public
Utility Commission and applicable state and local franchising authorities
and (vi) consents, authorizations, filings, approvals and registrations
pursuant to the foregoing or set forth in Section 3.4 of the Company
Disclosure Schedules.
Section 3.5 SEC Filings. The Company has filed all reports
and registration statements required to be filed by it with the SEC since
May 14, 1998 (collectively, the "Company SEC Reports"). As of its filing
date, and giving effect to any amendments thereof, each Company SEC Report
complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act, as the case may be. As of its filing date,
and giving effect to any amendments thereof, each Company SEC Report filed
pursuant to the Exchange Act did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which
they were made, not misleading. Each Company SEC Report that is a
registration statement, as amended or supplemented, if applicable, filed
pursuant to the Securities Act, as of the date of such registration
statement or amendment became effective, did not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading.
Section 3.6 Financial Statements. Each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Company SEC Reports (the "Financial Statements") complied
as to form in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect
thereto, had been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case
of the unaudited financial statements contained therein (the "Interim
Financial Statements"), as permitted by Form 10-Q or the Exchange Act
regulations promulgated by the SEC), and each fairly presented the
consolidated financial position of the Company and its consolidated
Subsidiaries in all material respects as at the respective dates thereof
and the consolidated results of its operations and cash flows for the
periods indicated in accordance with GAAP (subject, in the case of the
Interim Financial Statements, to normal audit adjustments which were not
and are not expected, individually or in the aggregate, to be material in
amount).
Section 3.7 Absence of Undisclosed Liabilities. The Company
and its Subsidiaries do not have any liabilities or obligations of any
nature, whether accrued or contingent (whether or not required to be
reflected in financial statements in accordance with GAAP), and whether due
or to become due, and there is no existing condition or situation which
could reasonably be expected to result in any such liabilities or
obligations other than (i) liabilities reflected in the consolidated
balance sheet of the Company dated as of September 30, 1999 (the "Company
Balance Sheet"); (ii) normal or recurring immaterial liabilities incurred
since September 30, 1999 in the ordinary course of business consistent with
past practices; and (iii) liabilities set forth in Section 3.7 of the
Company Disclosure Schedules.
Section 3.8 Absence of Certain Changes or Events. Since the
date of the Company Balance Sheet, the Company and its Subsidiaries have
conducted their businesses in the ordinary course, in a manner consistent
with past practice, and there has not been: (i) any event, occurrence or
development of a state of circumstances or facts which has had or could
reasonably be expected to have a Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution
with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or any of its
Subsidiaries; (iii) any amendment of any term of any outstanding security
of the Company or any of its Subsidiaries; (iv) any incurrence, assumption
or guarantee by the Company (other than guarantees of its Subsidiaries'
obligations) or any of its Subsidiaries (other than guarantees of their
Subsidiaries' obligations) of any indebtedness for borrowed money; (v) any
creation or assumption by the Company or any of its Subsidiaries of any
Lien (except as contemplated by this Agreement) on any asset; (vi) any
making of any loan, advance or capital contributions to or investment in
any person other than loans, advances or capital contributions to or
investments in wholly owned Subsidiaries made in the ordinary course of
business consistent with past practices; (vii) any condemnation, seizure,
damage, destruction or other casualty loss (whether or not covered by
insurance) affecting the business or assets of the Company or any of its
Subsidiaries; (viii) any transaction or commitment made, or any contract or
agreement entered into, amended or terminated by the Company or any of its
Subsidiaries or any relinquishment by the Company or any Subsidiary of any
contract or other right, in either case, material to the Company and its
Subsidiaries taken as a whole; (ix) any change in any method of accounting
or accounting practice by the Company or any of its Subsidiaries; (x) any
(A) grant of any severance or termination pay to any director, officer or
employee of the Company or any of its Subsidiaries, (B) entering into or
renewal of any employment, deferred compensation, severance, retirement or
other similar agreement (or any amendment to any such existing agreement)
with any director, officer or employee of the Company or any of its
Subsidiaries, (C) increase in benefits payable under any existing severance
or termination pay policies or employment agreements, or (D) except in the
ordinary course of business consistent with past practice, increase in
compensation, bonus or other benefits payable to directors, officers or
employees of the Company or any of its Subsidiaries; (xi) any labor
dispute, other than routine individual grievances, or any activity or
proceeding by a labor union or representative thereof to organize any
employees of the Company or any of its Subsidiaries, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to
such employees; (xii) any capital expenditure, or commitment for a capital
expenditure, for additions or improvements to property, plant and equipment
in excess of $500,000, individually or $1,000,000 in the aggregate other
than expenditures for planned build out of the Company's network that are
in accordance with the budget agreed to between Parent and the Company;
(xiii) except for capital expenditures and commitments referred to in
subsection (xii) above, any acquisition or disposition of any material
assets or properties or any Intellectual Property (as defined in Section
3.11) in one or more transactions, or any commitment in respect thereof;
(xiv) any express or deemed election for Tax (as defined below) purposes or
any offer to settle or compromise or any settlement or compromise of any
liability with respect to Taxes (as defined below); (xv) any offers to
existing Subscribers (as defined in Section 3.19(i)) for renewal at rates
below the standard rates charged by the Company and its Subsidiaries; or
(xvi) any Outage (as defined below). As used herein, "Outage" means any
complete loss of any service to any System, including but not limited to
any complete loss of network access, telephone, video, audio, Internet,
data, bandwidth access, mail, web or other services.
Section 3.9 Taxes.
(a) (i) The Company and each of its Subsidiaries have duly and
timely filed (or there have been duly and timely filed on its behalf), or a
valid extension of time to file has been obtained, with the appropriate
governmental authorities all Tax Returns (as hereinafter defined) required
to be filed by it and all such Tax Returns are true, correct and complete
in all material respects, and (ii) all Taxes for which the Company or any
Subsidiary is or may be liable (whether or not shown on any Tax Return) in
respect of periods (or portions thereof) ending on or before the Closing
Date have been timely paid, or will be timely paid, or have been provided
for on the Financial Statements and Interim Financial Statements in
accordance with GAAP. With respect to any period (or portion thereof)
through the Closing Date for which Taxes are not yet due or owing, the
Company and each of its Subsidiaries have established due and sufficient
reserves for the payments of such Taxes in accordance with generally
accepted accounting principles, and such current reserves through the
Closing Date are duly and fully provided for in the Financial Statements
and Interim Financial Statements.
(b) No deficiencies for Taxes have been claimed, proposed or
assessed by any taxing or other governmental authority against the Company
or any of its Subsidiaries, and none of the Company shareholders or the
Company or any Subsidiary has received any notice, or otherwise has any
knowledge, of any potential claim, proposal or assessment against the
Company or any of its Subsidiaries for any such deficiency for Taxes.
There are no pending, or to the best of the Company's or any Subsidiary's
knowledge, threatened audits, investigations or claims for or relating to
any liability in respect of Taxes, and there are no matters under
discussion between the Company or any Subsidiary on the one hand and any
governmental authority on the other hand with respect to Taxes that, in the
reasonable judgment of the Company shareholders, the Company or any of its
Subsidiaries are likely to result in a material additional liability of the
Company or any of its Subsidiaries for Taxes.
(c) There are no liens for Taxes upon any property or assets of
the Company or any of its Subsidiaries, except for liens for Taxes not yet
due and payable, and for which adequate reserves have been provided for on
the Financial Statements and Interim Financial Statements in accordance
with GAAP.
(d) Each of the Company and each of its Subsidiaries has duly
and timely withheld, collected and paid to the proper governmental
authority all Taxes required to have been withheld, collected or paid.
(e) No claim has ever been made to the Company or any Subsidiary
by an authority in a jurisdiction where the Company or any Subsidiary has
not filed Tax Returns that the Company or any Subsidiary is or may be
subject to taxation by that jurisdiction.
(f) Neither the Company nor any of its Subsidiaries has waived
any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
(g) There is no contract, plan or arrangement (written or
otherwise) covering any current or former employee or independent
contractor of the Company or any of its Subsidiaries that, individually or
in the aggregate, could give rise to the payment of any amount that will
not be deductible by the Company or any of its Subsidiaries under Section
280G of the Code.
(h) Other than an affiliated group (as defined under Section
1504 of the Code) of which the common parent was the Company, neither the
Company nor any of its Subsidiaries has (i) been a member of an affiliated
group or (ii) any liability for Taxes of any person (other than the Company
or any of its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
(i) No power of attorney that is currently in force has been
granted by the Company or any of its Subsidiaries with respect to any
matters relating to Taxes.
(j) There are no tax sharing agreements or other similar
arrangements with respect to or involving the Company or any of its
Subsidiaries.
(k) Neither the Company nor any of its Subsidiaries is, and
during the five-year period ending on the Closing Date has been, a "United
States Real Property Holding Corporation," as such term is defined in
Section 897(c) of the Code or the Treasury Regulations promulgated
thereunder.
(l) "Tax" or "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including all net income, gross income,
gross receipts, excise, stamp, real or personal property, ad valorem,
sales, withholding, estimated, social security, employment, unemployment,
occupation, use, service, service use, license, net worth, payroll,
franchise, environmental, severance, transfer, recording, escheat, or other
taxes, duties, assessments, or charges, imposed by any governmental
authority and any interest, penalties, or additions to tax attributable
thereto. "Tax Return" shall mean any report, return, document,
declaration, information, return or filing (including any related or
supporting information) filed or required to be filed with respect to
Taxes.
Section 3.10 Real Properties; Title to and Condition of Assets.
(a) Neither the Company nor any Subsidiary of the Company now
owns or at any time in the past has owned any fee interest in fee estates.
(b) Section 3.10(b) of the Company Disclosure Schedules contains
a complete and correct list of all Real Property leased, subleased,
licensed, used or occupied by the Company and each of its Subsidiaries
pursuant to the Leases ("Leased Real Property") setting forth information
sufficient to identify specifically such Leased Real Property and material
terms of the Leases with respect thereto. For purposes of this Agreement,
"Leases" means the Real Property leases, subleases, licenses and use or
occupancy agreements pursuant to which the Company or any of its
Subsidiaries is the lessee, sublessee, licensee, user or occupant of Real
Property, or interests therein with lease payments in excess of $1,000 per
month. Each Lease grants the lessee under the Lease the right to use and
occupy the premises and rights demised thereunder in accordance with the
terms thereof, free and clear of any Liens, other than (i) Liens for
current Taxes, assessments and other governmental charges not yet due and
payable or that may subsequently be paid without penalty or that are being
contested in good faith by appropriate proceedings, and (ii) matters set
forth in Section 3.10(b) of the Company Disclosure Schedules (collectively,
"Permitted Liens"). The Company and its Subsidiaries have good and valid
title to the leasehold estate or other interest created under its
respective Leases free and clear of any Liens other than Permitted Liens
and except as otherwise provided in the Leases. In the case of easements,
rights of access, rights-of-way, licenses and other interests included in
the Real Property, the Company and its Subsidiaries have such title or
other interest as is necessary to permit the use and enjoyment of such
properties substantially in the manner such properties are used and are
contemplated to be used.
(c) The Leased Real Property constitutes all the leasehold and
other interests in Real Property held by the Company and its Subsidiaries,
and constitutes all of the leasehold and other interests in Real Property
necessary for the conduct of, or otherwise material to, the business of the
Company and its Subsidiaries as it is Conducted, except for any leasehold
or other interest acquired or disposed of in the ordinary course of
business after the date hereof.
(d) The Real Property has been maintained in compliance with (i)
all applicable laws, treaties, statutes, ordinances, codes, rules or
regulations of Governmental Entities, including, without limitation, local
zoning and subdivision ordinances ("Laws"), (ii) all applicable judgments,
decrees, orders, writs, awards, injunctions or determinations of an
arbitrator or court or other Governmental Entity ("Orders") and (iii) all
applicable Licenses (as defined in Section 3.22(a)), except, in each case,
where the failure to be in compliance would not have, individually or in
the aggregate, a Material Adverse Effect. To the knowledge of the Company
and its Subsidiaries, none of the Real Property is subject to any decree or
order of any Governmental Entity to be sold or is being condemned,
expropriated or otherwise taken by any Governmental Entity.
(e) As used herein, "Real Property" means all the leasehold and
fee simple interests in all fee estates, and all buildings, fixtures, and
all other improvements located thereon (including, without limitation,
towers), leasehold interests in real estate, private easements, private
rights to access, private rights-of-way, and other real property interests
including, without limitation, head-end sites which are owned, leased or
used by the Company and its Subsidiaries in the conduct of their business
or operation of the Systems.
(f) The Company and its Subsidiaries have good and marketable
title to, or valid leasehold or other interests in, and possession or valid
use of, all of their respective assets and properties, including without
limitation the Systems (as defined in Section 3.19), free and clear of all
Liens. Such assets and properties are in good operating condition and
repair, ordinary wear and tear excepted, and will permit the Company and
its Subsidiaries to comply with the material terms of their current
Franchises (as defined in Section 3.22(a), but excluding franchises applied
for but not yet awarded). Such assets and properties constitute all
property and rights, real and personal, tangible and intangible, necessary
or required to operate the Systems and Conduct the business of the Company
and its Subsidiaries.
Section 3.11 Intellectual Property. The Company and its
Subsidiaries own or have a valid license to use each trademark, service
mark, trade name, invention, patent, trade secret, copyright, know-how
(including any registrations or applications for registration of any of the
foregoing) or any other similar type of proprietary intellectual property
right (collectively, the "Intellectual Property") necessary to carry on its
business substantially as Conducted. Neither the Company nor any of its
Subsidiaries has received any notice of infringement of or conflict with,
and to their knowledge, there are no infringements of or conflicts with,
the rights of any person with respect to the use of any Intellectual
Property.
Section 3.12 Agreements, Contracts and Commitments. Section
3.12 of the Company Disclosure Schedules sets forth a true and complete
list of all the following arrangements, agreements, or understandings,
whether written or oral, to which the Company or any of its Subsidiaries is
a party, (i) any agreements relating to indebtedness for borrowed money
(whether incurred, assumed, guaranteed, secured by any asset or otherwise),
(ii) any agreements for the lease of personal property to or from any
person, (iii) any agreement concerning a partnership or joint venture, (iv)
any agreement concerning confidentiality or non-competition other than
those entered into in the ordinary course of business for the benefit of
the Company's vendors or potential investors, (v) any profit sharing, stock
option, stock purchase, stock appreciation, deferred compensation,
severance, or other material plan or arrangement for the benefit of the
current or former employees of the Company or any of its Subsidiaries, (vi)
any collective bargaining agreement, (vii) any agreement for the employment
or retention of any individual on a full-time, part-time, consulting, or
other basis not terminable on less than 30 days notice without penalty or
cost, (viii) any agreement under which it has advanced or loaned any amount
in excess of $1,000 to any of the employees or affiliates of the Company or
any of its Subsidiaries, (ix) any agreement providing for indemnification
of or by the Company, (x) any agreement by the Company or any of its
Subsidiaries providing products or services to any person for consideration
other than cash or receiving consideration from any person in products or
services in lieu of cash, (xi) any agreement for the purchase of materials,
software, supplies, goods, services, equipment or other assets providing
for either annual or aggregate payments by the Company and its Subsidiaries
of $100,000 or more; (xii) any sales, distribution or other similar
agreement providing for the sale by the Company or any Subsidiary of
materials, supplies, goods, services, equipment or other assets that
provides for annual or aggregate payments by the Company and its
Subsidiaries of $100,000 or more, (xiii) any agreement relating to the
acquisition or disposition of any business (whether by merger, sale of
stock, sale of assets or otherwise); (xiv) any option, license, franchise
or similar agreement; (xv) any agency, dealer, sales representative,
marketing or other similar agreement; (xvi) any agreement to provide
service to any Subscriber other than the standard dial-up service contracts
previously disclosed to Parent which individually or in the aggregate would
be material; (xvii) any formal or informal partnership arrangement with any
merchant or service or web content provider; (xviii) any agreement with any
local exchange carrier, competitive local exchange carrier, competitive
access provider or other telecommunications carrier; (xix) any collocation
or other similar agreements; (xx) any peering, transit or other agreement
with any Internet service provider, online company or similar entity; (xxi)
any pole attachment agreements; (xxii) any programming agreements; (xxiii)
any right of entry agreements; (xxiv) any bulk agreements and (xxv) any
other agreement (or group of related agreements) material to the Company or
any of its Subsidiaries or disclosed, or required to be disclosed, in the
Company SEC Reports (such contracts and agreements, the "Material
Agreements"). The Company has delivered to Parent a correct and complete
copy of each written Material Agreement and a written summary setting forth
the terms and conditions of each oral Material Agreement. Except as set
forth in Section 3.12 of the Company Disclosure Schedules, all Material
Agreements are valid, binding and enforceable in accordance with their
terms and will continue to be so on identical terms immediately following
the consummation of the transactions contemplated by this Agreement, and
neither the Company or any of its Subsidiaries are in default under any of
such agreements, nor, to the best knowledge the Company, has any event or
circumstance occurred that, with notice or lapse of time or both, would
constitute any event of default by the Company or any of its Subsidiaries.
Except as set forth in Section 3.12 of the Company Disclosure Schedules,
(i) all right of entry agreements have perpetual terms and (ii) none of the
Material Agreements contain any revenue sharing provisions and to the
extent any such agreements contain such provisions, the schedule shall
describe the revenue sharing information with respect to such agreements.
Section 3.13 Litigation.
(a) Except as set forth in Section 3.13 of the Company
Disclosure Schedules, there are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of the Company, threatened by
or against the Company or any of its Subsidiaries at law or in equity or
before or by any court, Governmental Entity or arbitrator, nor is there any
judgment, decree, injunction, rule or order of any court, Governmental
Entity or arbitrator outstanding against the Company or any of its
Subsidiaries. Neither the Company nor any of its subsidiaries is in
violation of any term of any judgment, decree, injunction or order
outstanding against it.
(b) No demands have been made on the Company or any of its
Subsidiaries by any Governmental Entity, utility, pole lessor, or other
party, which seek or could reasonably be expected to result in the
termination, modification, suspension or limitation to the rights or
obligations of the Company or any of its Subsidiaries with respect to the
Franchises, Licenses or Material Agreements.
Section 3.14 Environmental Matters.
(a) The Company and its Subsidiaries are in compliance with all
applicable Environmental Laws (as defined below) (which compliance
includes, but is not limited to, the possession by the Company and its
Subsidiaries of all permits and other governmental authorizations required
under applicable Environmental Laws, which are in full force and effect,
and compliance with the terms and conditions thereof). As of the date of
this Agreement, the Company and its Subsidiaries have not received since
January 1, 1995 any written communication, whether from a governmental
authority, citizens' group, employee or otherwise, alleging that the
Company and its Subsidiaries is not in such compliance.
(b) Except as set forth in Section 3.14 of the Company
Disclosure Schedule, there is no Environmental Claim (as defined below)
pending or, to the knowledge of the Company, threatened against the Company
or any of its Subsidiaries or against any person or entity whose liability
for any Environmental Claim the Company or any of its Subsidiaries has or
may have retained or assumed either contractually or by operation of law.
(c) There have been (a) no Releases (as defined below) of
Hazardous Materials (as defined below) at any of the Real Property or (b)
to the knowledge of the Company, at any other location that could have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole.
(d) Except as set forth in Section 3.14 of the Company
Disclosure Schedules, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the Release or presence of any Hazardous Material, which could
form the basis of any Environmental Claim against the Company or any of its
Subsidiaries, or to the knowledge of the Company, against any person or
entity whose liability for any Environmental Claim the Company or any of
its Subsidiaries has or may have retained or assumed either contractually
or by operation of law which could have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole.
(e) As used herein, (i) "Environmental Claim" means any claim,
action, cause of action, investigation or notice (written or oral) by any
person or entity alleging any actual or potential liability arising out of,
based on or resulting from (a) the presence or Release of any Hazardous
Materials at any location, whether or not owned or operated by the Company,
or (b) circumstances forming the basis of any violation of any
Environmental Law, (ii) "Environmental Laws" means all federal, state,
local and foreign laws and regulations relating to pollution, protection of
human health or the environment, including, without limitation, those
relating to Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, transport or handling of Hazardous Materials, (iii)
"Hazardous Materials" means all substances defined as Hazardous Substances,
Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5, or defined as
such by, or regulated as such under, any Environmental Law and (iv)
"Release" means any release, spill, emission, discharge, leaking, pumping,
pouring, dumping, injection, deposit, disposal, dispersal, leaching or
migration of Hazardous Materials into the environment (including, without
limitation, ambient air, surface water, groundwater and surface or
subsurface strata).
Section 3.15 Transactions with Affiliates. Neither the Company
nor any of its Subsidiaries is involved with any of its officers,
directors, affiliates, employees or shareholders in any contract, loan,
commitment, transaction or in any other situation which may generally be
characterized as a "conflict of interest," including, without limitation,
any direct or indirect interest in the business of competitors, suppliers
or customers of the Company or any of its Subsidiaries.
Section 3.16 Employee Benefit Plans.
(a) Section 3.16 of the Company Disclosure Schedules contains a
true and complete list of, (i) each deferred compensation and each bonus or
other incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; (ii) each severance
or termination pay, medical, surgical, hospitalization, life insurance and
other "welfare" plan, fund or program (within the meaning of Section 3(1)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")); (iii) each profit-sharing, stock bonus or other "pension" plan,
fund or program (within the meaning of Section 3(2) of ERISA); (iv) each
employment, termination or severance agreement; and (v) each other employee
benefit plan, fund, program, agreement or arrangement, other than the Bonus
Pool as defined in Section 6.17, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by the
Company or by any trade or business, whether or not incorporated, that
together with the Company would be deemed a "single employer" within the
meaning of Section 4001(b) of ERISA (an "ERISA Affiliate"), or to which the
Company or an ERISA Affiliate is party, whether written or oral, for the
benefit of any employee or former employee of the Company or any of its
Subsidiaries (collectively, the "Plans"). No Plan is subject to Section
302 or Title IV of ERISA or Section 412 of the Code. Neither the Company,
any of its Subsidiaries nor any ERISA Affiliate has any commitment or
formal plan, whether legally binding or not, to create any additional
employee benefit plan or modify or change any existing Plan (other than a
modification or change required by applicable Laws) that would affect any
employee or former employee of the Company or any of its Subsidiaries.
(b) With respect to each Plan, the Company has heretofore
delivered or made available to Parent true and complete copies of each of
the following documents: (i) a copy of the Plan and any amendments thereto
(or if the Plan is not a written Plan, a description thereof); (ii) a copy
of the two most recent annual reports and actuarial reports, if required
under ERISA, and the most recent report prepared with respect thereto in
accordance with Statement of Financial Accounting Standards No. 87; (iii) a
copy of the most recent Summary Plan Description required under ERISA with
respect thereto; (iv) if the Plan is funded through a trust or any third
party funding vehicle, a copy of the trust or other funding agreement and
the latest financial statements thereof; and (v) the most recent
determination letter received from the IRS with respect to each Plan
intended to qualify under Section 401 of the Code.
(c) No liability under Title IV or Section 302 of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to the
Company or any ERISA Affiliate of incurring any such liability, other than
liability for premiums due to the Pension Benefit Guaranty Corporation
(which premiums have been paid when due).
(d) All contributions required to be made with respect to any
Plan on or prior to the Effective Time have been timely made or are
reflected on the Company's balance sheet.
(e) Neither the Company nor any of its Subsidiaries, any Plan,
any trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which the Company or any of its
Subsidiaries, any Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any Plan or any such trust could be
subject to either a civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the
Code.
(f) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code. There are no pending or, to the knowledge
of the Company, threatened or anticipated claims by or on behalf of any
Plan, by any employee or beneficiary covered under any such Plan, or
otherwise involving any such Plan (other than routine claims for benefits).
(g) Each Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code. Each
Plan intended to satisfy the requirements of Section 501(c)(9) of the Code
has satisfied such requirements.
(h) No Plan provides medical, surgical, hospitalization, death
or similar benefits (whether or not insured) for employees or former
employees of the Company or any of its Subsidiaries for periods extending
beyond their retirement or other termination of service, other than (i)
coverage mandated by applicable law, (ii) death benefits under any "pension
plan," or (iii) benefits the full cost of which is borne by the current or
former employee (or his beneficiary). No condition exists that would
prevent the sponsor of any Plan providing health or medical benefits in
respect of any active employee of the Company or any of its Subsidiaries
from amending or terminating such Plan.
(i) No amounts payable under the Plans will fail to be
deductible for federal income tax purposes by virtue of Section 162(m) or
280G of the Code.
(j) Except as expressly provided in this Agreement or disclosed
in Section 3.16 of the Company Disclosure Schedule, the consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with another event, (i) entitle any current or former employee
or officer of the Company or any ERISA Affiliate to severance pay,
unemployment compensation or any other payment or (ii) accelerate the time
of payment or vesting, or increase the amount of compensation due any such
employee or officer.
Section 3.17 Labor Matters. Except as set forth in Section
3.17 of the Company Disclosure Schedules, (i) the Company and its
Subsidiaries are not a party to or bound by any collective bargaining
agreement or other labor union contract applicable to persons employed by
the Company, nor does the Company know of any activities or proceedings on
behalf of or by any labor union to organize any such employees, (ii) there
are no unfair labor practice charges or complaints, or any current union
representation questions, involving employees or former employees of the
Company or any of its Subsidiaries pending against the Company or any of
its Subsidiaries before the National Labor Relations Board or similar
foreign entity and (iii) there is no labor strike, lockout, organized
slowdown or organized work stoppage in effect or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries.
Section 3.18 Compliance with Laws; Regulatory Approvals.
(a) No Violation of Law. The Company and its Subsidiaries are
in compliance, and have conducted their respective businesses and operated
the Systems in accordance, with (and, to the knowledge of the Company, are
not under investigation with respect to and have not been threatened in
writing to be charged with or given notice that the continued operation of
any business or assets does or will violate or conflict with), all
applicable Laws and Orders and the Company and its Subsidiaries are not in
default of, or in violation with respect to, any Order. The Company and
its Subsidiaries hold all Licenses and Franchises and all certificates,
consents, permits, qualifications and authorizations from all Governmental
Entities necessary for the lawful conduct of the business and operations of
the Systems. Except as set forth in Section 3.18 of the Company Disclosure
Schedules, each of the Company and its Subsidiaries has all requisite
authority from federal, state, local or municipal authorities to hold
itself out as a provider of, and to provide, telecommunications services
and to Conduct the business and operations of the Systems, including local
exchange telephone and interexchange toll services, Internet access, or any
other telecommunications services offered by the Company, and whether
offered on facilities within its own or other private rights-of-way or on
public rights-of-way. The Company has timely filed all required tariffs,
reports, or other information required for the conduct of its
telecommunications business. The Company's tariffs are in effect and no
action is pending or, to the knowledge of the Company, threatened
challenging the lawfulness of the Company's operations or services or any
element of such operations or services. Except as set forth in Section
3.18 of the Company Disclosure Schedules, (i) all television stations
carried by the cable systems are carried either pursuant to retransmission
consent agreements or must-carry elections (or must-carry defaults) (which
Schedule includes a description of the basis for the exception) and (ii)
the Company has delivered or made available to Parent full and complete
copies of all retransmission consent agreements. For each commercial
television station carried on a System that has elected must-carry status,
but that is not being carried because of signal quality problems or
potential copyright liability, Section 3.18 of the Company Disclosure
Schedules lists the call sign of the station and the reason for non-
carriage. Except as set forth in Section 3.18 of the Company Disclosure
Schedules, there are no requests by any television station which asserts
that it is entitled to must-carry status seeking carriage on any System
which the Company or any of its Subsidiaries has denied or refused to honor
or which is the subject of a complaint filed with the FCC.
(b) Licensing. The Company and its Subsidiaries are permitted
under all applicable Franchises, Licenses and rules, regulations and orders
of the Federal Communications Commission ("FCC"), all applicable state,
local or municipal laws or regulations to distribute the transmissions
(whether television, satellite, radio or otherwise) of video programming or
other information that they make available to Subscribers (the "Signals")
and to use all carrier frequencies generated by the operations of the
Systems. The Company and its Subsidiaries are licensed to operate all the
facilities required by law to be licensed, including, without limitation,
any business radio and any cable television relay service system being
operated as part of the Systems. Other than requests for network
non-duplication and syndicated exclusivity, and sports black-out
protection, neither the Company nor any of its Subsidiaries has received
any written requests from the FCC, the United States Copyright Office or
any other person challenging or questioning the right of operation of the
Systems and of any FCC-licensed or registered facility used in conjunction
with the Company and its Subsidiaries' operation of the Systems. The
Company and its Subsidiaries have not violated any Laws or any duty or
obligation with regard to protecting the privacy rights of any past or
present Subscribers. Except as set forth in Section 3.18(b)(ii) of the
Company Disclosure Schedules, neither the Company nor any of its
Subsidiaries has made or is bound by any commitments to any state,
municipal, local or other governmental commission, agency or body with
respect to the operation and construction of their respective systems which
are not fully reflected in the Franchises or Licenses.
(c) Pole Attachment Agreements. Each of the Company and its
Subsidiaries (i) has complied in all material respects with the terms and
conditions of all pole attachment agreements to which it is a party
(including any requirements for notifications, filing, reporting, posting
and maintaining logs and records) and (ii) has not performed any act or
failed to perform any act, the doing of which or failure to do so, would
invalidate or impair in any material respect its rights under the pole
attachment agreements. There is no pending claim that operations by the
Company or any of its Subsidiaries pursuant to any pole attachment
agreement have been improperly conducted or maintained in any material
respect. There is no action, suit or proceeding pending, or to the
knowledge of the Company, threatened, to terminate, suspend or modify in
any material respect any pole attachment agreement.
(d) Programming Agreements. Each of the Company and its
Subsidiaries (i) has complied in all material respects with the terms and
conditions of the programming agreements to which it is a party (including
any requirements for notifications, filing, reporting, posting and
maintaining logs and records) and (ii) has not performed any act or failed
to perform any act, the doing of which or the failure to do, would
invalidate or impair in any material respect its rights under the
programming agreements. Except as set forth in Section 3.18(d) of the
Company Disclosure Schedules, no consents, permits or approvals of, or
notice to, or declaration, filing or registration with, any Governmental
Entity or any other person under the Franchises, Licenses, Material
Agreements or other agreement involving the Company or any of its
Subsidiaries or under any Law or otherwise is required in connection with
the execution, delivery or performance of any programming agreement.
Except as set forth in Section 3.18(d) of the Company Disclosure Schedules,
no material programming agreement expires or requires renewal or other
material modification within two years of the date of this Agreement.
Except as set forth in Section 3.18(d) of the Company Disclosure Schedules,
there is no pending claim that operations by the Company or any of its
Subsidiaries pursuant to any programming agreement have been improperly
conducted or maintained in any material respect. There is no action, suit
or proceeding pending, or to the knowledge of the Company, threatened, to
terminate, suspend or modify in any material respect any programming
agreement.
(e) Cable Act. The Company and its Subsidiaries are operating
the Systems in material compliance with the Franchises, the Copyright Act,
the Cable Act, the provisions of the Communications Act of 1934, as
amended, 47 U.S.C. section151 et seq. and the rules and regulations
promulgated thereunder ("Communications Act"), as such Laws apply to the
Systems, including those relating to signal carriage, syndicated
exclusivity, network non-duplication, sports black-out, must-carry and
retransmission consent. No written notice or demands, and to the knowledge
of the Company and its Subsidiaries, no oral notice or demands, have been
received from any television station or from any other person claiming to
have a right, or objecting to or challenging the right of the Systems, to
carry or deliver any signal, or challenging the channel position on which
any television station is carried. The Company and its Subsidiaries have
used reasonable good faith efforts to establish rates charged to
Subscribers that are or were allowable under the Cable Act and any
authoritative interpretation thereof now or then in effect, whether or not
such rates are or were subject to regulation at that date by any
Governmental Entity, including any local franchising authority and/or the
FCC, unless such rates were not subject to regulation pursuant to a
specific exemption from rate regulation contained in the Cable Act, other
than the failure of any franchising authority to have been certified to
regulate rates. The Company and its Subsidiaries have filed complete and
correct reports and filings required to be filed pursuant to the Cable Act
or FCC rules or regulations with respect to the Systems, including but not
limited to equal opportunity reporting in accordance with Section 634 of
the Cable Act. No System is rate-regulated under any Law. A request for
renewal has been timely filed under Section 626(a) of the Cable Act with
the proper Governmental Entity with respect to each Franchise expiring
within 36 months of the date of this Agreement. Neither the Company nor
any of its Subsidiaries have received any written notice or, to the
knowledge of the Company and its Subsidiaries, any oral notice from any
Governmental Entity with respect to the intention to enforce customer
service standards pursuant to the Cable Act, and neither the Company nor
any of its Subsidiaries have agreed with any Governmental Entity to
establish customer service standards that exceed the standards in the Cable
Act. Except as set forth in Section 3.18(e) of the Company Disclosure
Schedules, there are no requests by any television station that asserts
must-carry status seeking carriage on any System that the Company or any of
its Subsidiaries has denied or refused to honor or that is the subject of a
complaint filed with the FCC. For the purposes of this Agreement, "Cable
Act" means Title VI of the Communications Act of 1934, as amended, 47
U.S.C. section151 et seq., and all other provisions of the Cable
Communications Policy Act of 1984, Pub. L. No. 98-549, the Cable
Television Consumer Protection and Competition Act of 1992, Pub. L. No.
102-385, and the provisions of the Telecommunications Act of 1996 amending
Title VI of the Communications Act, as such statutes may be amended from
time to time, and the rules and regulations promulgated thereunder.
(f) CLI. The Company and its Subsidiaries have conducted all
system and microwave performance tests required by any applicable Law,
including all Cumulative Leakage Index ("CLI") related tests applicable to
the Systems. The Company and its Subsidiaries have (i) maintained
appropriate log books and other record keeping which accurately and
completely reflect in all material respects all results required to be
shown thereon, (ii) to the extent required by the rules and regulations of
the FCC, corrected any radiation leakage of the Systems required to be
corrected in connection with monitoring obligations of the Company and its
Subsidiaries under the rules and regulations of the FCC and (iii) otherwise
complied in all material respects with all applicable CLI rules and
regulations in connection with the operation of the Systems. Parent may,
with reasonable notice, review all tests and filings at offices of the
Company. Neither the Company nor any of its Subsidiaries is using any
frequency whose use is prohibited by the FAA (as defined below), Department
of Defense or any other Governmental Entity.
(g) FAA Rules and Regulations. The Systems are being operated
in all material respects in compliance with the rules and regulations of
the Federal Aviation Administration ("FAA"). Section 3.18(g) of the
Company Disclosure Schedules lists the existing towers, if any, utilized in
conjunction with the Systems. Without limiting the generality of the
foregoing, the existing towers, if any, of the Systems are obstruction-
marked and lighted in all material respects in accordance with the rules
and regulations of the FAA and FCC if so required. All required
authorizations, including, without limitation, hazard to air navigation
determinations, for any such towers have been issued by and pursuant to the
rules and regulations of the FAA. Except as set forth in Section 3.18(g)
of the Company Disclosure Schedules, neither the Company nor any of its
Subsidiaries leases space on any such towers to any third party.
(h) Copyright. The Company has deposited with the United States
Copyright Office all statements of account and other documents and
instruments, and paid all royalties, supplemental royalties, fees and other
sums to the United States Copyright Office required under the Copyright Act
with respect to the business and operations of the Systems as are required
to obtain, hold and maintain the compulsory copyright license for cable
television systems prescribed in Section 111 of the Copyright Act and has
made all payments to ASCAP and BMI required under the Copyright Act.
Neither the Company nor any of its Subsidiaries has any knowledge of any
deficiency in the amount of compulsory copyright or other fee payments made
and has not received any statement, notice or claim respecting an
underpayment or nonpayment of any compulsory copyright or other fee payment
for the Systems. Except as set forth in Section 3.18(h) of the Company
Disclosure Schedules, the Company and its Subsidiaries are in compliance
in all material respects with the Copyright Act and the rules and
regulations of the Copyright Office with respect to the operation of the
Systems. The Company and its Subsidiaries are entitled to hold and do hold
the compulsory copyright license described in Section 111 of the Copyright
Act, which compulsory copyright license is in full force and effect and has
not been revoked, canceled, encumbered or adversely affected in any manner.
Section 3.19 Systems Information. Section 3.19 of the Company
Disclosure Schedules sets forth a complete and correct description of the
following applicable information with respect to each System operated by
the Company and its Subsidiaries as of the date hereof (unless a different
date is specified below or indicated in Section 3.19 of the Company
Disclosure Schedules) with paragraph references corresponding to those set
forth below. As used herein, "Systems" means the infrastructure used to
provide telephone, video, audio, Internet, data, bandwidth access and
related services, including network components, communications facilities,
computing platforms and services (including for mail, news, DNS, web,
authentication, and other services), power plants, data processing
platforms, MIS systems, DRS Network components, office automation systems
and internal LAN, network management systems:
(a) for the period ended September 30, 1999 (or such other
period or date indicated in Section 3.19 of the Company Disclosure
Schedules) a description of the services offered by each System; the rates
charged by the Company and its Subsidiaries for each; a description of any
memoranda of understanding or other agreements regarding rates; and any
other charges by the Company and its Subsidiaries for services to
Subscribers (as defined below);
(b) the channel and bandwidth capacity of the Systems;
(c) the number of off-air signals available in the community in
which each System operates;
(d) the date and amount of the last rate increase for System
service and a description of marketing programs, policies and practices;
(e) a description of any proposed rate increases and channel
changes;
(f) the approximate total number of miles of fully completed and
operational trunk and distribution cable, the approximate number of miles
of aerial plant and the approximate number of miles of underground plant of
each System as of the date hereof;
(g) all channel additions in the immediately preceding 12
months, Subscribers affected and carriage payments (such as launch revenues
or equipment support) received in the immediately preceding 12 months;
(h) the cities, towns, townships, villages, and boroughs served
by each System;
(i) the number of Subscribers (as defined below) and the number
of bulk Subscribers receiving each of the services provided by the Systems
(set forth separately with respect to each such service provided by the
Systems) and the number of homes passed and marketable homes and how such
numbers have been calculated; for purposes of this Agreement, the term
"Subscribers" means any customers of the Company or any of its
Subsidiaries, except for persons served under bulk contracts, who (i) are
currently connected to and receiving telephone, video, audio, Internet,
data, bandwidth or related services from the Systems, (ii) are being
charged or have pre-paid the Company's or Subsidiary's standard rates
(which rates are set forth in Section 3.19(a) of the Company Disclosure
Schedules) pursuant to the Company's standard form contracts previously
provided to Parent, (iii) have paid such stated rates in full for at least
one full month, (iv) are not two or more months delinquent in the payment
of any invoice from the Company or any of its Subsidiaries, (v) have not,
in the preceding two months, been given a waiver or forgiveness of service
charges (other than charges inappropriately billed), (vi) have not received
any inducements or free services to become connected to the Systems or to
receive or pay for service, (vii) have not notified the Company or any of
its Subsidiaries of their intention to cancel service (other than pursuant
to the Company's customary renewal and cancellation procedures in numbers
consistent with past history); and (viii) with respect to a hotel, motel or
other multiple dwelling unit customer which pays less per dwelling unit
than the rates charged in the relevant area by the applicable provider for
detached single family homes, such customer shall be considered to be that
number of basic Subscribers which is equal to revenues from basic service
generated by such hotel, motel or other customer for the month ending on
the relevant date (or if such date is not the end of the month, the month
ending immediately prior to such date) (without regard to non-recurring
revenues from ancillary services such as installation fees) divided by the
full rate charged to detached single family homes for such service in the
relevant area by the applicable provider;
(j) the Company's monthly churn rate for each service
(consisting of (i) cancellations of month-to-month service and long-term
subscriptions prior to expiration and (ii) non-renewal of long-term
contracts upon expiration) during each full calendar month during the
twelve calendar month period prior to the date hereof; and
(k) the amount of unearned revenue for all Subscriber contracts
with a remaining term of (i) less than or equal to 90 days, (ii) greater
than 90 days and less than or equal to one year (iii) greater than one year
and less than or equal to two years, (iv) greater than two years and less
than or equal to three years and (v) greater than three years.
Section 3.20 Outside Plant/Network; CLEC; Internet Related
Systems.
(a) Outside Plant/Network. The Company's outside plant and
network consists of six (6) main components: the switch/head-end; the
Network Operations Center (NOC); the Fiber Optic Transport Facilities; the
Transport and Campus Hubs; the local Hybrid Fiber Coax (HFC) Distribution
Center; and the RBOC collocation sites. All of the equipment, hardware, and
software necessary to operate the business is in good working condition and
has been installed in accordance with and complies with industry standards
and Bellcore standards, including all applicable safety standards,
regulatory specifications and manufacturer guidelines. The outside plant
and network is constructed using industry accepted guidelines and the
Company has secured and is in compliance with all of the right-of-ways,
pole attachments, vendor agreements and all other agreements, including,
but not limited to, interconnection agreements necessary to operate the
business. The Ameritech collocation sites have been constructed according
to Ameritech and Bellcore standards and the Company has complied with all
of the terms and conditions of the collocation agreements. The
distribution facilities of the outside plant network and systems do not
constitute a trespass, prohibited encumbrance or illegal occupation of land
of any third person. Section 3.20(a) of the Company Disclosure Schedules
contains a complete and accurate list of all third party plant, structures
and equipment used by the Company. The Company's network consists of
approximately 204,479 homes passed, approximately 87,889 marketable homes,
approximately 40 underground plant miles and approximately 143 aerial plant
miles. In addition, the Company has 547 nodes, approximately 151 miles of
activated plant, 491 right of entry buildings activated and connected to
the network and 79 bulk buildings activated and connected to the network.
Further, the Company has 38 bulk buildings under contract, 15 bulk
buildings wired, 268 right of entry buildings under contract and 41 right
of entry buildings wired.
(b) CLEC Plant/Equipment. The plant, structures equipment and
all other assets of the CLEC system of the Company and its Subsidiaries are
in good working order and repair and comply in all material respects with
applicable rules, regulations and standards regarding their intended use.
Such assets meet, in all material respects, all current industry technical
performance standards, including industry fiber optic standards, for a
system of its particular design. All of the CLEC equipment, hardware,
software, switch, transmission systems and all other equipment is the most
recent version of equipment offered by the respective vendors. The CLEC
system physically attaches to at least two (2) tandems in the 358 LATA. The
CLEC System connects to the SS7 network for signaling and corresponding
features and functions (i.e. voice mail, caller ID etc.). The Company has
applied for and received all NXX codes and all other applicable codes in
order to function as a CLEC and interconnect to the public switch telephone
network, and the codes and all other equipment, functionality and
agreements are transferable to Parent. The Company is providing telephony
service via collocation within Ameritech's central offices and the leasing
of unbundled loops and the Company complies with all aspects of the
collocation agreement and regulations regarding the installation of
equipment within an Ameritech central office. The Company is providing
direct operator service, directory assistance and E911 services. Except as
set forth in Section 3.20(b) of the Company Disclosure Schedules, the
interconnection agreement between the Company and Ameritech and all other
agreements necessary to operate the CLEC business are in full force and
effect and are fully transferable to Parent without any required consents.
The Company and its Subsidiaries have an inventory of spare parts and other
materials relating to their CLEC business of the type, nature and amount
consistent with Company's past practices and good CLEC industry practices.
Section 3.20(b) of the Company Disclosure Schedules contains a complete and
accurate list of all third party plant, structures and equipment used by
the Company and its Subsidiaries. Except as set forth on Section 3.20(b)
of the Company Disclosure Schedules, the Company and its Subsidiaries have
all consents and approvals necessary to use the plant, structures and
equipment used by the Company and its Subsidiaries. The rates charged by
the Company for local telephone service are at least 15% below the rates
charged by Ameritech.
(c) Internet Related Systems. Except as set forth in Section
3.20(c) of the Company Disclosure Schedules, (i) all of the Internet-
related Systems, services and platform servers are running, or peaking, at
no higher than 50% of capacity, (ii) all of the Internet-related Systems'
services are replicated in a redundant manner across available platform
servers, (iii) all remote physical points of presence ("POPs") are secure,
conform to equipment manufacturers' recommended environmental parameters,
and contain a generator, battery power source, an UPS, and/or a generator-
battery source-UPS combination to provide AC and/or DC power for a minimum
of eight hours, (iv) the Subscriber blockage rate for dial-in Subscribers
is no greater than 1% of Subscriber attempts across the overall network
infrastructure, (v) the configuration diagrams provided to Parent
reasonably represent the redundant network facilities between major
backbone locations, and between remote physical POPs and major network
concentration points, (vi) the existing power plant(s) at the Company's
main location is equipped with an uninterrupted power supply with a battery
back-up of at least 8 hours, (vii) all deployed dial-in modem, modem shelf,
and corresponding technology conform to the V.90 modem standard, (viii) the
Company utilizes a DHCP, or other dynamic, IP address allocation scheme
that conforms to industry standards to support residential Subscribers, and
(ix) the Company has access to the quantity of IP addresses sufficient to
support the Company's Subscriber base as currently existing and as
currently contemplated to exist as of December 31, 2000.
Section 3.21 No Other Operators. Except as described in
Section 3.21 of the Company Disclosure Schedules, (i) each System is the
only multiple video service provider, whether by wireline (telephone or
cable) or, to the Company's knowledge, wireless (SMATV, MATV, MMDS, ITFS or
other), presently serving the communities which it serves, (ii) to the
knowledge of the Company, the entry of no other multiple channel video
service provider is presently contemplated by any person in the communities
now served by the Systems, (iii) there are no franchises or other
authorizations, other than the Franchises that have been issued with
respect to the communities served by the Systems, and (iv) no person has
any right to acquire any interest in any cable or pay television system or
assets of the Company or any of its Subsidiaries (including any right of
first refusal or similar right) upon an assignment or transfer of control
of a Franchise, other than rights of condemnation or eminent domain
afforded by Law.
Section 3.22 Franchises; Licenses.
(a) Section 3.22 of the Company Disclosure Schedules contains
(i) a true and complete list of all franchises and any amendments thereto,
new or renewal franchise applications (if any), authorizations, ordinances,
permits and agreements relating to the Systems or issued or granted by any
Governmental Entity (the "Franchises"), and (ii) all licenses,
sublicenses, permits, consents, orders, approvals, applications, grants,
concessions, franchises, authorizations, registrations, filings, waivers,
variances or clearances under any Law or with any Governmental Entity
(including the U.S. EPA, U.S. EEOC, OSHA, Federal Trade Commission, U.S.
Department of Justice, U.S. Department of Commerce, FAA, FCC and municipal
franchise authorities) including, without limitation, all domestic
satellite, business radio, CARS band and other microwave licenses, and all
authorizations and permits relating to the Systems (the "Licenses"), used
in or necessary to the Conduct of the business or operations of the Company
and its Subsidiaries or the Systems. The Company has delivered to Parent
true and complete copies of each of the Franchises and Licenses, including
any amendments thereto.
(b) Each of the Franchises and Licenses is valid, in full force
and effect, and enforceable in accordance with its terms against the
parties thereto. At Closing, Parent will acquire, through ownership of the
Company, good and marketable title to all Franchises and Licenses free and
clear of all Liens. The Company and its Subsidiaries are validly and
lawfully operating the Systems under the Franchises and Licenses and the
Company has fulfilled when due, or has taken all action necessary to enable
it to fulfill, when due, all of its obligations thereunder. There has not
occurred any default (without regard to lapse of time, the giving of
notice, the election of any person other than the Company, or any
combination thereof) by the Company nor, to the knowledge of the Company,
has there occurred any default (without regard to lapse of time, the giving
of notice, the election of the Company, or any combination thereof) by any
person other than the Company under any of the Franchises or Licenses.
Neither the Company nor, to the Company's knowledge, any other person, is
in arrears in the performance or satisfaction of its financial, documentary
service, operational or other obligations under any of the Franchises or
Licenses, or any agreements entered into pursuant thereto, including,
without limitation, the payment of all franchise and other fees to relevant
franchising authorities and no waiver or indulgence has been granted by any
of the parties thereto. There is not pending any proceeding, application,
petition, objection, pleading or other notification with any Governmental
Entity that questions the validity of any Franchise or License or which
presents a substantial risk that, if accepted or granted, would result in
the revocation, cancellation, suspension or any adverse modification of any
Franchise or License and no franchising authority has commenced, or given
notice to the Company that it intends to commence, a proceeding to revoke a
Franchise held by the Company or any of its Subsidiaries. The Franchises
and Licenses are sufficient to permit the Company and its Subsidiaries to
operate the Systems lawfully and in the manner in which they are currently
operated and intend to be operated. No franchising authority has advised
the Company or any of its Subsidiaries in writing, or otherwise notified
the Company or any of its Subsidiaries of its intention to deny renewal of
an existing Franchise held by the Company or any of its Subsidiaries. No
Governmental Entity or other third party has a right to acquire any
interest in any System upon an assignment or transfer of control of the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received, nor has notice that it will receive, from any
franchising authority, a preliminary assessment that a Franchise should not
be renewed as provided in Section 626(c)(1) of the Communications Act, nor
has the Company, any of its Subsidiaries, or any franchising authority
commenced or requested the commencement of an administrative proceeding
concerning the renewal of a Franchise as provided in Section 626(c)(1) of
the Communications Act.
Section 3.23 Bonds. Section 3.23 of the Company Disclosure
Schedules contains an accurate and complete list of all bonds (franchise,
construction, fidelity, or performance) of the Company and its Subsidiaries
which are required to be obtained by the Company or any of its Subsidiaries
and which relate in any way to the ownership or use of their assets and
properties or the operation of the Systems.
Section 3.24 Commitments. Except as described in Section 3.24
of the Company Disclosure Schedules, there are no unfulfilled binding
commitments for capital improvements which the Company or any of its
Subsidiaries are obligated to make in connection with the Systems. There
are no liabilities to Subscribers or to other users of services of the
Company and its Subsidiaries, which services are material to the business
or the Systems, except (i) with respect to deposits made by such
Subscribers or such other users and (ii) the obligation to supply services
to Subscribers in the ordinary course of business, pursuant to the
Franchises. There are no complaints by Subscribers or other users of the
services of the Company and its Subsidiaries that, individually or in the
aggregate, could materially and adversely affect the financial condition,
assets, liabilities, operations or prospects of the Systems. Except with
respect to the persons listed in Section 3.24 of the Company Disclosure
Schedules, there is no free or discounted service liability (other than as
a result of bulk service commitments) to Subscribers existing with respect
to the Systems. Except with respect to deposits for converters, encoders,
decoders and related equipment, the Company and its Subsidiaries have no
obligation or liability for the refund of monies or for the provision of
rebates to their Subscribers. Except as set forth in the Franchises, with
respect to the Systems, neither the Company nor any of its Subsidiaries has
made a commitment to any franchising entity to maintain a local office in
any location. The Company and its Subsidiaries have not made any
commitment to any of the municipalities served by the Systems to pay
franchise fees to any such municipality in excess of the amounts set forth
in the Franchises. No material restoration, repaving, repair or other work
(outside of ordinary maintenance) is required to be made by the Company and
its Subsidiaries to any street, sidewalk or abutting or adjacent area
pursuant to the requirements of any Law, Franchise, License, Material
Agreement or other understanding relating to the installation, construction
and operation of the Systems.
Section 3.25 Brokers. No broker, investment banker, financial
advisor or other person, other than Morgan Stanley Dean Witter & Co., the
fees and expenses of which will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated in this Agreement based
upon arrangements made by or on behalf of the Company. The Company has
provided Parent true and correct copies of all agreements between the
Company and Morgan Stanley Dean Witter & Co., including, without
limitations, any fee arrangements.
Section 3.26 Insurance. The Company has provided Parent with
copies of all policies of fire, liability, workmen's compensation and other
forms of insurance owned or held by the Company, all of which are listed in
Section 3.26 of the Company Disclosure Schedules, together with the
material terms thereof (including, without limitation, the premiums,
coverage and dates thereof). Except as set forth in Section 3.26 of the
Company Disclosure Schedules, such policies are in adequate amounts and
cover risks customarily insured against by businesses of the type operated
by the Company. All such policies are in full force and effect, all
premiums with respect thereto covering all periods up to and including the
Closing will have been paid, and no notice of cancellation or termination
has been received with respect to any such policy. Such policies will
remain in full force and effect through the respective dates set forth in
Section 3.26 of the Company Disclosure Schedules without the payment of
additional premiums and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. All
of such policies have been issued by reputable insurance companies actively
engaged in the insurance business. All pending claims, if any, made
against the Company that are covered by insurance have been disclosed to
and accepted by the appropriate insurance companies and, to the best
knowledge of the Company, are being defended by such insurance companies
and are described in Section 3.26 of the Company Disclosure Schedules and
no claims have been denied coverage during the last three years. During
the last three years, no policy of the Company has been cancelled by the
issuer thereof, nor have the premiums on any such policy been increased by
more than 20% over the prior period. The Company has not been refused any
insurance with respect to its assets or operations, nor has its coverage
been limited, by any insurance carrier to which it has applied for any such
insurance or with which it has carried insurance during the last three
years.
Section 3.27 Fairness Opinion. The Company has received the
opinion of Morgan Stanley & Co. Incorporated to the effect that, based
upon and subject to the considerations in its opinion, the consideration to
be received by the holders of shares of Company Common Stock and Class A
Preferred Stock in the aggregate is fair from a financial point of view to
such holders.
Section 3.28 Year 2000 Compliance.
(a) None of the computer software, computer firmware, computer
hardware (whether general or special purpose), and other similar or related
items of automated, computerized, and/or software system(s) that are used
or relied on by the Company or by any of its Subsidiaries in the conduct of
their respective businesses will malfunction, cease to function, generate
incorrect data, or provide incorrect results when processing, providing,
and/or receiving (i) date-related data into and between the twentieth and
twenty-first centuries and (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries; and
(b) None of the products and services sold, licensed, rendered,
or otherwise provided by the Company or by any of its Subsidiaries in the
conduct of their respective businesses will malfunction, cease to function,
generate incorrect data, or produce incorrect results when processing,
providing, and/or receiving (i) date-related data into and between the
twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries;
and neither the Company nor any of its Subsidiaries is or shall be subject
to claims or liabilities arising from their failure to do so; and
(c) Neither the Company nor any of its Subsidiaries has made
other representations or warranties regarding the ability of any product or
service sold, licensed, rendered or otherwise provided by the Company or by
any of its Subsidiaries in the conduct of their respective businesses to
operate without malfunction, to operate without ceasing to function, to
generate correct data, and to produce correct results when processing,
providing, and/or receiving (i) date-related data into and between the
twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
Section 3.29 Full Disclosure. The Company and its Subsidiaries
have disclosed to Parent all information material to an investment in the
Company and its Subsidiaries. This Agreement, the Company Disclosure
Schedules, and any certificate required to be delivered pursuant to this
Agreement and any document or information provided by the Company or its
representatives to Parent do not contain any misrepresentation of a
material fact by the Company or its representatives, and do not omit to
state any material fact necessary to make the statements made by them and
contained therein not misleading.
Section 3.30 Registered Securities. Neither the Company nor
any of its Subsidiaries has any securities registered, or required to be
registered, under Section 12 of the Exchange Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company:
Section 4.1 Organization. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate
power to own, lease and operate its property and to carry on its business
as Conducted, and is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which the failure to be so
qualified would have a Parent Material Adverse Effect (as defined below).
When used in connection with Parent or any of its Subsidiaries, the term
"Parent Material Adverse Effect" means any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
liabilities, condition (financial or otherwise), operations, results of
operations or prospects of Parent and its Subsidiaries taken as a whole
except for such changes, events or effects which are directly the result of
(i) the entering into or the public announcement of this Agreement or the
transactions contemplated hereby, (ii) changes in the telecommunications
industry generally or (iii) changes in general economic (excluding changes
in the capital markets), regulatory or political conditions in the United
States; provided, that, in the case of each of (i), (ii) and (iii), the
impact on Parent is proportionate to the more general impact of the change,
event or effect.
Section 4.2 Authority; No Conflict; Required Filings and
Consents.
(a) Parent and Sub have all requisite corporate power and
authority to enter into this Agreement, and Parent and Sub have all
requisite power and authority to consummate the transactions contemplated
hereby. The execution and delivery by Parent and Sub of this Agreement and
the consummation by Parent and Sub of the transactions contemplated hereby,
have been duly authorized by all necessary corporate and shareholder action
on the part of Parent and Sub. This Agreement and the other agreements
contemplated herein have been duly executed and delivered by Parent and
constitute valid and binding obligations of Parent, enforceable in
accordance with the terms hereof and thereof, except as such enforceability
may be limited by (i) bankruptcy laws and other similar laws affecting
creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by Parent and
Sub does not, and the consummation by Parent and Sub of the transactions
contemplated hereby will not, (i) conflict with, or result in any violation
or breach of any provision of the certificate of incorporation or bylaws of
Parent or Sub, or (ii) conflict with or violate any permit, concession,
agreements, instruments, or obligations, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Parent or Sub or any of their properties or assets.
(c) No consent, approval order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement, or the consummation of the
transactions contemplated hereby, except for (i) the filing of a pre-merger
notification report under the HSR Act, and, in the case of this Agreement
and certain of the transactions contemplated hereby, (ii) the filing of the
Articles of Merger with, and the issuance of the Illinois Certificate of
Merger by, the Secretary of State of the State of Illinois in accordance
with the Illinois Statute, (iii) the filing of documents to satisfy the
applicable requirements, if any, of the Exchange Act and state takeover
laws, (iv) the filing with the SEC of the Registration Statement, (v)
approval by the Illinois Public Utility Commission and applicable State and
local franchising authorities and (vi) consents, authorizations, filings,
approvals and registrations pursuant to the foregoing or set forth in the
Company Disclosure Schedules.
Section 4.3 SEC Documents. Parent has filed all required
reports, proxy statements, forms and other documents with the SEC since
December 31, 1998 (the "Parent SEC Documents"). As of their respective
dates, and giving effect to any amendments thereto, (a) the Parent SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the applicable
rules and regulations of the SEC promulgated thereunder and (b) none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
Section 4.4 Parent Common Stock Issued in the Merger. The
shares of Parent Common Stock to be issued in the Merger, in exchange for
Debentures, in respect of the Contingent Deferred Payment, if any, in
respect of the Franchise Amount, if any, and in respect of the exercise of
any Substitute Options have been duly authorized and reserved for issuance
and when issued and delivered in accordance with the terms of this
Agreement (or in the case of any Substitute Option, the applicable option
plan and agreement) will have been validly issued and will have been fully
paid and nonassessable.
Section 4.5 Litigation. There is no action, suit or
proceeding, claim, arbitration or investigation against Parent or Sub
pending or as to which Parent or Sub has received any written notice of
assertion which materially threatens the ability of Parent and Sub to
consummate the transactions contemplated hereby.
Section 4.6 Interim Operations of Sub. Sub was formed solely
for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated by this Agreement.
Section 4.7 Brokers. No broker, investment banker, financial
advisor or other person, other than Salomon Smith Barney, the fees and
expenses of which will be paid by Parent or Sub, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.
Section 4.8 Tax Matters.
(a) Neither Parent nor any person related to Parent within the
meaning of Treasury Regulation Section 1.368-1(e)(3) has a plan or
intention to reacquire any Parent Common Stock issued in the Merger.
(b) Parent has no plan or intention to acquire any Exchangeable
Preferred stock of the Company, or the Debentures, for consideration other
than Parent Common Stock.
(c) Parent has no plan or intention to liquidate the Company or
to cause the Company to merge into another corporation.
(d) Parent has no plan or intention to cause the Company to
sell, transfer or otherwise dispose of any of the Company's assets, except
for dispositions made in the ordinary course of business and transfers
described in Section 368(a)(2)(C) of the Code and the Treasury Regulations
issued thereunder.
(e) Parent has no plan or intention to sell or otherwise dispose
of any of the Company Stock.
Section 4.9 Financial Statements. Each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Parent SEC Documents (the "Parent Financial Statements")
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, had been prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited financial
statements contained therein (the "Parent Interim Financial Statements"),
as permitted by Form 10-Q or the Exchange Act regulations promulgated by
the SEC), and each fairly presented the consolidated financial position of
Parent and its consolidated Subsidiaries in all material respects as at the
respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated (subject, in the case of the Parent
Interim Financial Statements, to normal audit adjustments which were not
and are not expected, individually or in the aggregate, to be material in
amount).
Section 4.10 Absence of Undisclosed Liabilities. Parent and
its Subsidiaries do not have any liabilities or obligations of any nature,
whether accrued or contingent (whether or not required to be reflected in
financial statements in accordance with GAAP), and whether due or to become
due, and there is no existing condition or situation which could reasonably
be expected to result in any such liabilities or obligations other than (i)
liabilities reflected in the unaudited consolidated balance sheet of Parent
dated as of September 30, 1999 (the "Parent Balance Sheet"); (ii) normal or
recurring immaterial liabilities incurred since December 31, 1998 in the
ordinary course of business consistent with past practices; and (iii)
liabilities which would not individually or in the aggregate have a Parent
Material Adverse Effect.
Section 4.11 Absence of Certain Changes or Events. Since the
date of the Parent Balance Sheet, Parent and its Subsidiaries have
conducted their businesses in the ordinary course, in a manner consistent
with past practice, and there has not been any event, occurrence or
development of a state of circumstances or facts which has had or could
reasonably be expected to have a Parent Material Adverse Effect.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of the Company. Except as expressly
contemplated by this Agreement, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees as to itself and its
Subsidiaries (except to the extent that Parent shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary
course in substantially the same manner as previously conducted, to pay its
debts when due and pay (or reserve for) all Taxes due with respect to
periods ending on or before the Effective Time, subject to good faith
disputes over such debts or Taxes, to timely file (or obtain a valid or
extension of time to file) all Tax Returns due on or before the Effective
Time, to pay or perform its other obligations when due, and to use all
reasonable efforts consistent with past practices and policies to (i)
preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees
and others having business dealings with it, and (iv) keep and maintain its
respective assets and properties in normal operating condition and repair.
Without limiting the generality of the foregoing, the Company shall not
(and shall not permit any of its Subsidiaries to), without the prior
written consent of Parent:
(a) adopt or propose any change in its articles of incorporation
or bylaws;
(b) merge or consolidate with any other person or acquire a
material amount of assets of any other person;
(c) sell, lease, license or otherwise dispose of any assets or
property which are material, individually or in the aggregate, to the
business of the Company or any of its Subsidiaries except (i) pursuant to
existing contracts or commitments disclosed in writing to Parent on or
prior to the date hereof and (ii) in the ordinary course consistent with
past practice;
(d) amend, modify or terminate any agreement set forth in
Section 3.15 of the Company Disclosure Schedules, except as provided in
Section 6.11 of the Company Disclosure Schedules;
(e) make any express or deemed election for Tax purposes or any
offer to settle or compromise or any settlement or compromise of any
material liability with respect to Taxes;
(f) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of the
Company or authorize cash payments in exchange for any options granted
under any of such plans except as required by the terms of such plans or
any related agreements in effect as of the date of this Agreement;
(g) transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property
Rights other than in the ordinary course of business consistent with past
practices;
(h) issue, deliver, sell, purchase, repurchase, redeem or
otherwise acquire, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities;
(i) enter into any agreement, arrangement or understanding with
any affiliate of the Company or its Subsidiaries;
(j) relinquish any right or privilege without adequate
consideration or a reasonable business purpose;
(k) pay, discharge or otherwise satisfy any material claim,
liability or obligation except in the ordinary course of business and
consistent with past practice;
(l) enter into any agreement or arrangements with VTech; or
(m) take, or agree in writing or otherwise to take, any of the
actions described in the foregoing clauses (a) through (l) or in clauses
(i) through (xvi) of Section 3.8, or any action (or omit to take or agree
to take any action) which is reasonably likely to make any of the Company's
representations or warranties contained in this Agreement untrue or
incorrect in any respect at, or as of any time prior to, the Effective
Time.
Section 5.2 Cooperation. Subject to compliance with
applicable law, from the date hereof until the Effective Time, each of
Parent and the Company shall confer on a regular and frequent basis with
one or more representatives of the other party to report operational
matters of materiality and the general status of ongoing operations and
shall promptly provide the other party or its counsel with copies of all
filings made by such party with any Governmental Entity in connection with
this Agreement, the Merger and the transactions contemplated hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation.
(a) The Company shall immediately cease any existing discussions
or negotiations with any third parties conducted on or prior to the date
hereof with respect to any Acquisition Proposal (as defined below). From
and after the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement in accordance with its terms, the
Company shall not, directly or indirectly, through any officer, director,
employee, representative or agent, (i) solicit, initiate or encourage any
inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, share exchange,
business combination, sale of substantial assets, sale of shares of capital
stock (including without limitation pursuant to a tender or exchange offer)
or similar transaction or series of transactions involving the Company,
other than the transactions contemplated by this Agreement (any of the
foregoing inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), or (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Acquisition Proposal, or (iii) agree to, approve or
recommend any Acquisition Proposal. The Company will promptly communicate
to Parent any such inquiries or proposals regarding an Acquisition Proposal
and the terms thereof.
Section 6.2 Access to Information.
(a) Upon reasonable notice, the Company shall (and shall cause
each of its Subsidiaries to) afford (i) to the officers, employees,
independent auditors, legal counsel (including outside legal counsel) and
other representatives of Parent, reasonable access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records in order that Parent has a full
opportunity to make such investigation as it reasonably desires to make of
the Company and its Subsidiaries and (ii) to the independent auditors of
Parent, reasonable access to the audit work papers and other records of the
independent auditors of the Company and its Subsidiaries. Additionally the
Company and its Subsidiaries will permit Parent to make such reasonable
inspections of the Company and its Subsidiaries and their respective
operations during normal business hours as Parent may reasonably require
and the Company and its Subsidiaries will cause its officers and the
officers of its Subsidiaries to furnish Parent with such financial and
operating data and other information with respect to the business and
properties of the Company and its Subsidiaries as Parent may from time to
time reasonably request. During the period prior to the Effective Time,
the Company shall (and shall cause each of its Subsidiaries to) furnish
promptly to Parent (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to the requirements of federal securities laws and (ii) all other
information concerning its business, properties and personnel as Parent may
reasonably request.
(b) The parties will hold any information provided pursuant to
Section 6.2(a) in confidence in accordance with the terms and conditions of
the letter agreement dated September 21, 1999, between the Company and
Parent (the "Confidentiality Agreement"). No information or knowledge
obtained in any investigation pursuant to this Section 6.2 shall affect or
be deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to consummate
the Merger.
Section 6.3 Consents. Each of Parent and the Company shall
use all reasonable efforts to obtain all necessary consents, waivers and
approvals, and to make all necessary notifications or filings under any of
Parent's or the Company's material agreements, contracts, licenses or
leases, whether oral or written, as may be necessary or advisable to
consummate the Merger and the other transactions contemplated by this
Agreement.
Section 6.4 Public Disclosure. No press release or
announcement with respect to the Merger or this Agreement shall be issued
by the Company or Parent without the prior consent of the Company or
Parent, except as such release or announcement may be required by law, rule
or regulation.
Section 6.5 Tax-Free Reorganization. The Company's
shareholders, Parent and the Company shall use commercially reasonable
efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code. Parent shall take no action
following the Closing that would reasonably be expected to cause it not to
be so treated; provided, however, that Parent is permitted to provide funds
(i) to make payments under any Debentures and (ii) to the Company for the
payment to Shareholders who dissent to the Merger if, in either case,
Parent in its reasonable discretion determines that the Company has
insufficient funds to make such payments.
Section 6.6 Affiliate Agreements. Upon the execution of this
Agreement, the Company will provide Parent a list of those persons who are
"affiliates" of the Company, within the meaning of Rule 145 promulgated
under the Securities Act ("Rule 145"). The Company shall use its
reasonable efforts to deliver or cause to be delivered to Parent prior to
the Effective Time from each of the affiliates of the Company, an executed
Affiliates Agreement, substantially in the form attached hereto as Exhibit
D ("Affiliates Agreement"). Parent shall be entitled to place appropriate
legends on the certificates evidencing any Parent Common Stock to be
received by such affiliates of the Company pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Common Stock, consistent with the terms of
the Affiliates Agreements.
Section 6.7 Commercially Reasonable Efforts. Subject to the
terms and conditions of this Agreement, each party hereto will use all
commercially reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement; provided that Parent and its affiliates
shall not be required to agree to any consent decree or order in connection
with any objections of the Department of Justice or Federal Trade
Commission to the transactions contemplated by this Agreement.
Section 6.8 Certain Filings. The parties hereto shall
cooperate with one another (a) in determining whether any action by or in
respect of, or filing with, any governmental body, agency or official, or
authority is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and (b) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such actions,
consents, approvals or waivers.
Section 6.9 Further Assurances. At and after the Effective
Time, the officers and directors of the Surviving Corporation will be
authorized to execute and deliver, in the name and on behalf of the Company
or Sub, any documents, certificates, agreements, deeds, bills of sale,
assignments, assurances or other writings and to take and do, in the name
and on behalf of the Company or Sub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any
and all right, title and interest in, to and under any of the rights,
properties or assets of the Company acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.
Section 6.10 Notification of Certain Matters. The Company
shall give prompt notice to Parent, and Parent and Sub shall give prompt
notice to the Company, of the occurrence, or failure to occur, of any event
of which it has knowledge, which occurrence or failure to occur would be
likely to cause (a) any representation or warranty contained in this
Agreement to be untrue or inaccurate in any respect at any time from the
date of this Agreement to the Effective Time, or (b) any material failure
of the Company or Parent and Sub, as the case may be, or of any officer,
shareholder, director, employee or agent thereof, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement. The delivery of any notice pursuant to this Section
6.10 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
Section 6.11 Affiliate Transactions. Prior to the Effective
Time, the Company shall use commercially reasonable efforts to amend,
modify or terminate the transactions with affiliates set forth in Section
3.15 of the Company Disclosure Schedules in the manner specified in Section
6.11 of the Company Disclosure Schedules.
Section 6.12 Shareholders Meeting. The Company shall as
promptly as practicable duly call, give notice of, convene and hold a
meeting of its shareholders (the "Company Shareholders Meeting") in
accordance with the Illinois Statute and applicable federal securities
laws, for the purpose of voting on this Agreement and shall, through its
Board of Directors, recommend to its shareholders the approval and adoption
of this Agreement, the Merger and the other transactions contemplated
hereby. Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify or propose to withdraw or modify, in a
manner adverse to Parent, such approval or recommendation, (ii) approve or
recommend any Acquisition Proposal other than the Merger or (iii) enter
into any agreement with respect to an Acquisition Proposal other than the
Merger.
Section 6.13 Proxy Statement; Registration Statement; Board
Recommendation.
(a) As promptly as practical after the execution of this
Agreement, Parent and the Company shall prepare and Parent shall file with
the SEC the Registration Statement (as defined below). The Company and
Parent shall use all reasonable efforts to cause the Registration Statement
to become effective as soon after such filing as practicable. The Company
shall furnish Parent with all information concerning the Company and the
holders of its capital stock and shall take such other action as Parent may
reasonably request in connection with the Registration Statement and the
issuance of the shares of Parent Common Stock. If at any time prior to the
Effective Time any event or circumstance relating to the Company, Parent or
any of their respective Subsidiaries, affiliates, officers or directors
should be discovered by such party which should be set forth in an
amendment or a supplement to the Registration Statement or
Proxy/Prospectus, such party shall promptly inform the other thereof and
take appropriate action in respect thereof.
(b) The Company and Parent shall make any necessary filings with
respect to the Merger, the Debenture Offer, and the Contingent Deferred
Payment under the Securities Act and the Exchange Act and the rules and
regulations thereunder, and Parent shall use its reasonable best efforts to
take any action required to be taken under state securities or "blue sky"
laws in connection with the issuance of the shares of Parent Common Stock
in accordance with the provisions of this Agreement.
(c) The Proxy Statement shall contain the recommendation of the
Company's Board of Directors in favor of approval of this Agreement and the
transactions contemplated hereby.
(d) The information to be supplied by the Company for inclusion
in the registration statement on Form S-4 pursuant to which (i) the offer
to exchange Parent Common Stock for the Debentures shall be registered with
the SEC and (ii) shares of Parent Common Stock to be issued in the Merger
and pursuant to the Debenture Offer and in respect of the Contingent
Deferred Payment, if any, and the Franchise Amount, if any, will be
registered with the SEC (the "Registration Statement"), shall not at the
time the Registration Statement is declared effective by the SEC contain
any untrue statement of a material fact or omit to state any material fact
required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The proxy
statement (the "Proxy Statement") to be sent to the shareholders of the
Company in connection with the solicitation of votes to approve and adopt
this Agreement shall not, and the documents to be sent to the applicable
holders of securities in connection with the Notes Offer, the Notes
Solicitation, the Debenture Offer and the Debenture Solicitation (each as
defined in Section 6.16(a)) (collectively, the "Offer Documents") shall
not, (i) on the date the Proxy Statement and the Offer Documents, as
applicable, are first mailed to security holders of the Company or (ii) at
the Effective Time, contain any statement which, at such time and in light
of the circumstances under which it is made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary
in order to make the statements made therein not false or misleading or
necessary to correct any statement in any earlier communication with
respect to the solicitation of votes which has become false or misleading.
The Offer Documents will conform with all applicable requirements of the
Exchange Act.
Section 6.14 Nasdaq Listing. Parent shall use its reasonable
efforts to cause the shares of Parent Common Stock to be issued in the
Merger, in exchange for Debentures, in respect of the Contingent Deferred
Payment, if any, and the Franchise Amount, if any, to be approved for
quotation on Nasdaq, subject to official notice of issuance.
Section 6.15 Letter of Independent Auditors. The Company and
Parent shall use all reasonable efforts to cause to be delivered to the
other (i) "comfort letters" of Arthur Andersen LLP, the Company's
independent auditors, and of PriceWaterhouseCoopers llp, Parent's
independent auditors, in each case dated and delivered the date on which
the Registration Statement shall become effective and as of the Effective
Time, and addressed to the Boards of Directors of the Company and Parent,
in form and substance reasonably satisfactory to the other and customary in
scope and substance for letters delivered by independent auditors in
connection with registration statements similar to the Registration
Statement and (ii) the consent of each such auditor as to the inclusion of
such "comfort letters" and applicable financial statements in the
Registration Statement.
Section 6.16 Treatment of Company Debt and Exchangeable
Preferred.
(a) As soon as is reasonably practicable after the date hereof,
the Parent or, at Parent's election, the Company shall commence (i) (A) an
offer (the "Notes Offer") to purchase for cash all of the Company's
outstanding 12-1/4 Senior Discount Notes Due 2008 (the "Notes") coupled
with (B) a solicitation as part of the Notes Offer (the "Notes
Solicitation") of consents to the amendments to the Indenture, dated as of
February 15, 1998, with respect to the Notes (the "Notes Indenture") set
forth on Exhibit F hereto from the holders of not less than a majority in
aggregate principal amount of the Notes outstanding (the consents from such
holders, the "Requisite Note Consents") at an aggregate price for the Notes
Offer and the Notes Solicitation not greater than 101% of Accreted Value
(as defined in the Notes Indenture) and (ii) subject to the Company's
compliance with paragraph (c) below, (A) an offer to exchange all of the
13-3/4% Subordinated Exchange Debentures Due 2010 (the "Debentures") (the
"Debenture Offer") for shares of Parent Common Stock, valued at a price per
share equal to the average volume weighted trading prices of Parent Common
Stock on Nasdaq for the five trading day period ending one trading day
prior to the date of the exchange, coupled with (B) a solicitation as part
of the Debenture Offer (the "Debenture Solicitation") of consents to the
amendments to the Company's articles of incorporation and the Indenture
governing the Debentures set forth on Exhibit F hereto from the holders of
not less than a majority of the Exchangeable Preferred (or holders of not
less than a majority in aggregate principal amount of the Debentures, as
applicable) outstanding (the consents from such holders, the "Requisite
Debenture Consents") at an aggregate price not greater than 101% of the
principal amount of the Debentures plus accrued and unpaid interest to the
date of purchase. The Notes Offer, Debenture Offer, the Notes Solicitation
and the Debenture Solicitation (including the applicable amendments) shall
be conducted in accordance with all applicable rules and regulations of the
SEC and other applicable laws and shall be on terms (including the terms of
the proposed amendments) reasonably determined by Parent (including the
appointment of a dealer manager selected by Parent), provided that the
Company shall not be required to purchase the Notes, or Debentures pursuant
to the Notes Offer or the Debenture Offer, and the proposed amendments, if
approved, shall not become operative, unless Parent has consummated the
Merger. The Company agrees that promptly following the date the Requisite
Note Consents and the Requisite Debenture Consents are obtained it will
execute a supplemental indenture and an amendment to the Company's articles
of incorporation, as applicable, containing the proposed amendments that by
their terms shall become operative only upon consummation of the Merger and
the Notes Offer and the Debenture Offer.
(b) Each of Parent and the Company agrees to cooperate, and to
cause its officers, employees, counsel and accountants to cooperate, and
use its reasonable best efforts to consummate the Notes Offer, Debenture
Offer, the Notes Solicitation and the Debenture Solicitation as soon as
reasonably practicable following the date hereof, to comply in all material
respects with all laws and regulations applicable thereto, to participate
in any "road shows" or other solicitation activities relating to the
foregoing and to prepare and, if necessary, execute all other documents in
form and substance reasonably satisfactory to Parent and/or the Company, as
the case may be, as may be necessary to consummate the Notes Offer,
Debenture Offer, the Notes Solicitation and the Debenture Solicitation. If
at any time prior to the Effective Time any information relating to Parent
or the Company, or any of their respective affiliates, officers or
directors, should be discovered by Parent or the Company which should be
set forth in an amendment or supplement to the documents mailed to holders
in respect of the Notes Offer, Debenture Offer, the Notes Solicitation and
the Debenture Solicitation so that such document would not include any
misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party which discovers such
information shall promptly notify the other party hereto and, to the extent
required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall promptly be prepared and, if
required, filed with the SEC and disseminated to the holders of Notes and
the Debentures and/or the Exchangeable Preferred.
(c) The Company agrees to provide appropriate written notice to
the holders of the Exchangeable Preferred in accordance with Section 4B of
the Company's articles of incorporation such that the Exchangeable
Preferred shall be exchanged into the Debentures on February 15, 2000 in
accordance with Section 4 of the Company's articles of incorporation and on
February 15, 2000 the Company shall exchange all shares of Exchangeable
Preferred for the Debentures in an aggregate principal amount equal to the
sum of the Liquidation Preference (as defined in the Company's articles of
incorporation) plus a payment equal to accumulated and unpaid dividends
thereon to the date of the exchange (which the Company shall elect to pay
in Debentures) in accordance with Section 4 of the Company's articles of
incorporation; provided, however, that Parent and the Company shall use
their reasonable efforts to obtain consents from the holders thereof to
effect such exchange prior to February 15, 2000.
Section 6.17 Employee Matters. Prior the Closing, but
contingent thereon and following the Effective Time, Parent and the Company
shall create a bonus pool (the "Bonus Pool") having the terms and
conditions set forth on Exhibit G hereto, in which certain employees of the
Company listed on Exhibit G hereto will be entitled to participate to the
extent of their respective percentage interest listed thereon.
Section 6.18 280G Approval. Prior to the Closing, the Company
shall satisfy the approval requirements of Section 280G(b)(5)(B) of the
Code with respect to all payments to be made to disqualified individuals
(withing the meaning of Section 280G of the Code) in connection with the
transactions contemplated hereby, including, without limitation, the Bonus
Pool and no such payments shall be made unless such approval is obtained.
Section 6.19 Director and Officer Liability. Parent shall
cause the Surviving Corporation, and the Surviving Corporation hereby
agrees, to do the following:
(a) The Surviving Corporation shall from and after the Effective
Time indemnify and hold harmless the present and former officers and
directors of the Company (each an "Indemnified Person") in respect of acts
or omissions occurring at or prior to the Effective Time to the fullest
extent provided under the Company's certificate of incorporation and bylaws
in effect on the date hereof, provided that such indemnification shall be
subject to any limitation imposed from time to time by applicable law.
(b) For six (6) years after the Effective Time, the Surviving
Corporation shall use its best efforts to provide officers' and directors'
liability insurance in respect of acts or omissions occurring prior to the
Effective Time covering each such Indemnified Person currently covered by
the Company's officers' and directors' liability insurance policy on terms
with respect to coverage and amount no less favorable than those of such
policy in effect on the date hereof, provided that, in satisfying its
obligation under this Section 6.19(b), the Surviving Corporation shall not
be obligated to pay premiums in excess of 200% of the amount per annum the
Company paid in its last full fiscal year, which amount the Company has
represented to Parent as being $75,000.
(c) If the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of the Surviving Corporation, as the case may be, shall assume the
obligations set forth in this Section 6.19.
(d) These rights shall survive consummation of the Merger and
are intended to benefit, and shall be enforceable by each Indemnified
Person.
Section 6.20 Employee Benefits after the Effective Time.
During the period commencing at the Effective Time and ending on the first
anniversary thereof, Parent and/or its Subsidiaries shall use their
reasonable efforts to cause those employees of the Surviving Corporation or
any of its Subsidiaries who were employed by the Company or any of its
Subsidiaries as of the Effective Time ("Company Employees") to be eligible
to participate in employee benefit plans providing benefits no less
favorable, in the aggregate (but excluding the Key Management Performance
Plan), than the employee benefit plans that similarly situated employees of
Subsidiaries of Parent are eligible to participate. To the extent any
Company Employee participates in any employee benefit plan maintained by
Parent or its Subsidiaries after the Effective Time (a "Parent Plan"), such
Company Employee shall be credited under such Parent Plan, for all purposes
other than benefit accrual under any defined benefit retirement plan or
retiree medical plan and other than vesting under any compensation plan
(other than, except as provided herein, with respect to Substitute Options)
maintained by Parent or its Subsidiaries, with service prior to the
Effective Time with the Company and its Subsidiaries to the same extent
service with Parent and its Subsidiaries would be so credited. With
respect to the plan year in which the Effective Time occurs under any
Parent Plan providing for medical or dental benefits, Parent shall cause
the dollar amount of all expenses incurred by Company Employees and their
eligible dependents during such year to be credited for purposes of
satisfying such Parent Plan's deductible and copayment limitations for such
plan year, to the extent such expenses would have been credited under the
corresponding Plan prior to the Effective Time. The Company Employees
shall be subject to other personnel policies and practices of Parent and
its Subsidiaries in the same manner as similarly situated employees of
Subsidiaries of Parent. For purposes of this Section 6.20, "employee
benefit plan" has the meaning ascribed to such term under Section 3(3) of
ERISA.
Section 6.21 ISP Plan. Pursuant to an agreement between the
Company and the holders of options under the 21st Century Telecom Group,
Inc. 1999 ISP Stock Plan (the "1999 ISP Plan"), the Company shall cause
(and shall enter into agreements with the holders of options granted
thereunder providing for) the 1999 ISP Plan to be terminated prior to the
Closing and all of the options outstanding thereunder to be cancelled in
return for the grant, to each holder of such options, of the right to
receive a pro rata portion of the ISP Option Amount, if any, determined in
accordance with Exhibit I.
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect
the Merger. The respective obligations of each party to this Agreement to
effect the Merger shall be subject to the satisfaction prior to the Closing
Date of the following conditions:
(a) HSR Act. The waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated.
(b) Shareholder Approval. This Agreement shall have been
approved and adopted by (i) two-thirds of the outstanding shares of Company
Voting Common Stock and Class A Preferred Stock, voting together as a
class, and (ii) a majority of the outstanding shares of Class A Preferred
Stock in accordance with the applicable provisions of the Illinois Statute
and the Company's articles of incorporation.
(c) Governmental Approvals. All authorizations, consents,
orders or approvals of any Governmental Entity required to consummate the
transactions contemplated by this Agreement shall have been obtained and be
in effect.
(d) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger or
limiting or restricting Parent's conduct or operation of the business of
Parent or the Company after the Merger shall have been issued and be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, seeking any of the foregoing be
pending, nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal or prevents or
prohibits the Merger.
(e) Registration Statement. The Registration Statement shall
have been declared effective by the SEC under the Securities Act and shall
not be the subject of any stop order or proceeding by the SEC seeking a
stop order.
(f) Nasdaq Listing. The shares of Parent Common Stock to be
issued in the Merger, in exchange for Debentures, in respect of the
Contingent Deferred Payment, if any, and the Franchise Amount, if any,
shall have been approved for quotation on Nasdaq, subject to official
notice of issuance.
Section 7.2 Additional Conditions to Obligations of Parent and
Sub. The obligations of Parent and Sub to effect the Merger are subject to
the satisfaction of each of the following conditions, any of which may be
waived, in writing, exclusively by Parent and Sub:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except that to
the extent such representations and warranties expressly speak as of an
earlier date, such representations and warranties shall be true in all
respects as of such specified date) without regard to any materiality or
Material Adverse Effect exceptions or qualifications contained therein,
except for such failures to be true and correct which in the aggregate do
not, and could not reasonably be expected to, have a Material Adverse
Effect, and Parent shall have received a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer
of the Company to such effect.
(b) Performance of Obligations. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date and Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to such
effect.
(c) Material Consents. Parent shall have received or be
reasonably satisfied that it will receive, in each case in form and
substance to its reasonable satisfaction, the consents set forth in Section
7.2(c) of the Company Disclosure Schedules, and no such consent,
authorization or approval shall have been revoked.
(d) Escrow Agreement. The Escrow Agreement in the form attached
hereto as Exhibit B shall have been executed and delivered to Parent by the
Company and the Shareholder Representative.
(e) Voting and Lock-Up Agreements. A Voting and Lock-Up
Agreement in the form annexed hereto as Exhibit C shall have been executed
and delivered to Parent by the number of persons required to satisfy the
shareholder approval requirements set forth in Section 7.1(b), and each
Voting and Lock-Up Agreement and each such irrevocable proxy included
therewith shall be in full force and effect.
(f) Affiliate Agreements. An Affiliate Agreement in the form
annexed hereto as Exhibit D shall have been executed and delivered to
Parent by each director and officer and each applicable affiliate of the
Company and each Affiliate Agreement shall be in full force and effect.
(g) Employment, Consulting and Non-compete Agreements.
Employment, Consulting and Non-compete Agreements, in form and substance
reasonably satisfactory to Parent, shall have been executed and delivered
to Parent by each person set forth on Section 7.2(g) of the Company
Disclosure Schedules, and such agreements shall be in full force and
effect.
(h) Notes and Exchangeable Preferred. Holders of at least a
majority in aggregate principal amount of Notes and holders of a majority
of the Exchangeable Preferred shall have tendered and not withdrawn Notes
and Debentures pursuant to the Notes Offer and the Debenture Offer and the
Company shall have received each of the Requisite Note Consents and the
Requisite Preferred Consents and none of such consents shall have been
withdrawn, each in accordance with the provisions of Section 6.16.
(i) FIRPTA Certificate. Parent shall have received from the
Company and each of its Subsidiaries a certificate, satisfying the
provisions of Treasury Regulations Section 1.1445-2(c)(3), and otherwise in
form and substance reasonably satisfactory to Parent, certifying that an
interest in the Company or any of its Subsidiaries is not a U.S. real
property interest (a "FIRPTA Certificate"). Notwithstanding anything to
the contrary expressed or implied herein, if Company and each of its
Subsidiaries fails to provide Parent with a FIRPTA Certificate, Parent
shall be entitled to withhold the requisite amounts in accordance with
Section 1445 of the Code.
(j) Expense Certificates. Parent shall have received the
Expense Certificate, in form and substance reasonably satisfactory to
Parent.
(k) Dissenting Shares. The number of Dissenting Shares shall be
less than five percent (5%) of the issued and outstanding shares of Company
Stock.
(l) Credit Agreement. The Company shall have terminated its
Credit Agreement, dated as of August 5, 1998, including any amendments
thereto, on terms reasonably satisfactory to Parent.
(m) Waiver of Accelerated Vesting. The Company shall have
obtained consents, reasonably acceptable to Parent, from each of the
holders of Company Stock Options set forth on Section 7.2(m) of the Company
Disclosure Schedules, waiving any acceleration of vesting of such options
that may occur as a result of the consummation of the transactions
contemplated hereby, and the option plans with respect to such options
shall have been amended to provide the same, and such consents and such
amendments shall be in full force and effect.
Section 7.3 Additional Conditions to Obligations of the
Company. The obligation of the Company to effect the Merger is subject to
the satisfaction of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date (except that to the extent
such representations and warranties expressly speak as of an earlier date,
such representations and warranties shall be true in all respects as of
such specified date) without regard to any materiality or Material Adverse
Effect exceptions or qualifications contained therein, except for such
failures to be true and correct which in the aggregate do not, and could
not reasonably be expected to, have a Parent Material Adverse Effect.
(b) Performance of Obligations. Parent and Sub shall have
performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date.
(c) Tax Letter. Parent shall have executed and delivered to the
Company the letter attached hereto as Exhibit H (the "Tax Letter") or in
the event that Parent is unable to execute and deliver such Tax Letter, the
Company shall have received a written opinion of Piper Marbury Rudnick & Wolfe LLP, in form and substance reasonably satisfactory to the Company,
based on facts, representations and assumptions set forth in such opinion
that are consistent with the state of facts existing at the Effective Time,
to the effect that (i) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and (ii) each of Parent and the Company will be a party to such
reorganization. In rendering such opinion, counsel may obtain and rely
upon representations and covenants, in form and substance satisfactory to
counsel, including those contained in certificates of officers of Parent,
Sub, the Company and others.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at
any time prior to the Effective Time by:
(a) the mutual written consent of Parent and the Company;
(b) Parent in the event that any condition set forth in Section
7.1 and 7.2 hereof shall not be satisfied and shall not be reasonably
capable of being remedied by May 31, 2000; provided, that Parent shall
have given at least 15 days prior notice of such failure to be satisfied
and such condition shall not have been satisfied by the later of such date
or the expiration of such 15 day period;
(c) the Company in the event that any condition set forth in
Section 7.1 and 7.3 hereof shall not be satisfied and shall not be
reasonably capable of being remedied by May 31, 2000; provided that the
Company shall have given at least 15 days prior notice of such failure to
be satisfied and such failure to be satisfied and such condition shall not
have been satisfied by the later of such date or the expiration of such 15
day period;
(d) Parent in the event that the requisite shareholder vote
specified in Section 7.1(b) shall not have been obtained by May 31, 2000;
or
(e) Either Parent or the Company if the Closing has not occurred
by the close of business on May 31, 2000; provided, however, that no party
may terminate this Agreement pursuant to clause (b), (c) or (d) above, or
pursuant to this clause (e), if the failure of the applicable condition in
Section 7.1, 7.2 or 7.3 (as the case may be) to be satisfied or the failure
of the Closing to occur on or before the date required in this Section
8.1(e) results from the material breach by Parent in the case of a
termination by Parent, or the Company in the case of a termination by the
Company.
Section 8.2 Procedure and Effect of Termination. In the event
of termination of the Agreement by a party hereto pursuant to Section 8.1,
written notice thereof shall forthwith be given by the terminating party to
the other parties hereto, and this Agreement shall thereupon terminate and
become void and have no effect, and the transactions contemplated hereby
shall be abandoned without further action by the parties hereto, except
that the provisions of Section 6.2(b) and this Section 8.2 shall remain in
full force and effect and surviving termination of this Agreement;
provided, however, that such termination shall not relieve any party hereto
of any liability for any breach of this Agreement (other than non-willful
breaches of representations, warranties and covenants, as to which no party
shall be liable hereunder); provided, further, that in the event that
Parent and Sub shall fail to close the transactions contemplated hereby
either (i) in breach of this Agreement or (ii) by virtue of the failure of
any of the conditions set forth in Section 7.1, 7.2 or 7.3 hereof to be
satisfied, other than the conditions set forth in Section 7.1(b) hereof
(Shareholder Approval), Section 7.1(d) hereof (Injunctions) (to the extent
such action is brought or taken by any equity or debt holder of the
Company), Section 7.2(h) hereof (Notes and Exchangeable Preferred) or
Section 7.2(k) hereof (Dissenting Shares), then Parent shall make a
$25,000,000 investment (the "Investment") in the Company on the terms and
conditions substantially set forth on Exhibit E-1 hereto and pursuant to a
mutually acceptable purchase agreement, (which Parent and the Company shall
negotiate and enter into on or prior to March 31, 2000) which investment
the Company acknowledges to be a reasonable representation of its potential
damages for breach hereunder and which payment shall be the sole and
exclusive remedy by the Company for a breach of this Agreement by Parent or
Sub; provided further, Parent shall not be obligated to make any such
investment in the event that the failure to close is the result of a breach
by the Company of any of its representations, warranties or covenants
hereunder. Within 5 business days after the date hereof, Parent shall
deliver to the Company a letter from a reputable financial institution in a
form reasonably acceptable to the Company (at such time, to be set forth in
Exhibit E-2 hereto) to the effect that it will maintain a balance in
Parent's account at such financial institution sufficient to make the
Investment when due.
Section 8.3 Amendment. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. This Agreement may be amended by the parties hereto, by action
taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the
Merger by the shareholders of the Company, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders and shareholders without such further approval.
Section 8.4 Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document
delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set
forth in a written instrument signed on behalf of such party.
Section 8.5 Fees and Expenses. All fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the
Merger is consummated.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Survival. No claim for indemnification by the
shareholders under this Agreement shall be made by Parent later than one
year after the Closing; provided that if a claim or notice is given in
accordance with Article IX or Article X with respect to any representation
or warranty prior to such expiration date, the claim shall continue
indefinitely until such claim is finally resolved.
Section 9.2 Obligations of the Shareholders.
(a) From and after the Effective Time, by acceptance of the
Merger Consideration pursuant to Article II hereof, the shareholders agree,
jointly and severally, to indemnify and hold harmless the Surviving
Corporation, Parent, Sub and their respective directors, officers,
employees, affiliates, agents, successors and assigns (collectively, the
"Indemnified Parties") from and against any and all Losses (as defined
below) of any such person, directly or indirectly, as a result of, or based
upon or arising from, (i) any inaccuracy in or breach or nonperformance of
any of the representations, warranties, covenants, or agreements made by or
of the Company or any shareholder in this Agreement including in any
certificate delivered pursuant hereto without regard to any qualification
or exception with respect to materiality, Material Adverse Effect or
knowledge contained therein, (ii) any liability for Taxes for which the
Company's shareholders are obligated to indemnify the Indemnified Parties
pursuant to Article X (without duplication thereof) and (iii) any
inaccuracies in the Expense Certificate (together, the "Indemnified
Losses").
(b) The obligation of the shareholders to indemnify the
Indemnified Parties for Indemnified Losses is subject to the following
limitations: (x) the shareholders shall not be required to provide
indemnification to any Indemnified Party pursuant to Section 9.2(a)(i) or
(ii) of this Agreement unless the aggregate amount of Indemnified Losses
incurred by all Indemnified Parties pursuant to such provision exceeds
$3,500,000, and then the Indemnified Parties shall be entitled to the
indemnification for the amount in excess of $1,750,000; and (y) in no event
shall the aggregate obligation of the shareholders to indemnify the
Indemnified Parties pursuant to this Agreement exceed the sum of the
Escrowed Consideration and the Contingent Deferred Payment and in no event
shall such obligation be payable except out of the Escrowed Consideration
and the Contingent Deferred Payment. In the event that any indemnification
obligations with respect to the matters referred to above are in excess of
the Escrowed Consideration then, in addition to the rights of the
Indemnified Parties to seek indemnification with respect to such matters,
the Indemnified Parties shall have the right to reduce the amount of the
Contingent Deferred Payment, if any, by the amount of such excess.
(c) In the event that, and at such time as, the payment of any
Indemnified Losses in respect of which the shareholders are obligated
results in a reduction of Taxes actually paid by an Indemnified Party, then
the amount of Escrowed Consideration due to the Indemnified Party shall
reflect the amount in Taxes actually paid by such Indemnified Party below
the amount of Taxes that would have been paid solely but for the tax effect
of the payment by such Indemnified Party of such Loss.
(d) The amount of any Indemnified Losses for which the
Indemnified Parties are owed in accordance with this Section 9.2 shall be
reduced by the aggregate of any amounts, less any payments or out-of-pocket
expenses made by any Indemnified Party, actually recovered by such
Indemnified Party under insurance policies with respect to such Losses.
Section 9.3 Indemnification Procedures.
(a) In the event that any action, proceeding, complaint or
litigation is commenced by a third party involving a claim for which the
shareholders may be liable to a Indemnified Party hereunder (an "Asserted
Liability"), the Indemnified Party shall promptly notify the Shareholder
Representative in writing of such Asserted Liability (the "Claim Notice");
provided that no delay on the part of the Indemnified Party in giving any
such Claim Notice shall relieve the shareholders of any indemnification
obligation hereunder unless (and then solely to the extent that) the
shareholders are materially prejudiced by such delay. The Shareholder
Representative shall have sixty (60) days (or less if the nature of the
Asserted Liability requires) from its receipt of the Claim Notice (the
"Notice Period") to notify the Indemnified Party whether or not the
Shareholder Representative desires, at the shareholders' sole cost and
expense and by counsel of its own choosing, which shall be reasonably
satisfactory to the Indemnified Party, to defend against such Asserted
Liability. If the Shareholder Representative undertakes to defend against
such Asserted Liability, (i) the Shareholder Representative shall use its
commercially reasonable best efforts to defend and protect the interests of
the Indemnified Party with respect to such Asserted Liability, (ii) the
Indemnified Party, prior to or during the period in which the Shareholder
Representative assumes the defense of such matter, may take such reasonable
actions as the Indemnified Party deems necessary to preserve any and all
rights with respect to such matter, without such actions being construed as
a waiver of the Indemnified Party's rights to defense and indemnification
pursuant to this Agreement, (iii) the Shareholder Representative shall not,
without the prior written consent of the Indemnified Party, consent to any
settlement which (A) does not contain an unconditional release of the
Indemnified Party from the subject matter of the settlement, (B) imposes
any liabilities or obligations on the Indemnified Party, and (C) with
respect to any non-monetary provision of such settlement, could, in the
Indemnified Party's judgment, have a material adverse effect on the
business operations, assets, properties or prospects of the Company or the
Indemnified Party (for purposes of this clause (iii) an effect shall be
deemed "material" if it involves $100,000 or more) and (iv) in the event
that the Shareholder Representative undertakes to defend against such
Asserted Liability, unless otherwise agreed to in writing between Parent
and the Shareholder Representative, the Shareholder Representative shall be
deemed to have agreed that it will indemnify the Indemnified Party pursuant
to, and subject to the conditions and limitations set forth in, the
provisions of this Article IX. Notwithstanding the foregoing, in any
event, the Indemnified Party shall have the right to control, pay or
settle any Asserted Liability which the Shareholder Representative shall
have undertaken to defend so long as the Indemnified Party shall also
waive any right to indemnification therefor by the Shareholder
Representative. If the Shareholder Representative undertakes to defend
against such Asserted Liability, the Indemnified Party shall cooperate to
the extent reasonable (during regular business hours) with the Shareholder
Representative and its counsel in the investigation, defense and settlement
thereof. If the Indemnified Party desires to participate in any such
defense it may do so at its sole cost and expense. If the Shareholder
Representative does not undertake within the Notice Period to defend
against such Asserted Liability, then the Shareholder Representative shall
have the right to participate in any such defense at the shareholders' sole
cost and expense (out of the Escrowed Consideration), but, in such case,
the Indemnified Party shall control the investigation and defense and may
settle or take any other actions the Indemnified Party deems reasonably
advisable without in any way waiving or otherwise affecting the Indemnified
Party's rights to indemnification pursuant to this Agreement. The
Indemnified Party and the Shareholder Representative agree to make
available to each other, their counsel and other representatives, all
information and documents available to them which relate to such claim or
demand. The Indemnified Party and the Shareholder Representative and the
Company and its employees also agree to render to each other such
assistance and cooperation as may reasonably be required to ensure the
proper and adequate defense of such claim or demand.
(b) In the event that a Indemnified Party should have a claim
against the shareholders hereunder which it determines to assert, but which
does not involve a claim or demand being asserted against or sought to be
collected from it by a third party, such claim shall be resolved in the
manner described in the Escrow Agreement.
(c) The provisions of this Section 9.3 shall not apply to any of
the provisions of Article X, which shall be governed solely and exclusively
by the terms thereof.
Section 9.4 Shareholder Representative. Each shareholder, by
acceptance of Merger Consideration, shall be deemed to have designated and
appointed Edward T. Joyce with full power of substitution (the "Shareholder
Representative") as the representative of any such shareholder to perform
all such acts as are required, authorized or contemplated by this Agreement
to be performed by the shareholders (including, without limitation, any
acts, agreements, amendments or resolution of disputes related to the
Contingent Deferred Payment (including any amendments to any of the targets
and other provisions of Exhibit A hereto) and any matters referred to in
Article IX or X hereof) and hereby acknowledges that the Shareholder
Representative shall be the only person authorized to take any action so
required, authorized or contemplated by this Agreement by any shareholder.
Each shareholder is thereby deemed to have further acknowledged that the
foregoing appointment and designation shall be deemed to be coupled with an
interest and shall survive the death or incapacity of such shareholder.
Each shareholder is thereby deemed to have authorized the other parties
hereto to disregard any notice or other action taken by each shareholder
pursuant to this Agreement except for the Shareholder Representative. The
other parties hereto are and will be entitled to rely on any action so
taken or any notice given by the Shareholder Representative and are and
will be entitled and authorized to give notices only to the Shareholder
Representative for any notice contemplated by this Agreement to be given to
any such shareholder.
Section 9.5 Certain Definitions.
(a) For purposes of this Agreement, "Loss" means any action,
cost, damage, disbursement, expense, liability, loss, injury, deficiency,
penalty, diminution in value, settlement or obligation of any kind or
nature (collectively, "Claims For Losses"), including but not limited to
interest, penalties, fines, legal, accounting, and other professional fees
and expenses incurred in the investigation, collection, prosecution,
determination and defense of Claims For Losses, amounts paid in settlement,
any incidental or consequential damages and any punitive damages payable to
third parties that may be imposed on or otherwise incurred or suffered by
the specified person.
ARTICLE X
TAX MATTERS
Section 10.1 Indemnification by the Company Shareholders.
Subject to the conditions and limitations set forth in Sections 9.1 and
9.2, each of the Company's shareholders shall be liable for, and shall hold
Parent, the Surviving Corporation, each Subsidiary, and their respective
affiliates harmless from and against, (i) any and all Taxes imposed on or
with respect to the Company or any of its Subsidiaries for any taxable
period (or portion thereof) ending on or before the Closing Date (a "Pre-
Closing Period"), other than (x) Taxes incurred in the ordinary course of
business in any taxable period (or portion thereof) beginning after the
date of the Company Balance Sheet, (y) Taxes for which reserves have been
provided on the Company Balance Sheet, and (z) Taxes arising out of the
transactions contemplated by this Agreement (including, without limitation,
Section 6.16), (ii) any and all Taxes imposed on or with respect to the
Company or any of its Subsidiaries as a result of any of the Company's (or
any of its Subsidiaries') being or having been a member of any group of
companies that files or has filed a Tax Return on a consolidated, combined,
affiliated or unitary basis for any Pre-Closing Period (other than a group
the common parent of which was the Company), (iii) any and all Taxes
imposed on or with respect to the Company or any of its Subsidiaries as a
result of any breach or inaccuracy of any representation or warranty
contained in Section 3.9 or any covenant contained in this Article X
(without duplication), (iv) any and all Taxes imposed upon or with respect
to Parent, the Surviving Corporation, the Company, or any of its
Subsidiaries or any of their respective affiliates as a result of any
inaccuracy in the certificate referred to or any in Section 7.2(i), and (v)
and any and all Taxes or any other payments required to be made after the
Closing Date by the Company or any of its Subsidiaries under any Tax
sharing, indemnity, allocation or other similar agreement or arrangement in
effect at any time on or prior to the Closing Date.
Section 10.2 Allocation of Taxes.
(a) In the case of any Tax that is imposed on a periodic basis
and is payable for a period that begins on or before the Closing Date and
ends after the Closing Date, the portion of such Tax that shall be
allocable to the portion of the period ending at the end of the day on the
Closing Date shall (i) in the case of any Taxes, other than income Taxes
and Taxes based upon or related to receipts, be deemed to be in the amount
of such Taxes for the entire period, multiplied by a fraction the numerator
of which is the number of calendar days in the period ending on (and
including) the Closing Date and the denominator of which is the number of
calendar days in the entire period, and (ii) in the case of any income
Taxes and Taxes based upon or related to receipts, be deemed equal to the
amount which would be payable if the taxable year ended at the end of the
day on the Closing Date. Any refunds for such a period shall be prorated,
based upon the method employed in clause (i) or (ii) of the preceding
sentence, as applicable. Clause (i) of the second preceding sentence shall
be applied with respect to Taxes, if any, for such period relating to
capital (including net worth or long-term debt) or intangibles by reference
to the level of such items on the Closing Date.
(b) The portion of any Taxes that are imposed on a periodic
basis, payable for a period that begins on or before the Closing Date and
ends after the Closing Date and not allocable to the portion of such period
ending on the Closing Date pursuant to Section 10.3(a) shall be allocable
to the portion of the period beginning after the Closing Date.
Section 10.3 Mutual Cooperation; Contests.
(a) Mutual Cooperation. As soon as practicable, but in any
event within 30 days after either the Shareholder Representative's or
Parent's request, Parent shall deliver to the Shareholders Representative
or each of the Company's shareholders shall deliver to Parent, as the case
may be, such information and other data relating to the Tax Returns and
Taxes of the Company and each of its Subsidiaries and shall provide such
other assistance as may reasonably be requested, to cause the completion
and timely filing of all Tax Returns or to respond to audits by any taxing
authority with respect to any Tax Returns or taxable periods or to
otherwise enable each of the Company's shareholders, Parent, the Surviving
Corporation, any of the Subsidiaries or their respective affiliates to
satisfy their accounting or Tax requirements.
(b) Contests. Whenever any taxing authority asserts a claim,
makes an assessment or otherwise disputes the amount of Taxes for which the
Company shareholders are or may be liable under this Agreement, Parent
shall, if informed of such an assertion, inform the Shareholder
Representative within five (5) business days, and the Company's
shareholders shall have the right to control any resulting proceedings and
to determine whether and when to settle any such claim, assessment or
dispute to the extent such proceedings or determinations affect the amount
of Taxes for which the Company shareholders may be liable under this
Agreement; provided, that Parent shall have the right to consent, which
consent shall not be unreasonably withheld, to any settlement to the extent
such proceedings or settlement materially affect the amount of Taxes
imposed on the Company or any of its Subsidiaries for periods beginning
after the Pre-Closing Periods. Whenever any taxing authority asserts a
claim, makes an assessment or otherwise disputes the amount of Taxes for
which Parent is liable under this Agreement, Parent shall have the right to
control any resulting proceedings and to determine whether and when to
settle any such claim, assessment or dispute; provided, that the
Shareholder Representative shall have the right to consent, which consent
shall not be unreasonably withheld, to any settlement to the extent such
proceedings materially affect the amount of Taxes for which the Company
shareholders are or may be liable under this Agreement.
(c) Resolution of Disagreements Between Company Shareholders and
Parent. The resolution of disagreements between Company's shareholders and
Parent as to the amount of Taxes shall be resolved in the manner described
in the Escrow Agreement.
Section 10.4 Other Tax Agreements.
(a) Notwithstanding anything in any other agreement to the
contrary, all Tax allocation or Tax sharing agreements or similar
arrangements of any kind to which the Company or any of its Subsidiaries is
a party on or prior to the Closing Date (other than this Agreement) shall
cease and terminate as of the Closing Date.
(b) All transfer, sales, stamp, registration, excise and similar
Taxes on or with respect Merger shall be borne by the Company's
shareholders.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed), sent by nationally-recognized,
overnight courier or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540-6215
Attention: General Counsel
Telecopy: (609) 734-3830
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue (prior to January 14, 2000)
New York, New York 10022-3897
Four Times Square (after January 14, 2000)
New York, New York 10036
Attention: Howard L. Ellin, Esq.
Telecopy: (212) 735-2000
(b) if to the Company, to:
21st Century Telecom Group, Inc.
350 North Orleans, Suite 600
Chicago, IL 60654-1509
Attention: President
Telecopy: (312) 955-2111
with a copy to:
Piper Marbury Rudnick & Wolfe LLP
1200 Nineteen Street
Washington, D.C. 20036-2412
Telecopy: (202) 223-2085
Attention: Edwin M. Martin Jr., Esq.
(c) if to the Shareholder Representative, to:
Edward T. Joyce
11 South LaSalle Street, Suite 1600
Chicago, IL 60603
Attention: Edward T. Joyce
Telecopy: (312) 641-0360
Section 11.2 Interpretation; Certain Definitions.
(a) When a reference is made in this Agreement to a section,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed
to be followed by the words "without limitation." The phrase "made
available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information
is to be made available. The phrases "the date of this Agreement", "the
date hereof", and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to the date first above written. The
phrase "to the knowledge" of a person, and terms of similar import, shall
mean both the actual knowledge of a person or its executive officers and
what such person or its officers should have known after reasonable
investigation. The term "person" means an individual, corporation,
partnership, limited liability company, association, trust or other entity
or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 11.3 Counterparts. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have
been signed by each of the parties and delivered to the other parties, it
being understood that all parties need not sign the same counterpart.
Section 11.4 Entire Agreement; No Third Party Beneficiaries.
This Agreement (including the Confidentiality Agreement and other documents
and the instruments referred to herein) (a) constitutes the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter
hereof, and (b) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 11.5 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed therein, without giving
effect to laws that might otherwise govern under applicable principles of
conflicts of law, provided that any matter relating to the mechanics and
legal consequences of the Merger shall be governed by Illinois law.
Section 11.6 Jurisdiction. Except as otherwise expressly
provided in this Agreement, the parties hereto agree that any suit, action
or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in the United States District Court
for the District of Delaware or any other Delaware State court sitting in
Wilmington, Delaware and each of the parties hereby consents to the
jurisdiction of such courts (and or the appropriate appellate courts
therefrom) in any such suit, action proceeding and irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on any
party anywhere in the world, whether within or without the jurisdiction of
any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.1 shall be
deemed effective service of process on such party as provided in Section
11.1 shall be deemed effective service of process on such party.
Section 11.7 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section 11.8 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and permitted
assigns.
Section 11.9 Severability. It is the desire and intent of the
parties that the provisions of this Agreement be enforced to the fullest
extent permissible under the law and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, in the event
that any provision of this Agreement would be held in any jurisdiction to
be invalid, prohibited or unenforceable for any reason, such provision, as
to such jurisdiction, shall be ineffective, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provisions in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly
drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn,
without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
21st CENTURY TELECOM GROUP, INC. RCN CORPORATION
By: /s/ Robert J. Currey By: /s/ Zachary Julius
------------------------------ -----------------------------
Name: Robert J. Currey Name: Zachary Julius
Title: President and Chief Title: Senior Vice President
Executive Officer Corporate Development
21st HOLDING CORP.
By: /s/ Zachary Julius
-----------------------------
Name: Zachary Julius
Title: Senior Vice President
Corporate Development
The undersigned hereby acknowledges his appointment as the Shareholder
Representative and his willingness to fulfill the duties of the Shareholder
Representative as contemplated by this Agreement.
SHAREHOLDER REPRESENTATIVE
By: /s/ Edward T. Joyce
------------------------------
Name: Edward T. Joyce
Agreement and Plan of Merger - RCN Corp. and 21st Century Telecom Group Inc.
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