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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
OCTOBER 22, 1997
SMARTALK TELESERVICES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or jurisdiction of incorporation)
0-21579 95-4502740
(Commission File Number) (IRS Employer Identification No.)
1640 South Sepulveda Boulevard, Suite 500, Los Angeles, CA 90025
(Address of principal executive offices) (Zip Code)
(310) 444-8800
(Registrant's Telephone Number)
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ITEM 2. ACQUISITION OF ASSETS.
On October 22, 1997, SmarTalk TeleServices, Inc., a California
corporation ("SmarTalk"), entered into an asset purchase agreement with Frontier
Corporation, a New York corporation ("Frontier"), and SMTK NY-1 Corp., a New
York corporation ("SMTK"), pursuant to which SmarTalk will acquire selected
assets of the retail prepaid phone card business of Frontier, a New York based
long distance phone company (the "Frontier Selected Assets").
If the pending acquisition of the Frontier Selected Assets is
consummated, SmarTalk will pay thirty-five million dollars ($35,000,000) in
cash, subject to adjustments, to Frontier. The cash portion of the consideration
will be provided from SmarTalk's working capital. Further, SmarTalk may be
required to pay to Frontier an additional one million five hundred thousand
dollars ($1,500,000) in the common stock of SmarTalk if certain conditions are
met. The asset purchase agreement is filed as Exhibit 2.1 hereto.
The consideration to be paid for the Frontier Selected Assets was
determined based upon arms-length negotiations between SmarTalk and Frontier. To
the best of SmarTalk's knowledge, prior to the execution of the asset purchase
agreement, there was no material relationship between Frontier and SmarTalk or
any affiliates of SmarTalk, any director or officer of SmarTalk or any
associate of any director or officer.
In addition, on October 22, 1997, SmarTalk issued a press release
announcing the consummation of the transactions contemplated by the asset
purchase agreement, which press release is filed as Exhibit 99.1 hereto.
ITEM 5. OTHER EVENTS.
On November 5, 1997, SmarTalk issued a press release announcing the
settlement of certain litigation among Conquest Telecommunication Services
Corp., Ghanshyam C. Patel, Jay Jayanthan, W. Michael Byrne and certain other
persons. A copy of the press release issued by SmarTalk is filed herewith as
Exhibit 99.2.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
2.1 Asset Purchase Agreement, dated October 22, 1997, among SmarTalk
TeleServices, Inc., SMTK NY-1 Corp. and Frontier Corporation
(without schedules).(1)
99.1 Press release, dated October 22, 1997 of SmarTalk TeleServices
Inc.
99.2 Press release, dated November 5, 1997 of SmarTalk TeleServices,
Inc.
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(1) SmarTalk shall supplementally furnish a copy of any omitted
schedule to the Securities and Exchange Commission upon request.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMARTALK TELESERVICES, INC.
(Registrant)
By /s/ ERICH L. SPANGENBERG
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Erich L. Spangenberg
President and Chief Operating Officer
Date: November 5, 1997
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EXHIBIT INDEX
Number Subject Matter
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2.1 Asset Purchase Agreement, dated October 22, 1997, among
SmarTalk TeleServices, Inc., SMTK NY-1 Corp. and Frontier
Corporation (without schedules).
99.1 Press release, dated October 22, 1997 of SmarTalk
TeleServices, Inc.
99.2 Press release, dated November 5, 1997 of SmarTalk
TeleServices, Inc.
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
Dated as of October 22, 1997
among
SMTK NY-1 CORP.,
a New York corporation and a wholly-owned subsidiary of
SMARTALK
"BUYER,"
and
SMARTALK TELESERVICES, INC.,
a California corporation
"SMARTALK,"
and
FRONTIER CORPORATION,
a New York corporation
"SELLER"
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TABLE OF CONTENTS
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ARTICLE I. SALE AND PURCHASE................................................................................. 1
Section 1.1 Sale and Purchase of Assets............................................................... 1
Section 1.2 Excluded Assets........................................................................... 4
Section 1.3 Assumption of Liabilities and Obligations................................................. 5
Section 1.4 Excluded Liabilities...................................................................... 6
ARTICLE II. PURCHASE PRICE; ADJUSTMENT......................................................................... 6
Section 2.1 Purchase Price............................................................................ 6
Section 2.2 Adjustment of Purchase Price.............................................................. 6
Section 2.3 Additional Purchase Price................................................................. 7
Section 2.4 Allocation of Purchase Price.............................................................. 8
Section 2.5 Closing Proration......................................................................... 8
ARTICLE III. THE CLOSING....................................................................................... 9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER........................................................... 9
Section 4.1 Seller's Organization, Good Standing, Capitalization...................................... 9
Section 4.2 Authority; Execution; Delivery............................................................ 9
Section 4.3 Consents; No Violation, Etc............................................................... 10
Section 4.4 No Other Agreements to Sell the Assets or the Prepaid Phone
Card Business..................................................................................... 10
Section 4.5 Financial Records......................................................................... 10
Section 4.6 Absence of Certain Changes or Events...................................................... 11
Section 4.7 Taxes..................................................................................... 11
Section 4.8 Copies of Documents....................................................................... 13
Section 4.9 Assets.................................................................................... 13
Section 4.10 Intellectual Property.................................................................... 14
Section 4.11 Employment Matters....................................................................... 14
Section 4.12 Litigation............................................................................... 15
Section 4.13 Compliance with Laws..................................................................... 15
Section 4.14 Validity of Contracts.................................................................... 15
Section 4.15 Suppliers, Distributors and Customers.................................................... 15
Section 4.16 800 Numbers and PINs..................................................................... 16
Section 4.17 No Brokers............................................................................... 16
Section 4.18 Transactions with Certain Persons........................................................ 16
Section 4.19 Warranties............................................................................... 16
Section 4.20 Absence of Undisclosed Liabilities and Obligations....................................... 16
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER AND SMARTALK................................................ 17
Section 5.1 Buyer's Organization and Good Standing.................................................... 17
Section 5.2 Authority; Execution and Delivery......................................................... 17
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Section 5.3 No Brokers................................................................................ 17
Section 5.4 Consents, No Violations, Etc.............................................................. 17
ARTICLE VI. CERTAIN COVENANTS AND AGREEMENTS................................................................... 18
Section 6.1 Non-Competition; Non-Solicitation......................................................... 18
Section 6.2 Non-Disclosure............................................................................ 20
Section 6.3 Further Assurances........................................................................ 21
Section 6.4 Access to Facilities; Due Diligence....................................................... 21
Section 6.5 Conduct of the Prepaid Phone Card Business................................................ 21
Section 6.6 Mutual Cooperation........................................................................ 21
Section 6.7 Access to Books and Records; Cooperation.................................................. 22
Section 6.8 Consents.................................................................................. 22
Section 6.9 Hart-Scott-Rodino Act..................................................................... 23
Section 6.10 Non-Use of Names......................................................................... 23
Section 6.11 New Customers............................................................................ 23
Section 6.12 Existing Customers....................................................................... 23
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF BUYER AND SMARTALK................................................... 23
Section 7.1 Representations and Warranties True at the Closing Date................................... 23
Section 7.2 Seller's Performance...................................................................... 24
Section 7.3 Instruments of Conveyance and Transfer; Title Insurance................................... 24
Section 7.4 Transition Agreement...................................................................... 24
Section 7.5 Certain Tax Forms......................................................................... 24
Section 7.6 Approvals and Consents.................................................................... 24
Section 7.7 Material Adverse Change................................................................... 24
Section 7.8 Litigation................................................................................ 25
Section 7.9 No Change in Law.......................................................................... 25
Section 7.10 Hart-Scott-Rodino Act.................................................................... 25
Section 7.11 Documents................................................................................ 25
Section 7.12 Release of UCCs......................................................................... 25
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF SELLER.............................................................. 25
Section 8.1 Representations and Warranties True at the Closing Date................................... 25
Section 8.2 Buyer's Performance....................................................................... 26
Section 8.3 Approvals and Consents.................................................................... 26
Section 8.4 Litigation................................................................................ 26
Section 8.5 No Change in Law.......................................................................... 26
Section 8.6 Hart-Scott-Rodino Act..................................................................... 26
Section 8.7 Documents................................................................................. 26
ARTICLE IX. SURVIVAL OF REPRESENTATIONS
AND WARRANTIES, INDEMNIFICATION........................................................ 27
Section 9.1 Survival of Representations, Warranties, Etc.............................................. 27
Section 9.2 Seller Agreement to Indemnify............................................................. 27
Section 9.3 Buyer's Agreement to Indemnify............................................................ 28
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Section 9.4 Procedures Relating to Indemnification.................................................... 29
Section 9.5 Payment................................................................................... 29
Section 9.6 Calculation of Losses..................................................................... 29
Section 9.7 Remedies.................................................................................. 30
ARTICLE X. PAYMENT OF CERTAIN TAXES AND EXPENSES............................................................... 30
ARTICLE XI. WAIVER............................................................................................. 31
ARTICLE XII. NOTICES, ETC...................................................................................... 31
ARTICLE XIII. ENTIRE AGREEMENT; AMENDMENT...................................................................... 32
ARTICLE XIV. PRESS RELEASES.................................................................................... 32
ARTICLE XV. GENERAL............................................................................................ 33
ARTICLE XVI. SEVERABILITY...................................................................................... 33
ARTICLE XVII. BULK SALES LAWS.................................................................................. 33
ARTICLE XVIII. TERMINATION..................................................................................... 33
Section 18.1 Termination.............................................................................. 33
Section 18.2 Effect of Termination.................................................................... 34
ARTICLE XIX. ASSIGNMENT........................................................................................ 34
ARTICLE XX. NO THIRD PARTY BENEFICIARY......................................................................... 34
ARTICLE XXI. REMEDIES.......................................................................................... 34
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of October 22, 1997
(this "Agreement"), is by and among SMTK NY-1 CORP., a New York corporation, as
buyer ("Buyer"), SMARTALK TELESERVICES, INC., a California corporation and the
sole stockholder of Buyer ("SmarTalk"), and FRONTIER CORPORATION, a New York
corporation ("Seller", which term "Seller" shall include any of Seller and any
of its direct or indirect subsidiaries engaged in the Prepaid Phone Card
Business (as hereinafter defined), unless the context otherwise requires).
WHEREAS, Seller, directly and through its direct and indirect
subsidiaries, is engaged in, among other things, the business of providing
prepaid long distance phone card services (including, without limitation, long
distance and enhanced services on a prepaid basis) to retailers and other
non-wholesale customers (the "Prepaid Phone Card Business"); and
WHEREAS, Buyer desires to purchase on a going-concern basis
the Prepaid Phone Card Business of Seller and the assets that are dedicated
primarily thereto (but not Seller's non-prepaid calling card business, its
wireless prepaid calling card business, any activities of LinkUSA Corporation,
the business of wholesale or other transport of messages originated using the
prepaid cards of other carriers, or certain retail and wholesale contracts which
have been identified herein as excluded assets, all of which are excepted from
the Prepaid Phone Card Business), and Seller desires to sell such dedicated
assets and the Prepaid Phone Card Business to Buyer, all upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the foregoing
premises, the representations, warranties, covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I. SALE AND PURCHASE
Section 1.1 SALE AND PURCHASE OF ASSETS. In reliance on the
representations, warranties and covenants contained herein and subject to the
terms and conditions hereof, at the Closing (as hereinafter defined), Seller
will, or shall cause its subsidiaries to, sell, assign, convey, transfer and
deliver to Buyer free and clear of all Liens (as hereinafter defined) other than
Permitted Liens (as hereinafter defined), and Buyer will purchase and acquire
from Seller, on a going-concern basis, all of the Prepaid Phone Card Business
and goodwill of Seller related thereto and all of the assets, properties and
rights of Seller or its subsidiaries of every kind and description, wherever
located, real, personal or mixed, tangible or intangible, dedicated primarily to
the Prepaid Phone Card Business, and whether now owned or hereafter acquired
prior to the Closing Date (as hereinafter defined) (except as otherwise
hereinafter expressly excluded), including without limitation, all right, title
and interest of Seller or its subsidiaries in, to and under such dedicated
assets (collectively, the "Assets"), to include:
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(a) PERSONAL PROPERTY. All personal property and interests
therein (including, without limitation, prepaid phone card inventory,
marketing materials, and the equipment and media used primarily for
processing applications licensed to Seller under the Omnihost System
Agreement) owned by the Seller and dedicated primarily to the Prepaid
Phone Card Business, other than personal property and interests therein
relating to Excluded Assets (as hereinafter defined) (collectively,
"Personal Property");
(b) CONTRACTS. All of Seller's right, title and interest in
and to (i) each lease, license (other than licenses to Seller of rights
to use names or marks, except for the license identified by name in
this Section 1.1(b)), contract, agreement, purchase or sales order,
employee secrecy or confidentiality agreement (in each case to the
extent transferrable), undertaking, indenture and commitment, written
or oral, to which Seller is a party and which relate primarily to the
Prepaid Phone Card Business including all on-going agreements,
licenses, commitments, work orders or other engagements and agreements
and understandings by any person or entity with Seller with respect to
non-competition or non-disclosure that relate to the Prepaid Phone Card
Business or any of the Assets (including, without limitation, rights as
a third party beneficiary or other arrangement satisfactory to parties
hereto with respect to the non-competition provisions of the letter
agreement dated November 16, 1996 between Seller and Robert S. Boorin
to the extent such provisions relate to the Prepaid Phone Card
Business) and (ii) the license to Seller of rights to use certain names
and marks associated with the World Wrestling Federation, but excluding
employment agreements, at will or otherwise, for employees who will
become employees of Buyer as of the Closing Date, and Employee Plans
and Indebtedness (each as hereinafter defined) (all of the foregoing to
be assigned to Buyer pursuant hereto are hereinafter referred to
collectively as the "Contracts" and individually as a "Contract");
(c) CUSTOMER CONTRACTS. All of Seller's right, title and
interest in and to (i) each contract, agreement, sales order or other
arrangement with customers of the Prepaid Phone Card Business either
(A) set forth on SCHEDULE 1.1(c) hereto or (B) subject to Seller's
compliance with the provisions of Section 6.11 hereof, that is entered
into on or after the date hereof and for which the reasonably estimated
gross revenues associated therewith are $50,000 or more and (ii) each
other contract, agreement, sales order or other arrangement with
customers of the Prepaid Phone Card Business, PROVIDED that if the
gross margin percentage related to any contract, agreement, sales order
or other customer arrangement described in clause (ii) is less than
forty percent (40%) as calculated by Buyer in good faith using its
actual cost of access, Buyer and SmarTalk may elect to treat such
arrangement as an Excluded Asset (all of the foregoing to be assigned
to Buyer pursuant hereto are hereinafter referred to collectively as
the "Customer Contracts" and individually as a "Customer Contract");
(d) BOOKS AND RECORDS. Copies of relevant portions of all
books of account, tax, financial and accounting records and other data
of Seller relating to the Assets or the business or operations of the
Prepaid Phone Card Business (other than Seller's own cost data),
including, without limitation, customer databases to the extent
transferrable, all customers' and suppliers' lists and all payroll,
personnel and other records of employees who will become employees of
Buyer as of the Closing Date, other than relevant portions
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of such books, records and other data relating solely to the Excluded
Assets and the Excluded Liabilities (as hereinafter defined)
(collectively, "Records");
(e) NAMES. All of Seller's goodwill relating to the Prepaid
Phone Card Business and, except for Excluded Assets, all of Seller's
rights to the use of the names and marks CallTime, Pronto! and Pin Pal
and any and all formative, variants and derivatives thereof
(collectively, the "Names");
(f) PENDING CONTRACTS. Any written quotation, bid or proposal
made prior to the date hereof by Seller in connection with the Prepaid
Phone Card Business that if accepted would lead to a contract for the
provision of services or products by the Prepaid Phone Card Business on
or after the date hereof to the extent that Buyer has had notice on or
prior to the date hereof of each such quotation, bid or proposal and
does not require Seller to withdraw it prior to acceptance
(collectively, "Pending Contracts"), subject in each case to Seller's
compliance with the provisions of Section 6.11 hereof;
(g) PERMITS. All governmental or regulatory licenses, permits,
clearances, franchises, approvals, authorizations, certificates and
pending applications thereunder currently held by Seller and required
to conduct the Prepaid Phone Card Business that are transferable to
Buyer and which Buyer is not required to file, obtain or establish
itself (collectively, "Permits");
(h) INTELLECTUAL PROPERTY. All right, title and interest of
Seller in and to (i) all mailing lists, client lists, customer and
prospect lists, dealer, supplier and distributor lists and account
files, order and order log books, commission records, price lists,
manuals or business procedures or information, trade secrets,
technology, inventions, technical information, research records, market
surveys, promotional literature, sales brochures, designs,
improvements, formulae, plans and other proprietary or confidential
information owned by Seller and relating primarily to the Prepaid Phone
Card Business (including, without limitation, financial information
(other than Seller's own cost data) and pricing arrangements with
clients or suppliers of the Prepaid Phone Card Business), (ii) (A) all
U.S. and foreign registrations of trademarks, and of other marks, all
registrations of trade names, business names, logos, labels or other
trade rights, all registered user entries, all pending applications for
any such registrations or entries, all copyrights registrations and
pending applications therefor, all other copyrights, assumed names,
service marks, trademarks and other marks, trade dress, trade names and
other trade rights and licenses therefor, all Contracts relating to the
foregoing, all to the extent that the foregoing items are owned in
whole or in part or used by the Seller and that relate primarily to the
Prepaid Phone Card Business, but only to the extent that any item that
is so used but not owned is transferable to Buyer; and (B) all computer
software (including, without limitation, all computer programs, source
or object codes, user interfaces, customer service screens, manuals,
data bases, data files and documentation), other than software that is
an Excluded Asset or that constitutes mass market software generally
used in Seller's business, owned in whole or in part, licensed or used
by Seller and that relate primarily to the Prepaid Phone Card Business
(including, without limitation, the software licensed under the
Omnihost System Agreement, dated as of June 11, 1997, by and between
Verifone, Inc. and Frontier Communications International, Inc. (the
"Omnihost
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System Agreement")), (collectively, including clauses (A) and (B),
"Intellectual Property");
(i) WARRANTIES. All rights of Seller under express or implied
warranties, to the extent such warranties are transferable, from the
suppliers of Seller with respect to the Assets (collectively,
"Warranties");
(j) 800 NUMBERS AND PINS. All right, title and interest of
Seller in all 800 and 888 numbers dedicated primarily to the Prepaid
Phone Card Business (including, without limitation, customer service
800 and 888 numbers) and all active PINs associated with the Prepaid
Phone Card Business (other than 800 and 888 numbers and PINs associated
with Excluded Assets) (collectively, "800 Numbers and PINs"),
including, without limitation the 800 and 888 numbers, and the PINs
associated therewith, listed on SCHEDULE 1.1(j) attached hereto, which
shall be individually assigned to Buyer as the responsible organization
by Seller as soon as practicable following the Closing; PROVIDED,
HOWEVER, that on and after the Closing Date, pending such assignment,
Seller shall act as agent for Buyer with respect to processing of
services using 800 Numbers and PINs;
(k) RESEARCH AND DEVELOPMENT. All of Seller's right, title and
interest to research and development dedicated primarily to the Prepaid
Phone Card Business;
(l) MISCELLANEOUS ACCOUNTS. Prepaid phone card accounts
receivable as of the Closing Date, prepayments under any agreements
Buyer assumes to the extent such prepayments apply to service that has
not been provided by Seller prior to the Closing Date, and all breakage
that exists as of the Closing Date in the Prepaid Phone Card Business,
in each case as determined in the manner set forth in Section 2.2
hereof;
(m) OTHER. All other personal property, rights and assets
(whether owned, leased or licensed) of the Seller not listed above and
which are primarily dedicated to the Prepaid Phone Card Business.
Section 1.2 EXCLUDED ASSETS. Notwithstanding anything
contained in Section 1.1 hereof to the contrary, Seller is not selling, and
Buyer is not purchasing, pursuant to this Agreement, any of the following, all
of which shall be retained by Seller (hereinafter referred to collectively as
the "Excluded Assets"):
(a) cash and cash equivalents, including cash working capital
and funds from customers held in lockboxes as of the Closing Date;
(b) any tax refunds, insurance refunds from prepaid insurance,
insurance deposits or recoveries from claims with respect to periods
(or portions thereof) ending prior to the Closing Date;
(c) any rights to the use of the names and marks "Frontier" or
"Rochester Telephone" (including, without limitation, any names or
marks including the words "Frontier" or "Rochester Telephone") or any
and all other formative, variants and derivatives thereof; PROVIDED
that Buyer shall have the right to use such names and marks
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(but only to the extent that, on the Closing Date, they appear on
inventory, other Personal Property or other Assets) for a reasonable
period of time, not to exceed one (1) year following the Closing Date,
during which Buyer will discontinue the use of such names and marks;
(d) those agreements identified in SCHEDULE 1.2(d);
(e) any and all Contracts or Customer Contracts that have
expired by their terms or have otherwise been terminated prior to the
date hereof;
(f) all processing platforms owned or leased by Seller or any
third party, and all related software or agreements related to such
software;
(g) all prepaid calling card accounts receivable associated
with other Excluded Assets;
(h) all prepaid calling card vending machines owned or leased
by Seller;
(i) trade show exhibition equipment whether or not such
equipment has been used in connection with the Prepaid Phone Card
Business;
(j) any and all licenses to Seller of rights to use names or
marks (other than the license identified by name in Section 1.1(b)
hereof;
(k) any consideration received by Seller pursuant to this
Agreement, or the rights of Seller under this Agreement; and
(l) all books, records and other data, or relevant portions
thereof, that relate solely to the other Excluded Assets or Excluded
Liabilities.
Section 1.3 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. On the
Closing Date, Buyer shall assume and agree to pay, perform and discharge the
following (and only the following) liabilities and obligations of the Seller to
the extent (and only to the extent) that they relate to the Prepaid Phone Card
Business (the "Assumed Liabilities"):
(a) all liabilities and obligations of Seller to provide
telecommunications services to complete calls placed on or after the
Closing Date using the prepaid phone cards (other than Excluded Assets)
issued by Seller under a Contract or Customer Contract included in the
Assets on or prior to the Closing Date in the format provided on the
cards including, without limitation, the marketing and development
funds commitments set forth on SCHEDULE 1.3(a) hereto; and
(b) to the extent assignable, all liabilities and obligations
of Seller under each Contract and Customer Contract that is assumed by
Buyer to the extent such liabilities and obligations are required to be
paid or performed on or after the Closing Date.
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The assumption by Buyer of the Assumed Liabilities shall not enlarge any rights
of any Person under any contracts or arrangements with Seller. Nothing contained
herein shall prevent Buyer from contesting any of the Assumed Liabilities with
any third party obligee, nor limit Seller from taking action with respect to any
third party obligee if such action is not directly in conflict with the
interests of Buyer.
Section 1.4 EXCLUDED LIABILITIES. Except as expressly provided
in Section 1.3 above, Buyer is not assuming any liabilities or obligations of
the Seller of any kind, character or description, whether accrued, absolute,
contingent or otherwise, including, without limitation, any liability of Seller
to the extent related to the Excluded Assets, any liability under any federal,
state, local or foreign environmental laws, whether disclosed or undisclosed,
known or unknown, to the extent arising from any event, circumstance or
condition occurring or existing at any time on or prior to the Closing Date (the
"Excluded Liabilities"). Without limiting the foregoing, Buyer is not assuming
any liabilities or obligations to offer employment to any Personnel (as
hereinafter defined) of the Prepaid Phone Card Business, unless Buyer in its
sole discretion determines to do so prior to the Closing Date, nor is Buyer
assuming any liabilities or obligations of Seller, its affiliates, or any
predecessor employers with respect to wages, salary, vacation, profit-sharing,
incentive, deferred compensation, welfare, pension, retirement, group insurance,
bonus, severance or other employee or fringe benefit plans or programs or
payroll practices, including without limitation, the Employee Plans, of
Personnel of the Prepaid Phone Card Business.
ARTICLE II. PURCHASE PRICE; ADJUSTMENT
Section 2.1 PURCHASE PRICE. The purchase price (the "Purchase
Price") to be paid by Buyer to Seller for the Assets being purchased by Buyer
hereunder is Thirty-Five Million Dollars ($35,000,000), in immediately available
funds (cash, federal funds check or wire transfer to such bank account or
accounts as Seller shall have theretofore designated in writing to Buyer at
least two (2) business days prior to the Closing Date). The Purchase Price shall
be subject to decrease pursuant to Section 2.2 hereof and subject to increase
pursuant to Section 2.3 hereof.
Section 2.2 ADJUSTMENT OF PURCHASE PRICE. (a) Within
forty-five (45) calendar days after the Closing Date, Seller shall deliver to
Buyer a statement of the Closing Working Capital (as hereinafter defined),
prepared as described herein (the "Closing Working Capital Statement"). The
Closing Working Capital shall be calculated as provided in this Section 2.2.
Buyer and SmarTalk may review and examine the procedures, books, records and
work papers used in the preparation of the Closing Working Capital Statement.
(b) For purposes of this Section 2.2, "Closing Working
Capital" shall be equal to the sum of (x) the sum of (X) eighty-five percent
(85%) of the accounts receivable (before any other allowance or reduction for
doubtful accounts) from customers included in the Assets as of the Closing Date
and (Y) to the extent received on the Closing Date, one hundred percent (100%)
of any cash receipts from such customers, less (y) the sum of (i) One Million
Five Hundred Thousand Dollars ($1,500,000) and (ii) fifty percent (50%) of the
greater of (A) the gross sales associated with shipments of prepaid phone cards
by the Prepaid Phone Card Business during the thirty (30) calendar days
preceding the Closing Date (to the extent such phone cards are included
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in the Assumed Liabilities) and (B) "deferred revenue" as set forth in Seller's
financial records as of the Closing Date with respect to the Customer Contracts,
which records have been prepared in the ordinary course of business consistent
with past practice.
(c) Unless Buyer, within sixty (60) calendar days after
receipt of the Closing Working Capital Statement notifies Seller that it objects
to the computation of the Closing Working Capital, specifying the basis for such
objection and its alternative computation of the Closing Working Capital, the
Closing Working Capital as set forth in the Closing Working Capital Statement
shall be binding upon the parties. If Buyer and Seller are unable to agree upon
the Closing Working Capital within sixty (60) calendar days after any such
notification has been given by Buyer or within a mutually agreed to extended
time period, the controversy shall be referred to a nationally recognized
accounting firm (which will be mutually determined prior to the Closing Date by
the parties hereto) (the "Third Party Accountants") for a final determination
thereof to be made within thirty (30) calendar days after such referral. Such
determination shall be binding upon the parties, absent manifest error. The
parties shall share equally the fees and expenses of the Third Party
Accountants.
(d) If the Closing Working Capital, as determined pursuant to
this Section 2.2, is less than One Million Five Hundred Thousand Dollars
($1,500,000) (the "Minimum Working Capital"), the Purchase Price shall be
reduced by an amount equal to the sum of (A) the Minimum Working Capital less
(B) the Closing Working Capital; PROVIDED, HOWEVER, that the amount of such
reduction shall not exceed One Million Dollars ($1,000,000). If the Closing
Working Capital, as determined pursuant to this Section 2.2, is equal to or
greater than the Minimum Working Capital, there shall be no adjustment to the
Purchase Price under this Section 2.2.
(e) Any Purchase Price reduction required under this Section
2.2 shall be delivered in accordance with the instructions of Buyer, without
interest, within five (5) business days following the earlier of (x) the date of
Buyer's express acceptance of the Closing Working Capital Statement, (y) the
date that the Closing Working Capital Statement becomes binding on the parties
pursuant to the first sentence of Section 2.2(c) hereof and (z) if Buyer shall
have objected to the Closing Working Capital Statement, the date that there is
final determination of the disputed items pursuant to Section 2.2(c) hereof.
Section 2.3 ADDITIONAL PURCHASE PRICE. (a) If at the Closing,
Seller delivers to SmarTalk or its designee appropriate assignments by Seller of
Customer Contracts (and, to the extent reasonably requested by Buyer in good
faith, acknowledgements by Customers of such assignments pursuant to the terms
of the applicable Customer Contract), and/or consents, waivers or approvals with
respect to the assignment of Customer Contracts (in each case the form and
substance of such assignments, acknowledgements, consents, waivers or approvals
to be reasonably satisfactory to SmarTalk and/or Buyer) such that at the Closing
Seller assigns to Buyer Customer Contracts entered into by or on behalf of such
number of the customers of the Prepaid Phone Card Business listed on SCHEDULE
2.3 hereto (the "Key Customers") which number represents Key Customers that
contributed at least eighty-five percent (85%) of the gross revenue earned by
the Prepaid Phone Card Business from all of such Key Customers during the period
from and including January 1, 1997 through and including August 31, 1997
(calculated based upon the percentages of the gross revenue for such period set
forth for each Key Customer on
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such SCHEDULE 2.3), then, as an addition to the Purchase Price, SmarTalk shall
deliver to Seller at the Closing a certificate or certificate representing that
number of shares of Common Stock, no par value, of SmarTalk ("SmarTalk Stock")
for which the aggregate Market Value (as hereinafter defined) thereof is not
less than One Million Five Hundred Thousand Dollars ($1,500,000), registered in
such name or names and in such denominations as Seller shall have theretofore
designated in writing to Buyer at least two (2) business days prior to the
Closing Date.
(b) For purposes of this Section 2.3, the "Market Value" per
share of SmarTalk Stock shall be deemed to be the average of the daily closing
prices of SmarTalk Stock for the thirty (30) consecutive trading days ending on
the third business day prior to the Closing Date (or if such business day is not
also a trading day, ending on the last trading day prior to such business day).
The closing price for each day shall be the closing price, if reported, on the
NASDAQ Stock Market, or, if the closing price is not reported, the average of
the closing bid and asked prices as reported by the National Association of
Securities Dealers Automated Quotation System (NASDAQ). In the event that (but
only if) such closing prices are unavailable, the Market Value of SmarTalk Stock
shall be determined in good faith by mutual agreement of the parties hereto.
Section 2.4 ALLOCATION OF PURCHASE PRICE. Buyer and Seller
shall jointly agree upon the allocation of the Purchase Price, as it may be
adjusted pursuant to Section 2.2 and/or 2.3 hereof (and all other capitalizable
costs), among the various categories of Assets and the agreement contained in
Section 6.1 hereof in accordance with Section 1060 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated thereunder and
all applicable provisions of state, local or foreign law (such allocations, the
"Section 1060 Allocations"). If Buyer and Seller are unable to agree with
respect to the Section 1060 Allocations within sixty (60) calendar days after
the Closing Date, the controversy shall be referred to the Third Party
Accountants for a final determination thereof to be made within thirty (30)
calendar days after such referral. Such determination shall be binding upon the
parties, absent manifest error. The parties shall share equally the fees and
expenses of the Third Party Accountants. Each of the parties hereto agrees (i)
to prepare (jointly or independently, as appropriate) and file all Tax Returns
(as such term is hereinafter defined), including Form 8594, in a manner
consistent with the Section 1060 Allocations, as finally determined pursuant to
this Section 2.4, (ii) to report this transaction for federal, state, local and
foreign income tax purposes in accordance with the Section 1060 Allocations, as
finally determined pursuant to this Section 2.4, and (iii) to use its best
efforts to sustain the Section 1060 Allocations, as finally determined pursuant
to this Section 2.4, in any subsequent tax audit, appeal or litigation.
Section 2.5 CLOSING PRORATION. (a) After Closing, any personal
property taxes, utility, water or similar payments that involve the Prepaid
Phone Card Business, which become due and payable on or after the Closing Date
and relate to periods both before and after the Closing Date shall be prorated
and adjusted between each of Seller and Buyer as of the Closing Date on a per
diem basis and Seller shall be responsible for and pay to Buyer the portion of
such amounts allocable to the period prior to the Closing Date for which payment
is due on or after the Closing Date at least two (2) business days prior to the
date such amounts become due and payable. Buyer shall provide Seller with at
least five (5) business days notice of any such due date and the amount becoming
then due and payable.
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(b) Notwithstanding the foregoing, Buyer shall file tax
returns relating to, and shall pay, all sales, excise, use, telecommunications
and gross receipts taxes with respect to (1) telecommunications services
supplied in accordance with Section 1.3(a) and (2) contracts described in
Section 1.3(b) to the extent included in the Assets. The taxes referred to in
the immediately preceding sentence include certain taxes referenced in clause
(2) of Section 4.7(d) hereof. Buyer will continue to file such tax returns and
pay such taxes, in each case relating to the Prepaid Phone Card Business, on
that same basis.
ARTICLE III. THE CLOSING
The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York 10017, at 10:00 a.m., New York City
time, on the third business day after all of the conditions to each parties'
obligations under Articles VII and VIII have been satisfied or waived, or at
such date and place as shall be mutually agreed to by the parties (the "Closing
Date").
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer and SmarTalk as
follows:
Section 4.1 SELLER'S ORGANIZATION, GOOD STANDING,
CAPITALIZATION. Seller is a corporation, duly organized, validly existing and in
good standing under the laws of the State of New York. Seller has all requisite
power and authority to carry on its business as it is now being conducted, and
is duly qualified to do business as a foreign entity and is in good standing in
each jurisdiction in which such qualification is necessary under applicable law
with respect to the Prepaid Phone Card Business, except where the failure to be
so qualified would not reasonably be expected to result in a material adverse
effect on the Assets, the Prepaid Phone Card Business, the Assumed Liabilities
or the condition (financial or otherwise), the earnings or prospects of Seller,
taken as a whole (a "Material Adverse Effect").
Section 4.2 AUTHORITY; EXECUTION; DELIVERY. Seller has full
power and authority to enter into this Agreement and to sell the Assets and the
Prepaid Phone Card Business in accordance with the terms hereof so as to vest in
Buyer on the Closing Date good and marketable title to the Assets, free and
clear of any claim, lien, pledge, option, charge, security interest or
encumbrance of any nature whatsoever (collectively, "Liens"), except Permitted
Liens. The execution, delivery and performance of this Agreement by Seller has
been duly and effectively authorized by all necessary corporate or other
organizational action. No other corporate or other organizational proceedings on
the part of Seller are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Seller and constitutes the legal, valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, or other similar
laws affecting the enforcement of creditors rights in general, moratorium laws
or by general principles of equity (the "Enforceability Limitations").
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Section 4.3 CONSENTS; NO VIOLATION, ETC. (a) Except as
reflected in Schedule 4.3(a), no authorization, consent, approval, license,
exemption by filing or registration with any court, arbitrator or governmental,
administrative or self-regulatory authority, is or will be necessary in
connection with the entry into, execution, delivery and performance of this
Agreement except for such authorizations, consents, approvals, licenses,
exemptions or registrations that would not reasonably be expected to result in a
Material Adverse Effect (unless such authorizations, consents, approvals,
licenses, exemptions or registrations would reasonably be expected to result in
the inability of Seller to consummate the transactions contemplated herein).
(b) Neither the execution and delivery of this Agreement, the
other agreements contemplated hereby, the consummation of the transactions
contemplated herein or therein, nor compliance by Seller with any of the
provisions hereof or thereof will (with or without the giving of notice or the
passage of time) (i) violate, conflict with, result in a breach of, constitute a
default under, or result in the creation of any Lien upon the Assets, under any
of the terms, conditions or provisions of (A) the certificate of incorporation
and bylaws of Seller, or (B) any note, bond, mortgage, indenture, deed of trust,
or any license, agreement, or any other instrument or obligation to which Seller
is a party, or by which Seller or any of Seller's assets or properties may be
bound or affected, (ii) violate any judgment, order, writ, injunction, decree,
statute, law, rule or regulation applicable to Seller or any of Seller's assets
or properties or (iii) affect any Permit (as defined herein) that is required
for the conduct of the Prepaid Phone Card Business or that is required of any
employee or agent of Seller to enable him to carry out his duties on behalf of
Seller pursuant to the terms of any such Permit, except in each case insofar as
any such violation, conflict, breach, default, acceleration, termination,
cancellation, creation of Lien, failure to obtain any consent, approval,
permission or other authorization, qualification or filing, or impairment of any
Permit would not reasonably be expected with respect to clauses (i)(B), (ii) and
(iii) to result in a Material Adverse Effect (unless such violation, conflict,
breach, default, acceleration, termination, cancellation, creation of Lien,
failure to obtain any consent, approval, permission or other authorization,
qualification or filing, or impairment of any Permit would reasonably be
expected to result in the inability of Seller to consummate the transactions
contemplated herein).
Section 4.4 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE
PREPAID PHONE CARD BUSINESS. Seller has no legal obligation, absolute or
contingent, to any other person or firm to sell the Assets or the Prepaid Phone
Card Business.
Section 4.5 FINANCIAL RECORDS. (a) The summary of financial
results of Seller's business unit that includes the Prepaid Phone Card Business
for each month from January 1997 through August 1997, both inclusive, and
previously provided to Buyer and SmarTalk is attached hereto as SCHEDULE 4.5
(the "Financial Summary"). The Financial Summary fairly presents the number of
decremented units for each month, the net revenue, cost of goods sold and gross
profit for each month, and the weighted average revenue per unit for each month
for the periods set forth therein, in each case as defined in such SCHEDULE 4.5.
(b) The accounts receivable included in the Assets arose from
bona fide transactions in the ordinary course of business and represent monies
due for value received, and Seller has no actual knowledge of any credits and
adjustments or other offsets (other than Seller's
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allowance for doubtful accounts) to such accounts receivable in excess of
Seller's historical experience of 10% thereof.
(c) Seller's best estimate of account receivable (before any
allowance or reduction for doubtful accounts) as of the date hereof is $6.9
million. Seller's best estimate of "deferred revenue" (as calculated consistent
with past practice for Seller's financial records) as of the date hereof is $3
million.
(d) Buyer has been provided reasonable access to the financial
records of the Prepaid Phone Card Business available as of the date hereof, and
Seller has responded in good faith to questions posed by Buyer about the
financial condition and performance of the Prepaid Phone Card Business.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed on SCHEDULE 4.6 hereto and as contemplated by this Agreement, since
August 31, 1997, there has not been any:
(a) change in the Prepaid Phone Card Business which has or is
reasonably likely to result in a Material Adverse Effect;
(b) increase in the compensation payable or to become payable
by Seller to any of its current or former officers, directors,
employees, consultants or agents primarily dedicated to the Prepaid
Phone Card Business (collectively, the "Personnel") who have been
identified by Buyer as employees who will be offered employment with
the Buyer (the "Transferred Personnel") other than in the ordinary
course of business;
(c) mortgage, pledge or subjection to any Lien of any Asset
except a Permitted Lien;
(d) sale, assignment or transfer of any material Asset or any
significant conducting of the Prepaid Phone Card Business other than in
the ordinary course;
(e) cancellation, termination or entering into of, or
modification to, any material Contract other than with respect to any
employment agreement or arrangement with Personnel who will not be
offered employment with Buyer;
(f) affirmative action taken that makes unavailable to Buyer
the services of the Transferred Personnel, or damages the goodwill of
the Prepaid Phone Card Business.
(g) any material disputes or any material cancellations by any
supplier, customer or contractor with respect to the Assets or the
Prepaid Phone Card Business; or
(h) any agreement, arrangement or understanding by Seller to
do any of the foregoing.
Section 4.7 TAXES. (a) For purposes of this Agreement, the
term "Tax" means any net or gross income, gross receipts, sales, use,
telecommunications, rental, value added, ad
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valorem, transfer, turnover, franchise, profits, license, withholding, payroll,
employment, excise, capital, severance, stamp, occupation, premium, property or
windfall profits tax, alternative or add-on minimum tax, customs, duty or other
tax, fee, assessment or charge of any kind whatsoever (including, without
limitation, assessments with respect to the universal service fund), together
with any interest and any penalty, fine, addition to tax or additional amount
imposed by any governmental department, court or other authority, whether
domestic or foreign.
(b) For purposes of this Agreement, the term "Tax Return"
means any report, return, declaration, statement, form, extension or other
document filed or required to be filed with any federal, state, local or other
governmental department, court or other authority in respect of Taxes related to
the Prepaid Phone Card Business.
(c) All Tax Returns required to be filed, as such filing date
may have been extended, on or before the Closing Date by or on behalf of Seller
since January 1, 1994 have been or will be timely filed on or before the Closing
Date. All such Tax Returns were (or to the extent not yet filed will be) true,
complete and correct in all material respects and filed on a timely basis,
except as described in Section 4.7(d).
(d) Seller has, within the time and the manner prescribed by
law, paid (and until the Closing Date will pay within the time and in the manner
prescribed by law) all material Taxes related to the Prepaid Phone Card Business
required to be paid by it, except for (1) such Taxes that are being contested in
good faith in appropriate proceedings and (2) certain non-income Taxes that
Seller reasonably believes it is paying within the time and in the manner
prescribed by law.
(e) Seller has complied (and until the Closing Date will
comply) in all material respects with the provisions of the Code relating to the
payment and withholding of Taxes related to the Prepaid Phone Card Business,
including without limitation, the withholding and reporting requirements under
Sections 3401 through 3406, and 6041 of the Code, as well as similar provisions
under any other laws, and has, within the time and in the manner prescribed by
law, withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so paid.
(f) All deficiencies in respect of Taxes related to the
Prepaid Phone Card Business proposed as a result of any audit currently being
conducted with respect to Seller have been paid, reserved against, settled, or
are being contested in good faith by appropriate proceedings.
(g) Seller has established (and until the Closing Date will
maintain) on its books and records reserves adequate to pay all Taxes related to
the Prepaid Phone Card Business attributable to periods prior to the Closing
Date and not yet due and payable in accordance with generally accepted
accounting principles in all material respects.
(h) There are no security interests on any of the Assets that
arose in connection with any failure (or alleged failure) to pay any Taxes and,
except for liens for real and personal property Taxes that are not yet due and
payable or are being contested in good faith (for which Seller shall pay or
otherwise satisfy that portion of such Taxes allocated to Seller pursuant to
Section 2.5 hereof or otherwise to be borne by Seller pursuant to this
Agreement, in each case
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prior to the seizure of, or other levy on, any of the Assets that is subject to
such liens), there are no liens for any Tax upon any Asset.
(i) Any information relating to Taxes that Seller has provided
to Buyer is true, correct and complete in all material respects.
(j) Following the Closing, none of the Assets will be subject
to any claim in a taxable period that begins on or after the Closing Date to
share Taxes with respect to any taxable period (except for such claims that may
be imposed as a result of ownership of the Assets by Buyer).
(k) None of the Assets includes any interest in any joint
venture, partnership or other arrangement or contract that is or will be treated
as a partnership for federal income Tax purposes without taking into account any
actions, or failures reasonably to act, by Buyer or any of it affiliates.
(l) None of the Assets constitutes stock or an equity interest
in a corporation or an entity treated as a corporation for federal income Tax
purposes.
Section 4.8 COPIES OF DOCUMENTS. Seller has provided Buyer
with true and complete copies of (or, in the case of any oral agreements or
arrangements, true and complete written summaries thereof):
(a) all material Contracts and Customer Contracts as of the
date hereof, which are listed on SCHEDULE 1.1(c) hereto;
(b) all orders of registration included in the Intellectual
Properties as of the date hereof;
(c) all material Permits as of the date hereof, and a copy of
the applicable pages of FCC Tariff No. 4 in effect as of December 3,
1996; and
(d) copies of all written results of any examinations of the
Prepaid Phone Card Business by any governmental agency, whether
federal, state or local, in the past five years other than results that
would not reasonably be expected to result in a Material Adverse
Effect.
Section 4.9 ASSETS. (a) Seller has good and marketable title
to all the Assets, free and clear of Liens, except for (i) the lien of current
real and personal property taxes which are not yet due and payable or are being
contested in good faith (for which Seller shall pay or otherwise satisfy that
portion of such taxes allocated to Seller pursuant to Section 2.5 hereof, in
each case prior to the seizure of, or other levy on, any of the Assets that is
subject to such liens), (ii) such covenants, restrictions, encroachments,
easements and Liens, if any, as do not materially detract from the value, or
interfere with the present occupancy or use, of the Assets or otherwise
materially impair the operations of the Prepaid Phone Card Business, (iii) the
items set forth on SCHEDULE 4.9(a) hereto, and (iv) other statutory Liens
arising or incurred in the ordinary course of business with respect to which the
underlying obligations are not delinquent or the validity of
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which is being contested in good faith, none of which individually or in the
aggregate materially detracts from the value of or materially impairs the use of
any material Assets or would reasonably be expected to result in the inability
of Seller to consummate the transactions contemplated herein (for which, in the
case of items (ii), (iii) and (iv), Seller shall pay or otherwise satisfy the
underlying obligations) (items (i), (ii), (ii) and (iv) collectively, the
"Permitted Liens").
(b) Except as set forth on SCHEDULE 4.9(b) hereto and except
for such matters that would not reasonably expected to result in a Material
Adverse Effect, the tangible properties and equipment owned, operated or leased
by Seller in connection with the Prepaid Phone Card Business are in good
operating condition and repair (ordinary wear and tear, excepted), and are in
conformity in all material respects with all applicable laws, ordinances,
orders, regulations and other requirements (including applicable zoning,
environmental, occupational safety and health laws and regulations) presently in
effect or presently scheduled to take effect.
Section 4.10 INTELLECTUAL PROPERTY. (a) Except as set forth on
SCHEDULE 4.10(a), Seller is the sole and exclusive owner of the Intellectual
Property, and the Seller is listed in the records of the appropriate U.S. and
foreign governmental agency as the sole and exclusive owner of record for each
registration, grant and application listed in SCHEDULE 4.10(b) which is so
registered, granted or for which an application has been filed. Seller owns or
otherwise has the right to use any and all Intellectual Property that is used in
or is necessary for the conduct of its Prepaid Phone Card Business free and
clear of any Lien, royalty or other payment obligations other than Permitted
Liens.
(b) The names and marks identified in Section 1.1(e) hereof
are the only names and marks owned by Seller and used in the conduct of the
Prepaid Phone Card Business (other than names and marks that constitute Excluded
Assets).
(c) Seller has received no notice of any conflict with or
violation or infringement of any of the Intellectual Property, nor are related
proceedings or claims pending, nor have any such proceedings or claims been
instituted or asserted in writing against the Seller, nor are any such
proceedings threatened, alleging any violation, nor, to Seller's knowledge, is
there any valid basis for any such proceeding or claim, of any rights or
asserted rights of any other Person with respect to any Intellectual Property of
such other Person, in each case other than such matters that would not
reasonably be expected to result in a Material Adverse Effect.
(d) The Seller has taken reasonable actions to preserve and
maintain its Intellectual Property relating to the Prepaid Phone Card Business.
Section 4.11 EMPLOYMENT MATTERS. Except as set forth on
SCHEDULE 4.11 hereto, with respect to the Transferred Personnel primarily
dedicated to the Prepaid Phone Card Business, (i) there are no material pending
claims against Seller other than for compensation and benefits due in the
ordinary course of employment; (ii) there are no material pending claims against
Seller arising out of any statute, ordinance or regulation relating to
employment practices or occupational or safety and health standards; (iii) there
are no material pending or threatened labor disputes, strikes or work stoppages
against Seller; and (iv) there are no material union organizing activities in
process or contemplated with respect to the Prepaid Phone Card Business.
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Section 4.12 LITIGATION. Except as disclosed on SCHEDULE 4.12
hereto, and except for such litigations, proceedings, actions or investigations
that would not reasonably be expected to result in a Material Adverse Effect
(other than such litigations, proceedings, actions or investigations that would
reasonably be expected to result in the inability of Seller to consummate the
transactions contemplated herein), there is no litigation, proceeding, arbitral
action or government investigation pending or, to Seller's knowledge, threatened
against, relating to or affecting (i) the Prepaid Phone Card Business or the
Assets, (ii) Personnel in capacities related primarily to the Prepaid Phone Card
Business, or (iii) the transactions contemplated by this Agreement. There are no
decrees, injunctions or orders of any court or governmental department or agency
outstanding against Seller with respect to the Prepaid Phone Card Business or
the Assets which would reasonably be expected to result in a Material Adverse
Effect or the inability of Seller to consummate the transactions contemplated
herein.
Section 4.13 COMPLIANCE WITH LAWS. (a) Seller has and all
Personnel have complied in all material respects with all applicable statutes,
regulations, rules, orders, ordinances and other laws of the United States of
America, all state, local and foreign governments and other governmental bodies
and authorities, and agencies of any of the foregoing to which they are subject
with respect to regulatory matters (other than tariff issues with respect to
wholesalers for Seller believes it adheres to appropriate practices used by the
industry), except with respect to matters which would not reasonably be expected
to result in a Material Adverse Effect.
(b) Seller has not made, and no Personnel or representative of
Seller or any person acting on behalf of Seller has made, directly or indirectly
with respect to the Prepaid Phone Card Business, any bribes, kickbacks, or other
illegal payments or illegal political contributions, illegal payments from
corporate funds to governmental officials in their individual capacities, or
illegal payments from corporate funds to obtain or retain business either within
the United States or abroad.
Section 4.14 VALIDITY OF CONTRACTS. Except as disclosed on
SCHEDULE 4.14, each Contract or Customer Contract is valid and enforceable in
accordance with its terms, except as enforcement thereof may be limited by the
Enforceability Limitations, and Seller is not in default under any material
provision of any such contract, in each case except for such matters that would
not reasonably be expected to result in a Material Adverse Effect. Upon Buyer's
assumption of obligor's liability thereunder, each such contract as is assigned
at the Closing will be valid and binding or otherwise enforceable by Buyer in
accordance with its terms, except as enforcement thereof may be limited by the
Enforceability Limitations, and except for such matters that would not
reasonably be expected to result in a Material Adverse Effect. Any party to any
Contract or Customer Contract, is not, and will not be, with due notice or lapse
of time or both, in default under any provision of any such agreement, contract
or commitment except for such defaults that would not reasonably be expected to
result in a Material Adverse Effect (other than such defaults that would
reasonably be expected to result in the inability of Seller to consummate the
transactions contemplated herein).
Section 4.15 SUPPLIERS, DISTRIBUTORS AND CUSTOMERS. Except as
set forth on SCHEDULE 4.15, no supplier, distributor and/or broker, customer or
other person having a business relationship with the Prepaid Phone Card Business
has cancelled or otherwise terminated or, to Seller's knowledge, threatened to
cancel or otherwise terminate, its relationship with the Prepaid
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Phone Card Business or has during the past twelve (12) month period decreased
materially (in amount or dollar volume) or, to Seller's knowledge, threatened to
decrease materially, its services, supplies or materials to Seller or its usage
of the products or services now being produced or provided by or to Seller with
respect to the Prepaid Phone Card Business, such that such decrease would
reasonably be expected to result in a Material Adverse Effect. Seller has no
knowledge that any such supplier, distributor and/or broker, customer or other
person intends to decrease its services, supplies or materials to Seller or its
usage of the products or services now being produced or provided by or to Seller
with respect to the Prepaid Phone Card Business, such that such decrease would
reasonably be expected to result in a Material Adverse Effect.
Section 4.16 800 NUMBERS AND PINS. (a) The 800 Numbers and
PINs as of the date hereof and that are to be transferred to Buyer are listed on
SCHEDULE 1.1(j), with, to the extent identifiable, their termination dates.
Seller has the exclusive right to use each such 800 Number and PIN.
(b) Upon transfer of the 800 Numbers and PINs in connection
with the Closing, Buyer shall have the right to transfer to third parties any
and all of the interests therein so transferred to Buyer.
Section 4.17 NO BROKERS. Seller has not entered into and will
not enter into any agreement, arrangement or understanding with any person or
firm which will result in the obligation of Buyer to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby or any other transaction.
Section 4.18 TRANSACTIONS WITH CERTAIN PERSONS. Except as
disclosed on SCHEDULE 4.18, no affiliate, shareholder, officer, director,
employee or agent of Seller, or member of his or her immediate family is
presently a party to any material transaction with Seller relating to the Assets
or the Prepaid Phone Card Business, including, without limitation, any contract,
agreement or other arrangement (a) providing for the furnishing of services by
or to, (b) providing for the rental of real or personal property from, or (c)
otherwise requiring payments to (other than for services as officers, directors
or employees) any such person or entity in which any such person has a
substantial interest as a shareholder, officer, director, trustee, member,
partner, investor or similar status.
Section 4.19 WARRANTIES. Except as set forth on SCHEDULE 4.19
and except for such warranties that would not reasonably be expected to result
in a Material Adverse Effect, Seller has not made any express warranties with
respect to services provided by the Prepaid Phone Card Business and no other
warranties have been made by Personnel.
Section 4.20 ABSENCE OF UNDISCLOSED LIABILITIES AND
OBLIGATIONS. (a) Except as set forth on SCHEDULE 4.20 hereto, there are no
liabilities or obligations of the Prepaid Phone Card Business or with respect to
the Assets of any nature (whether accrued, absolute, contingent or otherwise)
for which Buyer or SmarTalk could be liable or obligated.
(b) Except as set forth on SCHEDULE 4.20 hereto, there are no
liabilities or obligations of the Prepaid Phone Card Business or with respect to
the Assets for Taxes, or any
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condition or event that would reasonably be expected to result in material
Taxes, for which Buyer or SmarTalk could be liable or obligated.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
OF BUYER AND SMARTALK
Buyer and SmarTalk hereby jointly and severally represent and
warrant to Seller as follows:
Section 5.1 BUYER'S ORGANIZATION AND GOOD STANDING. SmarTalk
and Buyer are corporations duly organized, validly existing and in good standing
under the laws of the States of California and New York, respectively, and each
has all requisite corporate power to carry on its business as it is now being
conducted. Buyer is duly qualified and in good standing in each jurisdiction in
which qualification is necessary under applicable law to continue the Prepaid
Phone Card Business after the Closing Date, except where the failure to be so
qualified would not be expected to result in a material adverse effect on the
ability of Buyer or SmarTalk to meet its obligations after the Closing.
Section 5.2 AUTHORITY; EXECUTION AND DELIVERY. Each of
SmarTalk and Buyer has full corporate power and authority to enter into this
Agreement and to purchase the Assets, in accordance with the terms hereof. The
execution, delivery and performance of this Agreement and the other agreements
contemplated hereby by Buyer and SmarTalk, have been duly and effectively
authorized by the Board of Directors of Buyer and SmarTalk. No other corporate
proceedings on the part of Buyer and SmarTalk are necessary to authorize this
Agreement and the transactions contemplated herein or therein. This Agreement
has been duly executed and delivered by Buyer and SmarTalk and constitutes the
legal, valid and binding obligation of Buyer or SmarTalk, as the case may be,
enforceable against it, in accordance with its terms, except as enforcement
thereof may be limited by the Enforceability Limitations.
Section 5.3 NO BROKERS. Neither Buyer or SmarTalk has entered
into or will enter into any agreement, arrangement or understanding with any
person or firm which will result in the obligation of Seller to pay any finder's
fee, brokerage commission or similar payment in connection with the transactions
contemplated hereby or any other transaction.
Section 5.4 CONSENTS, NO VIOLATIONS, ETC. Except as set forth
on SCHEDULE 5.4, neither the execution and delivery of this Agreement, the
consummation by Buyer or SmarTalk of the transactions contemplated herein nor
compliance by Buyer or SmarTalk with any of the provisions hereof will (with or
without the giving of notice or the passage of time) (i) violate, conflict with,
result in a breach of, or constitute a default under any of the terms,
conditions or provisions of (a) the certificate of incorporation or by-laws or
similar organizational documents of Buyer or SmarTalk, or (B) any note, bond,
mortgage, indenture, deed of trust, or any lease agreement, or other instrument
or obligations to which Buyer or SmarTalk is a party, or by which Buyer or
SmarTalk or any of their respective assets or properties may be bound or
affected;(ii) violate any judgment, order, writ, injunction, decree, statute,
rule or regulation applicable to Buyer or SmarTalk or any of their respective
assets or properties or (iii) require the authorization, consent, approval,
license, exemption by filing or registration with any court, arbitrator or
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governmental, administrative, or self-regulatory authority, except in such case
insofar as any such violation, conflict, breach, default, acceleration,
termination or failure to obtain any authorization, consent, approval, license,
exemption or registration would not be reasonably expected with respect to
clauses (i)(B), (ii) and (iii) to result in a material adverse effect on the
assets, business, condition (financial or otherwise), earnings or prospects of
SmarTalk and Buyer, taken as a whole (unless such violation, conflict, breach,
default, acceleration, termination, cancellation, creation of Lien, failure to
obtain any consent, approval, permission or other authorization, qualification
or filing, or impairment of any Permit would reasonably be expected to result in
the inability of Buyer or SmarTalk to consummate the transactions contemplated
herein).
ARTICLE VI. CERTAIN COVENANTS AND AGREEMENTS
Section 6.1 NON-COMPETITION; NON-SOLICITATION. (a) In
consideration of the benefits of Seller hereunder and in order to induce Buyer
and SmarTalk to enter into this Agreement, Seller will not, for a period of two
(2) years from the Closing Date (the "Non- Competition Period"), except as set
forth in Section 6.1(b) hereof, directly or indirectly engage in or hold an
interest in any business (whether by ownership of debt or equity or otherwise
managing, operating, controlling, directing or participating in such business)
providing prepaid long distance phone card products or services to retailers and
other non-wholesale customers of the kind whose arrangements with Seller would
if existing as of the date hereof constitute Customer Contracts or Pending
Contracts hereunder in competition with Buyer and SmarTalk anywhere in the world
(collectively, the "Proscribed Business"); provided, however, that nothing in
this Section 6.1(a) shall:
(A) prohibit any company or other entity (including,
without limitation, any joint venture) that has been acquired,
in whole or in part, by, or otherwise engaged in a business
combination with, Seller or any of its affiliates from
engaging in or holding an interest in a Proscribed Business if
(i) the gross sales generated by such Proscribed Business in
the latest financial statements of such company or other
entity at the time of such acquisition constitutes no more
than fifteen percent (15%) of such acquired company's or other
entity's gross sales for such year; PROVIDED that the gross
sales generated by such Proscribed Business does not
constitute more than fifteen percent (15%) of such acquired
company's or other entity's gross sales for each fiscal year
(or, in the case of a fiscal year ending after the
Non-Competition Period, each fiscal quarter) ending during the
balance of the Non-Competition Period and (ii) such company or
other entity does not engage in business with any of the Key
Customers in competition with Buyer and SmarTalk;
(B) prohibit Seller or any of its affiliates from
acquiring shares of capital stock, partnership or other equity
interests in any company or other entity (including, without
limitation, any joint venture) that is engaged in a Proscribed
Business, provided that such acquired interest does not
represent more than five percent (5%) of the total equity of
such entity;
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(C) prohibit Seller or any of its affiliates from
engaging in any joint marketing, promotion or merchandising
programs of Seller's integrated telecommunications package
(including, without limitation, the provision of products or
services under the name and marks "Frontier" or "Rochester
Telephone") with respect to any Proscribed Business for which
the prepaid phone card products or services are not produced
or provided by Seller or its affiliates or are requested on an
unsolicited basis by then existing customers of Seller and its
affiliates to whom Seller or its affiliates are providing at
least one another service in Seller's core telecommunications
package, PROVIDED that with respect to any new customers,
Seller shall use its reasonable best efforts to grant Buyer or
SmarTalk a right of first refusal (as described below in this
Section 6.1(a)) to provide platform services in connection
with such products and services at comparable levels of
service and service quality and comparable prices to those
available from other reputable producers or providers of
prepaid phone card products or services (other than Seller and
its affiliates);
(D) prohibit Seller or any of its affiliates from
conducting any activities related to the Excluded Assets;
(E) prohibit Seller or any of its affiliates from
engaging in a business combination with any company or other
entity engaged in or holding an interest in a Proscribed
Business if, following the consummation of such business
combination, the common shareholders of Seller immediately
prior to such business combination represent less than a
majority of the common equity interest of the combined company
or other entity; and
(F) prohibit Seller or any of its affiliates from
engaging in or holding an interest in any business (whether by
ownership of debt of equity or otherwise managing, operating,
controlling, directing or participating in such business)
providing phone card products or services other than prepaid
long distance products and services to retailers and other
non-wholesale customers of the kind whose arrangements with
Seller would if existing as of the date hereof constitute
Customer Contracts or Pending Contracts hereunder in
competition with Buyer and SmarTalk (including, without
limitation, the wholesale prepaid calling card business, the
non-prepaid calling card business, the wireless prepaid
calling card business, any activities of LinkUSA Corporation
and the wholesale or other transport of messages originated
using the prepaid cards of other carriers).
Notwithstanding anything to the contrary contained in clauses (A), (C), (D) or
(F) above, during the Non-Competition Period Seller shall not provide prepaid
long distance phone card products or services through retail establishments
anywhere in the world. Seller acknowledges and agrees that the geographic scope
of the non-competition provisions of this Section 6.1(a) shall not be limited
and that such geographic scope is reasonable.
In connection with any right of first refusal granted to Buyer
or SmarTalk described to clause (C) above, Seller shall provide Buyer with a
written summary of a bona fide offer requesting platform services and Seller
shall use its reasonable best efforts to grant Buyer
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and SmarTalk fifteen (15) calendar days to accept such offer or reject the same
in writing. A failure by Buyer and SmarTalk timely to respond to such offer
shall be deemed a rejection of the offer.
(b) Seller shall be deemed not to have breached the covenants
in Section 6.1(a) by the act of acquiring any business during the
Non-Competition Period if, upon such acquisition by Seller or any of its
affiliates, Seller or such affiliate (i) uses its best efforts to divest or
dispose as promptly as practicable on commercially reasonable terms that portion
of the acquired business giving rise to such alleged breach under Section 6.1(a)
or (ii) to the extent that Seller or any of its affiliates acquires a business
engaged in business with any of the Key Customers in competition with Buyer or
which provides prepaid long distance phone card products or services through
retail establishments in competition with Buyer, the activities of Seller or
such affiliate in respect of such Key Customer or such products or services are
related solely to the satisfaction or fulfillment of the liabilities and
obligations of such business to such Key Customer or in respect of such retail
establishments as of the date of such acquisition; and neither Buyer nor
SmarTalk will commence, or if commenced they will immediately discontinue, any
efforts to enforce such covenants with respect to such acquisition by suit,
petition for injunction or otherwise so long as such divestiture or disposal is
being pursed in good faith by Seller or it affiliates.
(c) Seller shall use its reasonable best efforts to refer to
Buyer any and all sales leads received by Seller during the Non-Competition
Period with respect to prepaid phone card products or services prohibited to
Seller pursuant to Section 6.1(a) hereof.
(d) Seller covenants and agrees that Seller, for a period of
the greater of (A) three (3) years from the Closing Date or (B) the period
during which Seller continues to provide a significant level of
telecommunications carrier services to Buyer and SmarTalk, taken as a whole,
Seller will not, directly or through employees, agents, or others; offer,
promise, provide or guarantee employment, or solicit or otherwise seek to
influence any person to leave Buyer or SmarTalk, or who has been in such an
employment or independent contractor relationship within the twelve (12) months
prior to such contact(s), or solicit from, convert, attempt to convert, divert
business from, or attempt to divert business from any of the customers of Buyer
or SmarTalk in the retail Prepaid Calling Card Business, whether or not such
activity is successful.
Section 6.2 NON-DISCLOSURE. Seller will not at any time from
and after the date of this Agreement divulge, furnish or make accessible to
anyone any knowledge or information with respect to Intellectual Properties, or
other confidential or secret aspects of the Prepaid Phone Card Business or any
financial or other information about the Prepaid Phone Card Business, SmarTalk
or Buyer. Any information, which at or prior to the time of disclosure was
generally available to the public through no breach of this covenant, shall not
be deemed confidential information for purposes hereof, and the undertakings in
this covenant with respect to confidential information shall not apply thereto.
Notwithstanding the foregoing, this provision shall not apply if Seller, on the
advice of counsel, is legally required to disclose (including by oral questions,
interrogatories, requests for information or documents subpoena or similar
process) such information, or if required to disclose such information by the
Securities and Exchange Commission or a stock exchange.
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Section 6.3 FURTHER ASSURANCES. From and after the Closing
Date, from time to time, at Buyer's request and without further consideration,
Seller will execute and deliver or cause to be executed and delivered such other
instruments and take such other actions as Buyer or its counsel may reasonably
request to more effectively convey, transfer to and vest in Buyer, and to put
Buyer in possession and operating control of all or any part of the Assets or
the Prepaid Phone Card Business, including, without limitation, if Buyer so
requests, (i) the services of Anthony Ryanczak for all of his working time for a
period of up to six (6) months following the Closing Date and (ii) reasonable
access to Transferred Personnel, if any, who remain employees of Seller, in each
case to assist Buyer in connection with the conveyance of the Assets and the
operations of the Prepaid Phone Card Business.
Section 6.4 ACCESS TO FACILITIES; DUE DILIGENCE. Between the
date hereof and the Closing Date, (i) authorized representatives of Buyer and
SmarTalk shall have reasonable access to all properties, books, Records,
Contracts and other documents of Seller relating to the Prepaid Phone Card
Business following reasonable notice to Seller, and at reasonable times, and
accompanied by approved Seller personnel, (ii) Seller will furnish to Buyer all
information with respect to the Prepaid Phone Card Business that Buyer may
reasonably request, and (iii) Buyer and SmarTalk shall have the right to discuss
the Prepaid Phone Card Business of Seller with the employees, suppliers and
customers of Seller, if in each case accompanied by approved Seller personnel.
Section 6.5 CONDUCT OF THE PREPAID PHONE CARD BUSINESS. Taking
into account the transactions contemplated by this Agreement, Seller will, from
and after the date hereof up to and including the Closing Date, use its
reasonable best efforts to cause the Prepaid Phone Card Business to: (a) be
conducted only in the ordinary course of business and consistent with past
practice (including, without limitation, the collection practices with respect
to accounts receivable); (b) take such action as may reasonably be necessary to
preserve the assets and properties, wherever located, which are material to the
Prepaid Phone Card Business; (c) promptly advise Buyer in writing of any
material adverse change in the condition (financial or otherwise) of the assets,
liabilities, earnings, or business of the Prepaid Phone Card Business; (d)
maintain the Assets in substantially the same state of repair, order and
condition as on the date hereof, reasonable wear and tear or loss by insured or
self-insured casualty excepted; (e) maintain in full force and effect all
Licenses and perform in all material respects all obligations under any
Contracts; (f) not permit (to the extent within the control of the Seller) to
occur any of the events or occurrences described in Section 4.7 (Absence of
Certain Changes or Events) of this Agreement; (g) use its best efforts to
preserve the Prepaid Phone Card Business intact, keep available to Buyer the
present services of Personnel (except for employees terminated for cause) and
preserve for SmarTalk and Buyer Seller's goodwill; (h) not take any action that
would prevent Seller from consummating the transactions contemplated by this
Agreement or (i) not make any change in Tax practice or make, revoke or change
any election with respect to Taxes. Seller will consult with Buyer and SmarTalk
regarding timing for the transition or termination of all Personnel who are not
Transferred Personnel.
Section 6.6 MUTUAL COOPERATION. The parties hereto will
cooperate with each other, and will use all reasonable efforts to cause the
fulfillment of the conditions to the parties' obligations hereunder and to
obtain as promptly as possible all consents, authorizations, orders or approvals
from each and every third party, whether private or governmental, required in
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connection with the transactions contemplated by this Agreement. Seller agrees
to provide any necessary administrative services and support that may be
required to operate the Prepaid Phone Card Business in the ordinary course due
to a failure to obtain at or prior to Closing any necessary Permits or consents;
it is expressly agreed and understood that the term "necessary administrative
services and support" shall not include long-distance, transport, access or
related, incidental or ancillary services and support. Any such services and
support shall be provided at Seller's cost of providing the service (including
reasonable and customary general and administrative and overhead expenses) and
for a period not to exceed sixty (60) calendar days from the Closing Date. For
services rendered pursuant to this Section, (i) Seller shall provide Buyer with
a written statement indicating in detail the nature of the services provided and
the costs associated therewith and (ii) Buyer shall pay to Seller the specified
amount within fifteen (15) calendar days after receipt of the statement by Buyer
(less any disputed amount which Buyer and Seller shall diligently cooperate to
resolve as soon as possible).
Section 6.7 ACCESS TO BOOKS AND RECORDS; COOPERATION. (a)
Seller shall afford to Buyer and Buyer's auditing staff, accountants and other
authorized representatives and Buyer shall afford to Seller and such
representatives, upon reasonable notice, full access to the books and records of
the Prepaid Phone Card Business pertaining to the Prepaid Phone Card Business's
operations prior to the Closing Date for a period of six (6) years following the
Closing Date in connection with tax and accounting matters and other reasonable
business purposes.
(b) Following the Closing the parties shall cooperate with
each other to the extent reasonably necessary in the preparation, filing and
audits of each parties' Tax Returns as they relate to the Prepaid Phone Card
Business. In connection therewith, each party shall, at the other's expense,
make available to the other such personnel as shall be reasonably requested (so
as not to unreasonably interfere with any party's business) to aid in the
preparation and audits of such Tax Returns. Prior to a final determination
thereof by the relevant taxing authority, neither Buyer or SmarTalk, on the one
hand, nor Seller, on the other hand, shall take, and shall use their respective
best efforts to cause their respective affiliates not to take, any position
inconsistent with the representations and warranties set forth in Sections
4.7(k) and (l).
Section 6.8 CONSENTS. Seller shall use its reasonable best
efforts to obtain, prior to the Closing Date, all consents, waivers or approvals
to the transactions contemplated by this Agreement or that may be required under
any law or under any of the Contracts, Pending Contracts, Permits, Intellectual
Property or other Assets being sold, assigned to, or assumed by Buyer under this
Agreement. Buyer shall provide all reasonable assistance to Seller in obtaining
such consents, waivers and approvals. To the extent required consents, waivers
or approvals are not obtained prior to Closing with respect to the transfer of
any such items, and, if required under this Agreement, Buyer shall have waived
such condition at Closing, then until such consents, waivers or approvals are
obtained, Buyer shall obtain the benefits and assume the obligations with
respect to such items in accordance with this Agreement by acting as
subcontractor, sublicensee or sublessee of Seller or otherwise be put in a
position substantially to be provided the benefits of such Contracts, Pending
Contracts, Permits, Intellectual Property or other Assets (except in each case
for consents, waivers or approvals for which such substitution cannot be made by
operation of law) and Seller shall enforce for the benefit of Buyer any and all
rights of Seller against a third party with respect to any such items and Seller
shall promptly pay to Buyer any and all monies received by Seller after the
Closing in connection with any such Contract,
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Pending Contract, Permit, or other Asset, and after the Closing, Seller shall
continue to use its reasonable best efforts to obtain a consent, waiver or
approval with respect to each of such items as may be required. In addition, in
the event that any Contract or other understanding which contains a
non-competition or non-disclosure provision in favor of the Prepaid Phone Card
Business entered into between Seller and any third party shall not be assignable
to Buyer at Closing, Seller hereby covenants and agrees to notify Buyer of such
and to enforce at Buyer's request and in accordance with Buyer's reasonable
instructions and at Buyer's expense, the non-competition or non-disclosure
provisions of such Contract or understanding.
Section 6.9 HART-SCOTT-RODINO ACT. Buyer and Seller shall
promptly make their respective filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "H-S-R Act") with respect to the transactions
contemplated by this Agreement, and shall make any other required submissions in
connection therewith.
Section 6.10 NON-USE OF NAMES. On the Closing Date, except as
otherwise provided in this Section 6.10, Seller will discontinue any business
operations under, and any use of, the names CallTime, Pronto! and Pin Pal or any
and all formative, variants and derivatives thereof (collectively, the
"Restricted Names"). Seller agrees that it will not conduct any business
post-Closing under any Restricted Name (i) other than such business as is in
furtherance of the terms and provisions of this Agreement and as is for the
benefit of, and at the express written request and expense of, Buyer and (ii)
other than conducting business with respect to Excluded Assets for a reasonable
period of time, not to exceed one (1) year following the Closing Date, during
which Seller will discontinue the use of Restricted Names with respect to such
Excluded Assets.
Section 6.11 NEW CUSTOMERS. Between the date hereof and the
Closing Date, Seller shall consult in good faith with Buyer regarding any
potential Customer Contract for which the reasonably estimated gross revenues
associated therewith are $50,000 or more and shall not enter into any such
potential Customer Contract without Buyer's prior consent, which consent shall
not be unreasonable withheld.
Section 6.12 EXISTING CUSTOMERS. Buyer shall use its
commercially reasonable best efforts to process Seller's existing prepaid phone
cards as it would process Buyer's own prepaid phone cards in the ordinary course
of business as presently conducted and shall use its reasonable best efforts to
preserve Seller's good name and reputation with its customers and potential
customers and federal and state regulatory agencies. Buyer and SmarTalk shall
cooperate with Seller in responding to any customer complaints.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF BUYER AND SMARTALK
The obligations of Buyer and SmarTalk to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment,
or the waiver by Buyer and SmarTalk, on or prior to the Closing Date, of the
following conditions:
Section 7.1 REPRESENTATIONS AND WARRANTIES TRUE AT THE
CLOSING DATE. The representations and warranties of Seller contained in this
Agreement shall be deemed to have
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been made on and as of the Closing Date and shall then be true and correct in
all material respects (except those representations and warranties that are
qualified by materiality which shall be true and correct in all respects), and
on the Closing Date Seller shall have delivered to Buyer and SmarTalk an
officer's certificate to such effect.
Section 7.2 SELLER'S PERFORMANCE. Each of the obligations of
Seller to be performed on or before the Closing Date, pursuant to the terms of
this Agreement, shall have been duly performed in all material respects (except
those obligations that are qualified by materiality, which shall be performed in
all respects) by the Closing Date, and on the Closing Date Seller shall have
delivered to Buyer and SmarTalk an officer's certificate to such effect.
Section 7.3 INSTRUMENTS OF CONVEYANCE AND TRANSFER; TITLE
INSURANCE. At the Closing, Seller shall have delivered to Buyer such deeds,
bills of sale, endorsements, assignments, and other good and sufficient
instruments of conveyance and transfer (including, without limitation, where
required, recordable assignments of any Intellectual Properties in recordable
form), in form and substance reasonably satisfactory to Buyer and its counsel
and consistent with this Agreement, as are effective to vest in Buyer, as
applicable, good and marketable title to the Assets free and clear of any Liens,
except for Permitted Liens. Simultaneously with such delivery, Seller shall take
or cause to be taken all such other steps as are reasonably required hereunder
to put Buyer in actual possession and operating control of the Assets.
Section 7.4 TRANSITION AGREEMENT. At the Closing, Seller (or
an affiliate of Seller), Buyer and SmarTalk shall have entered into a Transition
Agreement, substantially in the form of Exhibit A hereto, to service cards
outstanding as of the Closing Date, to transition cards to Buyer's platforms,
and to address distribution of revenues received after the Closing.
Section 7.5 CERTAIN TAX FORMS. At the Closing, Seller shall
have delivered to Buyer an affidavit (in a form reasonably satisfactory to
Buyer) stating, under penalty of perjury, its United States taxpayer
identification number and that it is not a foreign person pursuant to Section
1445(b)(2) of the Code, which affidavit complies with the relevant portions of
the regulations promulgated with respect to Section 1445 of the Code.
Section 7.6 APPROVALS AND CONSENTS. Except for those approvals
and consents that by their terms must be obtained after the Closing (for which,
to the extent any application, notice or other instrument requires execution by
Seller, Seller will deliver to Buyer at or before the Closing the requisite
applications, notices or other instruments, signed on behalf of Seller,
necessary to obtain such approvals and consents following the Closing), Seller
shall have obtained and shall have delivered to Buyer all material requisite
approvals and consents to be procured by Seller necessary to operate the Prepaid
Phone Card Business as currently operated from governmental or regulatory bodies
or agencies, whether federal, state, local or foreign, and all material
third-party consents and approvals and valid sublicenses as contemplated by
Section 6.8 for all Intellectual Property, Contracts or Permits for which such
consents and approvals are required pursuant to the terms of such instruments or
necessary for the performance of their respective obligations hereunder.
Section 7.7 MATERIAL ADVERSE CHANGE. There shall not have
occurred any damage or destruction of, or loss to, any of the Assets of Seller,
whether or not covered by insurance,
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which would reasonably be expected to result in a Material Adverse Effect, nor
shall there have occurred any other event or condition would reasonably be
expected to result in a Material Adverse Effect, including, without limitation,
any change in applicable federal or state laws, regulations or practices which
would have a Material Adverse Effect.
Section 7.8 LITIGATION. No claim, action, suit, investigation
or other proceeding shall have been filed after the date hereof and be pending
by any third party (including any governmental agency) before any court or
administrative agency challenging or otherwise relating to the transactions
provided for herein and which may affect Buyer, SmarTalk or Seller in a manner
which is materially adverse.
Section 7.9 NO CHANGE IN LAW. There shall not have been any
action taken or any statute enacted by any governmental authority which would
render the parties unable to consummate the transactions contemplated herein or
make the transactions contemplated herein illegal or prohibit, restrict or
substantially delay the consummation of the transactions contemplated herein.
Actions pending or taken with respect to payphones or payphone compensation are
specifically excepted as matters that may impact the obligations to close by
either party.
Section 7.10 HART-SCOTT-RODINO ACT. All applicable waiting
periods under the H-S-R Act shall have expired or been terminated, and no
action shall have been taken or formal protest made by the United States
Department of Justice, the Federal Trade Commission or any governmental
authority or any other person or entity to prohibit the transactions
contemplated by this Agreement by reason of a claimed violation of any antitrust
laws. Without limiting the foregoing, no obligation arising out of the H-S-R Act
shall have been imposed on Buyer to divest any material portion of its business
by reason of the transaction contemplated by this Agreement.
Section 7.11 DOCUMENTS. Seller shall have furnished Buyer with
other documents, certificates and other instruments reasonably requested to be
furnished to Buyer pursuant to the terms hereof.
Section 7.12 RELEASE OF UCCS. Seller shall have delivered to
Buyer executed UCC-3 termination statements satisfactory to record the
terminations of all UCC financing statements with respect to any Liens, other
than Permitted Liens.
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF SELLER
The obligation of Seller to consummate the transactions
contemplated hereby shall be subject to the fulfillment, or the waiver by
Seller, on or prior to the Closing Date, of the following conditions:
Section 8.1 REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING
DATE. The representations and warranties of Buyer and SmarTalk contained in this
Agreement or in any other document delivered by Buyer or SmarTalk pursuant
hereto shall be deemed to have been made at and as of the Closing Date and shall
then be true and correct in all material respects (except those representations
and warranties that are qualified by materiality, which shall be true
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and correct in all respects), and on the Closing Date Buyer shall have delivered
to Seller an officer's certificate to such effect.
Section 8.2 BUYER'S PERFORMANCE. (a) Each of the obligations
of Buyer and SmarTalk to be performed on or before the Closing Date pursuant to
the terms of this Agreement shall have been duly performed in all material
aspects (except those obligations that are qualified by materiality, which shall
be performed in all respects) by the Closing Date, and on the Closing Date Buyer
and SmarTalk shall have delivered to Seller an officer's certificate to such
effect.
(b) Buyer shall, at the Closing, pay to Seller the Purchase
Price, in accordance with Section 2 above.
Section 8.3 APPROVALS AND CONSENTS. Buyer shall have obtained
and shall have delivered to Seller all requisite approvals and consents to be
procured by Buyer from governmental or regulatory bodies or agencies, whether
federal, state, local or foreign.
Section 8.4 LITIGATION. No claim, action, suit, investigation
or other proceeding shall have been filed after the date hereof and be pending
by any third party (including any governmental agency) before any court or
administrative agency challenging or otherwise relating to the transactions
provided for herein or which may affect Buyer, SmarTalk, or Seller in a manner
which is materially adverse.
Section 8.5 NO CHANGE IN LAW. There shall not have been any
action taken or any statute enacted by any governmental authority which would
render the parties unable to consummate the transactions contemplated herein or
make the transactions contemplated herein illegal or prohibit, restrict or
substantially delay the consummation of the transactions contemplated herein.
Section 8.6 HART-SCOTT-RODINO ACT. All applicable waiting
periods under the H-S-R Act shall have expired or been terminated, and no action
shall have been taken or formal protest made by the United States Department of
Justice, the Federal Trade commission or any other governmental authority or any
other person or entity to prohibit the transactions contemplated by this
Agreement by reason of a claimed violation of any antitrust laws. Without
limiting the foregoing, no obligation arising out of the H-S-R Act shall have
been imposed on Buyer to divest any material portion of its business by reason
of the transaction contemplated by this Agreement.
Section 8.7 DOCUMENTS. Buyer shall have furnished Seller with
documents, certificates and other instruments reasonably requested to be
furnished to it pursuant to the terms hereof.
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ARTICLE IX. SURVIVAL OF REPRESENTATIONS
AND WARRANTIES, INDEMNIFICATION
Section 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC..
Other than (i) the representations and warranties contained in Sections 4.3,
4.4, 4.5, 4.6, 4.7 (other than Sections 4.7(k) and (l)), 4.9, 4.10, 4.13, 4.14,
4.15, 4.16 and 4.20(a) hereof (the "Surviving Seller Representations") and in
Section 5.4 hereof, all of which shall survive the Closing for a period of one
(1) year following the Closing Date, and (ii) the representations and warranties
contained in Sections 4.7(k) and (l) hereof, which shall survive the Closing
until the date that is sixty (60) calendar days following the lapse of the
applicable statute of limitations (taking into account extensions thereof), the
representations and warranties contained in this Agreement shall not survive the
Closing.
Section 9.2 SELLER AGREEMENT TO INDEMNIFY. (a) After the
Closing Date, Seller shall indemnify, defend and hold harmless Buyer and
SmarTalk, their respective officers, employees, agents representatives and
affiliates, and their successors and assigns (collectively, the "Seller
Indemnified Parties") against and in respect of any and all actual liabilities,
losses, expenses (including, without limitation, the reasonable fees, expenses
and disbursements of counsel, except as otherwise provided in Section 9.4
hereof) (collectively, "Losses") regardless of whether an action has been filed
or asserted against any Seller Indemnified Party arising from, in connection
with or resulting from (i) any breach by Seller of the Surviving Seller
Representations (such breach to be determined, in the case of those Surviving
Seller Representations that are qualified by materiality, without regard to such
qualification) or any breach by Seller of its covenants or agreements made in
this Agreement (including, without limitation, the Schedules, Exhibits and
Annexes hereto) that survive the Closing, provided that (w) Seller shall be
required to indemnify the Seller Indemnified Parties pursuant to this clause (i)
only to the extent that the aggregate actual Losses (as adjusted pursuant to
Section 9.6 hereof) to the Seller Indemnified Parties arising from, in
connection with or resulting from such breaches exceed Five Hundred Thousand
Dollars ($500,000), (x) Seller shall not be required to indemnify the Seller
Indemnified Parties pursuant to this clause (i) in an aggregate amount, when
aggregated together with any indemnification of the Seller Indemnified Parties
pursuant to clause (2) of Section 9.2(b) hereof, in excess of Thirty Three
Million Dollars ($33,000,000), (y) Seller shall not be required to indemnify the
Seller Indemnified Parties pursuant to this clause (i) for any breach of which
the actual Losses (as adjusted pursuant to Section 9.6 hereof) arising from, in
connection with or resulting from any individual case amount to Twenty-Five
Thousand Dollars ($25,000) or less, and such Losses shall not be included in
calculating the Five Hundred Thousand Dollar ($500,000) threshold established in
the preceding subclause (w), and (z) any claim for indemnification under this
clause (i) must be made in writing to Seller by Buyer within one (1) year
following the Closing Date; (ii) any Excluded Liability; (iii) to the extent
that Seller is able to recover such amounts from such creditor with its
reasonable best efforts, any and all Losses arising from a judicial
determination that the sale of the Assets hereunder is ineffective against any
creditor of the Prepaid Phone Card Business; and (iv) costs or expenses related
to the employment of current or former personnel for periods prior to the
Closing Date that Buyer may incur (including, but not limited to, with respect
to the Employee Plans or with respect to any other benefit plan) with respect to
which Seller (or any entity required to be aggregated with Seller under Section
414(b), (c), (m) or (o) of the Code) has or had any liability or obligation to
contribute at any time before the Closing).
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(b) In addition to the foregoing provisions of Section 9.2(a)
above and without limiting the generality of such provisions, Seller agrees to
fully indemnify and hold harmless Buyer and its respective parent corporations
and subsidiaries and all other members, if any, of any group of which Buyer is a
member for Tax purposes (any subsequent reference to "Buyer" in this clause (i)
shall mean either Buyer individually or one or more of its affiliates as
described herein, as appropriate) against and in respect of and, on demand, will
reimburse Buyer for, any and all liability whatsoever, and however imposed
(including any claim asserted or deficiency assessed against or collected from
or paid by Buyer), in respect of (1) (A) except for any Taxes expressly provided
for herein as being assumed or paid by Buyer, any Taxes for any and all taxable
periods (or portion thereof) ending on or prior to the Closing Date, (B) any
unpaid Taxes, whether determined on a separate, consolidated, combined or
unitary basis, relating to Seller (or any member of a group for tax purposes in
which Seller is or was included) (i) imposed under of Treasury Regulation ss.
1.1502-6 or any comparable provision of state, local or foreign law with respect
to any taxable period beginning prior to the Closing Date or (ii) pursuant to
any guaranty, indemnification, Tax sharing or similar agreement made on or
before the Closing Date relating to the sharing of liability for, or payment of,
Taxes and/or (C) any Taxes payable by the Seller pursuant to Article X hereof
and/or (2) any loss of a deduction or basis, or any increase in tax liability or
decrease in a tax credit, attributable to the breach by Seller of the
representations and warranties contained in Sections 4.7(k) and/or (l) and/or
any fact relating thereto, provided that Seller shall not be required to
indemnify the Seller Indemnified Parties pursuant to this clause (2) in an
aggregate amount, when aggregated together with any indemnification of the
Seller Indemnified Parties pursuant to clause (i) of Section 9.2(a) hereof, in
excess of Thirty Three Million Dollars ($33,000,000); provided further that any
claim for indemnification under this Section 9.2(b) must be made in writing to
Seller by Buyer within sixty (60) calendar days of the lapse of the applicable
statutory period of limitations (taking into account extensions thereof). Any
Losses for which a claim is made pursuant to this Section 9.2(b) shall not be a
basis of a claim or claims under Section 9.2(a) hereof.
Section 9.3 BUYER'S AGREEMENT TO INDEMNIFY. After the Closing
Date, Buyer and SmarTalk shall jointly and severally indemnify, defend and hold
harmless Seller, its officers, directors, employees and affiliates, and their
successors and assigns (collectively, the "Buyer Indemnified Parties") against
and in respect of any and all actual Losses regardless of whether any action has
been filed or asserted against any Buyer Identified party arising from, in
connection with or resulting from (a) any breach by Buyer or SmarTalk of
representations and warranties contained in Section 5.4 hereof (such breach to
be determined, in the case of those representations and warranties that are
qualified by materiality, without regard to such qualification) or any breach by
Buyer or SmarTalk of their covenants and agreements made in this Agreement that
survive the Closing, provided that (w) Buyer and SmarTalk shall be required to
indemnify the Buyer Indemnified Parties pursuant to this clause (i) only to the
extent that the aggregate actual Losses (as adjusted pursuant to Section 9.6
hereof) to the Buyer Indemnified Parties arising from, in connection with or
resulting from such breaches exceed Five Hundred Thousand Dollars ($500,000),
(x) neither Buyer nor SmarTalk shall be required to indemnify the Buyer
Indemnified Parties pursuant to this clause (i) in an aggregate amount in excess
of Two Million Dollars ($2,000,000), (y) neither Buyer nor SmarTalk shall be
required to indemnify the Buyer Indemnified Parties pursuant to this clause (i)
for any breach of which the actual Losses (as adjusted pursuant to Section 9.6
hereof) arising from, in connection with or resulting from any individual case
amount to Twenty-Five Thousand Dollars ($25,000) or less, and such Losses
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shall not be included in calculating the Five Hundred Thousand Dollar ($500,000)
threshold established in the preceding subclause (w), and (z) any claim for
indemnification under this clause (i) must be made in writing to Buyer and
SmarTalk by Seller within one (1) year following the Closing Date; (b) the
conduct of the Prepaid Phone Card Business from and after the Closing Date,
except with respect to an Excluded Liability; (c) any Assumed Liability; and (d)
any of the Assets (i) arising on or after Closing, (ii) arising from any
contracts or agreements entered into by Buyer or SmarTalk or employees of Buyer
or SmarTalk, or (iii) arising from or in any way related to the activities of
Buyer or SmarTalk or the operation of their respective businesses.
Section 9.4 PROCEDURES RELATING TO INDEMNIFICATION. Promptly
after the receipt by any party hereto of notice of any claim, action, suit or
proceeding of any third party which is subject to indemnification by any party
hereunder, such party or parties (the "Indemnified Party") shall give written
notice of such claim (a "Notice of Claim") to the party or parties obligated to
provide such claim and the amount thereof, to the extent known. The failure of
the Indemnified Party to so notify the Indemnifying Party shall not impair the
Indemnified Party's ability to seek indemnification from the Indemnifying Party.
The Indemnifying Party shall be entitled to participate in the defense or
settlement of such matter and the parties agree to cooperate in any such defense
or settlement and to give each other full access to all information relevant
thereto. Except as otherwise provided in this Agreement, the Indemnifying Party
shall not be obligated to indemnify an Indemnified Party hereunder for any
settlement entered into without the Indemnifying Party's prior written consent,
which consent shall not be unreasonably withheld, conditioned or delayed. If any
Notice of Claim relates to a claim by a person or persons (other than by
federal, state, local or foreign tax authorities or by the Buyer or SmarTalk),
and the amount of such claim is acknowledged by Seller to be fully covered by
the foregoing indemnity, as limited herein, the Seller may elect to defend
against such claim at its expense, in lieu of the Buyer or SmarTalk assuming
such defense; PROVIDED, that Buyer or SmarTalk shall be entitled to participate
in or monitor such defense at its expense and Seller will fully cooperate with
Buyer or SmarTalk and its counsel with respect thereto. If the Seller or any
other persons as provided above elect to assume such defense, they shall retain
counsel reasonably satisfactory to the Buyer or SmarTalk. No compromise or
settlement of such claim may be effected by either party without the other
party's consent (which shall not be unreasonably withheld).
Section 9.5 PAYMENT. All amounts payable by one party to the
other pursuant to the provisions of this Article IX shall be payable within
fifteen (15) business days after a final determination thereof in accordance
with the provisions hereof. Any payment by one party to another pursuant to the
provisions of this Article IX shall be in an amount equal to the payment
required hereunder.
Section 9.6 CALCULATION OF LOSSES. If the amount with respect
to which any claim that may be made under this Article IX (an "Indemnity Claim")
gives rise to a currently realizable Tax Benefit (as defined below) or the
availability of insurance proceeds or other third party payments to the party
making the Indemnity Claim, the Indemnity Claim and any consequent indemnity
payment shall be reduced by the amount of the Tax Benefit, insurance proceeds or
other third party payments available to the party making the Indemnity Claim. To
the extent such Indemnity Claim does not give rise to a currently realizable Tax
Benefit, if the
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amount with respect to which any Indemnity Claim is made gives rise to a
subsequently realized Tax Benefit to the party that made the Indemnity Claim,
such party shall refund to the indemnifying party the amount of such Tax Benefit
when, as and if realized. For the purposes of this Agreement, any subsequently
realized Tax Benefit shall be treated as though it were a reduction in the
amount of the initial Indemnity Claim, and the liabilities of the parties shall
be redetermined as though both occurred at or prior to the time of the indemnity
payment. For purposes of this Section 9.6, a "Tax Benefit" means an amount by
which the tax liability of the party (or group of corporations including the
party) is reduced (including, without limitation, by deduction, reduction of
income by virtue of increased tax basis or otherwise, entitlement to a refund,
credit or otherwise) plus any related interest received from the relevant taxing
authority, net of any Taxes attributable thereto. For the purposes of this
Section 9.6, a Tax Benefit is "currently realizable" to the extent it can be
reasonably anticipated that such Tax Benefit will be realized and reduce Tax
liability in the current taxable period or year or in any tax return with
respect thereto (including through a carryback to a prior taxable period) or in
any taxable period or year prior to the date of the Indemnity Claim. In the
event that there should be a determination disallowing the Tax Benefit, the
indemnifying party shall be liable to refund to the indemnified party the amount
of any related reduction previously allowed or payments previously made to the
indemnifying party pursuant to this Section 9.6. The amount of the refunded
reduction or payment shall be deemed a payment under Sections 9.2 or 9.3 of this
Agreement and thus shall be paid subject to any applicable reductions under this
Section 9.6. Subject to the threshold amounts set forth in Sections 9.2(a) and
9.3 hereof, the amount of any Losses and/or Taxes for which indemnification is
provided under this Article IX shall be increased to take account of any
currently realized Tax Detriment (as hereinafter defined) arising from the
receipt or accrual of any such indemnification amount. For purposes of this
Section 9.6, the term "Tax Detriment" means an amount by which the tax liability
of an indemnified party (or group of corporations including the indemnified
party) is increased. To the extent such Indemnity Claim does not give rise to a
currently realizable Tax Detriment, if the receipt or accrual of any such
indemnification amount with respect to which any Indemnity Claim is made gives
rise to a subsequently realized Tax Detriment to the party that made the
Indemnity Claim, the indemnifying party shall pay to the indemnified party the
amount of such Tax Detriment when, as and if realized. For the purposes of this
Section 9.6, a Tax Detriment is "currently realizable" to the extent it can be
reasonably anticipated that such Tax Detriment will be realized and increase Tax
liability in the current taxable period or year or in any tax return with
respect thereto or in any taxable period or year prior to the date of the
Indemnity Claim.
Section 9.7 REMEDIES. The indemnities provided in this Article
IX shall survive the Closing and shall be the sole and exclusive remedy of the
indemnified party or parties against the indemnifying party at law or equity for
any matter covered by Sections 9.2 and 9.3.
ARTICLE X. PAYMENT OF CERTAIN TAXES AND EXPENSES
Notwithstanding any other provision of this Agreement, all
transfer, registration, stamp, documentary, excise, gross receipts, sales, use
and similar Taxes, and any penalties, interest and additions to such Taxes,
incurred in connection with this Agreement or the transactions contemplated
hereby shall be borne one-half by Seller and one-half by Buyer, and all escheat
and similar Taxes incurred in connection with this Agreement or the transactions
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contemplated hereby shall be the responsibility of and paid by Buyer. Seller
shall be responsible for and pay to Buyer the portion of such amounts allocated
to it pursuant to this Article X for which payment is due on or after the
Closing Date at least two (2) business days prior to the date such taxes become
due and payable. Buyer shall provide Seller with at least five (5) business days
notice of any such due date and the amount of taxes becoming then due and
payable. Each party to this Agreement shall cooperate in the timely making of
all filings, returns, reports, and forms as may be required in connection
therewith. Each party will be liable for its own costs and expenses incurred in
connection with the negotiation, preparation, execution or performance of this
Agreement, including without limitation, fees, costs and expenses of its own
financial consultants, accountants and counsel.
ARTICLE XI. WAIVER
This Agreement shall not be released, discharged, abandoned,
changed or modified in any manner, except by an instrument in writing executed
by the parties hereto. The failure of any party to enforce at any time any of
the provisions of this Agreement shall in no way be construed to be a waiver of
any such provision, nor in any way to affect the validity of this Agreement or
any part hereof or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
ARTICLE XII. NOTICES, ETC.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered in person or by courier, telegraphed, telexed or by facsimile
transmission or mailed by certified or registered mail, postage prepaid:
If to Seller: Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Telephone: (716) 777-8497
Telecopy: (716) 546-7823
Attention: Martin T. McCue,
Corporate Vice President -
Planning and Legal Services
with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Telephone: (212) 455-2000
Telecopy: (212) 455-2502
Attention: Robert E. Spatt, Esq.
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If to SmarTalk SmarTalk Teleservices, Inc.
or Buyer: 1640 South Sepulveda, Suite 500
Los Angeles, California 90025
Telephone: (310) 444-8800
Telecopy: (310) 479-3297
Attention: David A. Hamburger, General
Counsel
with a copy to: Dewey Ballantine LLP
333 South Hope Street
Los Angeles, California 90071
Telephone: (213) 626-3399
Telecopy: (213) 625-0562
Attention: Robert M. Smith
Any party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.
ARTICLE XIII. ENTIRE AGREEMENT; AMENDMENT
This Agreement and the other agreements referred to herein or
entered into in connection herewith set forth the entire agreement and
understanding of the parties in respect of the transactions contemplated hereby
and supersede all prior agreements, arrangements and understandings relating to
the subject matter hereof including all such agreements, arrangements and
understandings between Seller, Buyer and SmarTalk. No representation, warranty,
promise, inducement or statement of intention has been made by Seller or Buyer
and SmarTalk that is not embodied in this Agreement. It is the explicit intent
of each party hereto that Seller is not making any representation or warranty
whatsoever, express or implied, including but not limited to any implied
warranty as to condition, merchantability or suitability as to any of the assets
or properties of the Prepaid Phone Card Business, except those representations
and warranties of Seller in Article IV of this Agreement. Except as expressly
provided herein, it is understood that any cost estimates, projections or other
predictions, any data, any financial information or any presentations provided
or addressed to Buyer or SmarTalk are not and shall not be deemed to be or
include any representation or warranty of Seller. This Agreement may be amended
or modified only by a written instrument executed by the parties hereto or by
their successors and assigns.
ARTICLE XIV. PRESS RELEASES
No party hereto shall issue any press release or make any
public announcement of any of the transactions contemplated by this Agreement
except as may be mutually agreed to in writing by Seller and Buyer; PROVIDED,
HOWEVER, that notwithstanding the foregoing, Seller and Buyer shall be
permitted, upon prior notice to the other party, to make such mandatory
disclosures to the public or governmental authorities or a stock exchange as
their respective counsel shall deem necessary to maintain compliance with, or to
prevent violation of, applicable laws or stock exchange rules.
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ARTICLE XV. GENERAL
This Agreement: (a) shall be construed and enforced in
accordance with the laws of the State of New York without giving effect to the
choice of law principles thereof; (b) shall inure to the benefit of and be
binding upon the successors and assigns of the parties hereto, provided that
nothing in this Agreement, expressed or implied, is intended to confer upon any
other person any rights or remedies hereunder; and (c) may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The Section and other
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. The
parties hereto agree that any action to enforce or interpret the terms of this
Agreement shall be instituted and maintained only in the Federal District Court
for the Southern District of New York, or if jurisdiction is not available in
such Federal court, then a state court located in the Borough of Manhattan, The
City of New York, New York. Buyer and SmarTalk each hereby consents to the
jurisdiction and venue of such courts and waives any right to object to such
jurisdiction and venue.
ARTICLE XVI. SEVERABILITY
To the extent that any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect. In furtherance and not in limitation of the
foregoing, if the duration or geographic extent of, or business activity covered
by, any provision of this Agreement shall be in excess of that which is
enforceable under applicable law, then such provision shall be construed to
cover only that duration, extent or activities which may be validly and
enforceably covered.
ARTICLE XVII. BULK SALES LAWS
The parties hereto hereby waive compliance with the provisions
of any applicable bulk sales laws, including Article 6 of the Uniform Commercial
Code as it may be in effect in any applicable jurisdiction. This provision shall
not be deemed to in any way limit the indemnity provided in Section 9.2 hereof.
ARTICLE XVIII. TERMINATION
Section 18.1 TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to Closing by written
notice delivered by Seller to Buyer or by Buyer to Seller, as the case may be,
in the following instances:
(a) At any time prior to Closing by the mutual consent in
writing of Seller, Buyer and SmarTalk.
(b) By Buyer or Seller if Closing does not occur on or before
December 31, 1997.
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Section 18.2 EFFECT OF TERMINATION. If this Agreement is
terminated pursuant to this Article XVIII, this Agreement shall forthwith become
wholly void and of no further force and effect and all further obligations of
Seller, Buyer and SmarTalk or their respective officers or directors with
respect to any obligation under this Agreement shall terminate without further
liability except (a) for the obligations under Articles X, XIV, XV and XXI and
(b) that such termination shall not constitute a waiver or bar by any party of
any rights or remedies at law or in equity it may have for damages caused by
reason of a breach of this Agreement by another party hereto.
ARTICLE XIX. ASSIGNMENT
Neither this Agreement nor any interest herein may directly or
indirectly be transferred or assigned by any party, in whole or in part, without
the written consent of the other parties, except that Buyer may effect any such
assignment to any affiliated company, but any such assignment shall not relieve
Buyer or SmarTalk of their respective duties and obligations contained in this
Agreement.
ARTICLE XX. NO THIRD PARTY BENEFICIARY
This Agreement is for the benefit of, and may be enforced only
by, Seller, Buyer, SmarTalk, and their respective successors and transferees and
assignees, and is not for the benefit of, and may not be enforced by, any third
party.
ARTICLE XXI. REMEDIES
The parties agree that, for the transactions provided for in
this Agreement, the sole and exclusive remedy shall be for breaches of the
express terms herein.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
SMTK NY-1 CORP.
By: /s/ ERICH L. SPANGENBERG
---------------------------------------
Name: Erich L. Spangenberg
Title: President and
Chief Operating Officer
SMARTALK TELESERVICES, INC.
By: /s/ ERICH L. SPANGENBERG
---------------------------------------
Name: Erich L. Spangenberg
Title: President and
Chief Operating Officer
FRONTIER CORPORATION
By: /s/ JOSEPH P. CLAYTON
---------------------------------------
Name: Joseph P. Clayton
Title: President and
Chief Executive Officer
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EXHIBIT 99.1
WEDNESDAY OCTOBER 22 6:09 PM EDT
COMPANY PRESS RELEASE
SMARTALK TO BUY FRONTIER'S RETAIL PREPAID BUSINESS
STRATEGIC ACQUISITION TO ADD OVER 4,000 PHONE CARD RETAILERS
Los Angeles--(BUSINESS WIRE)--October 22, 1997--SMARTALK(SM) Teleservices, Inc.
(Nasdaq:SMTK) today announced it has signed a definitive agreement to acquire
the retail prepaid business from FRONTIER CORPORATION (NYSE:FRO) for $35 million
in cash. Frontier prepaid phone cards are distributed in over 4,000 retail
locations, including Merit Stations, King Sooper, Southwest Supermarkets, Acme
Supermarkets, Qwik Shops and Wegmans, amongst others. When combined, SMARTALK
will have distribution agreements providing access to more than 40,000 locations
throughout North America for the sale of prepaid calling cards.
"As a result of this acquisition, SMARTALK clearly establishes itself as the
leading manufacturer and distributor of prepaid calling cards at retail with
agreements providing access to more than 40,000 locations. Our distribution
combined with our quality and feature-rich products are making SMARTALK the
national brand that consumers will look for when purchasing prepaid calling card
products and services," stated SMARTALK Chairman and CEO Robert H. Lorsch. "Most
importantly, we are excited about the opportunity to serve Frontier's prepaid
retailers and to work with these valuable customers to expand their business and
transition them into prime SMARTALK accounts. We take our responsibilities to
all our retail customers seriously. At the end of the day, this transaction
gives SMARTALK another opportunity to continue doing what we do best, which is
manufacture, market and distribute prepaid calling cards at retail."
Joseph P. Clayton, President and CEO of Frontier Corporation, stated, "Our
decision to exit the prepaid business reflects Frontier' decision to focus on
its core business. The prepaid business being acquired by SMARTALK is
fundamentally a good business that lies within SMARTALK's core competencies.
SMARTALK is a market leader in prepaid and SMARTALK's retail focus should permit
our prepaid customers to realize the significant potential that exists in retail
prepaid telecommunications."
Added SMARTALK President and COO Erich Spangenberg, "SMARTALK continues to
responsibly execute on its strategy and through this transaction we will add to
our size, scale and scope, which should permit us to further leverage our
existing infrastructure and supplier relationships. The Company has already
demonstrated our ability to integrate acquired operations and we believe the
integration of Frontier's retail prepaid business will go smoothly. Though we
foresee some increased expense in the short term attributable to the cost of
integrating the Frontier operations, we believe the transaction will be
accretive to 1998. We anticipate the closing of this transaction will occur at
or before year end."
<PAGE> 2
Under a separate agreement, the two companies have entered into a carrier
services arrangement.
SMARTALK manufactures and distributes prepaid calling cards and other enhanced
telecommunications products which are sold at retail and marketed to advertising
and promotional clientele. Also included in the acquisition are a number of
licenses for entertainment and celebrity images such as World Championship
Wrestling which are popular amongst collectors and traders of phone cards.
Headquartered in Los Angeles, SMARTALK maintains additional offices in Boston,
San Francisco and Orlando. The expected completion of SMARTALK's previously
announced acquisition of ConQuest Telecommunication Services Corp. will also
create an Ohio operation and will add retail distribution agreements with such
companies as Winn-Dixie, Marathon Oil, SuperAmerica, Pick Kwik Food Stores, and
others.
SMARTALK currently maintains distribution agreements with mass merchandisers,
consumer electronics retailers, supermarkets and home office superstores, such
as Office Depot, Future Shop, Venture Stores, The Good Guys, Staples, Service
Merchandise, Jewel/Osco Combo Stores, Osco Drug, Sav-On Drug, OfficeMax,
Dominick's Finer Foods, Eckerd Drug, Food4Less, Ralphs Supermarkets, Bradlees,
Marshall Field's, Best Buy, and Builders Square, as well as university book
stores and convenience stores nationwide. SMARTALK also offers specialized
value-added promotional phone card programs to clients including Gillette,
Hewlett-Packard, Wells Fargo Bank, Nabisco, Pfizer and Prudential Securities.
The Company maintains strategic marketing partnerships with Choice Hotels and
HFS, the two largest hotel franchisors in the US, along with Simon DeBartolo
Group, the largest publicly traded real estate company and operator of shopping
malls in North America.
Frontier Corporation is the parent company whose long distance, local telephone
and wireless communications subsidiaries provide a range of integrated services
to customers. Frontier is a Standard & Poor's 500 company with annualized
revenue approaching $2.5 billion. With sales locations nationwide, Frontier is
the fifth largest long distance company in the United States.
Note: Certain statements made herein that are not historical are forward-looking
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements include, but are not limited to the completion of the proposed
transaction; the Company's utilization of Frontier's existing retail
relationships to expand market share; the company's ability to successfully
integrate Frontier's prepaid operations into its current business; and the
completion of the previously announced acquisition of ConQuest Telecommunication
Services, Corp. Investors are cautioned that all forward-looking statements
involve risks and uncertainties including, without limitation, risks related to
the Company's ability to successfully integrate Frontier's operations in a
timely fashion, ability to maintain existing business and retailer relationships
including Frontier's current business relationships, market acceptance and
consumer demand for the Company's products and services, pricing dependence on
third-party vendors and the Company's ability to maintain efficient marketing
and distribution. Investors are further cautioned
<PAGE> 3
that completion of this and other transactions are subject to, among other
conditions, receipt of applicable state and federal regulatory consents. This
list is not intended to be exhaustive. Investors who seek more information about
the Company's business and relevant risk factors may wish to review the
Company's SEC reports, including, but not limited to, its Annual Report on Form
10-K for 1996, and quarterly reports on Form 10-Q.
<PAGE> 1
EXHIBIT 99.2
SMARTALK ANNOUNCES SETTLEMENT OF CONQUEST LITIGATION
Business Editors
LOS ANGELES--(BUSINESS WIRE)--Nov. 5, 1997--SMARTALK TeleServices,
Inc. (Nasdaq:SMTK) today announced that a definitive settlement agreement has
been reached with Ghanshyam C. Patel, Jay Jayanthan and W. Michael Byrne, who
were plaintiffs in an action brought against ConQuest Telecommunications
Services Corp. Terms of the settlement were not disclosed.
In July 1997, SMARTALK announced the signing of a definitive
agreement to acquire ConQuest, a developer and marketer of prepaid phone cards
and other enhanced telecommunications services. As previously announced,
SMARTALK anticipates closing the ConQuest acquisition during the fourth quarter
of this year.
"We are pleased to have this litigation resolved and we look forward
to welcoming Messrs. Patel Jayanthan and Byrne as shareholders of SMARTALK upon
the closing of the ConQuest acquisition," stated Robert H. Lorsch, SMARTALK
chairman and CEO.
Mr. Lorsch also noted that other ConQuest shareholders have
previously voiced overwhelming support for the proposed acquisition.
Ghanshyam C. Patel, founder of ConQuest, said, "I am pleased to
resolve this litigation and become a part of the SMARTALK family. I started
ConQuest with only a dream, and through hard work, creativity and the support of
ConQuest employees, we have been able to make it grow into a nationwide long
distance company. I am confident that the shareholders of ConQuest, who will
soon become shareholders of SMARTALK, will continue to enjoy success with
SMARTALK."
SMARTALK manufactures and distributes prepaid calling cards and
other enhanced telecommunications products which are sold at retail and marketed
to advertising and promotional clientele. SMARTALK maintains distribution
agreements with mass merchandisers, consumer electronics retailers, supermarkets
and home office superstores, such as Office Depot, Future Shop, Venture Stores,
The Good Guys, Staples, Service Merchandise, Jewel/Osco Combo Stores, Osco Drug,
Sav-On Drug, OfficeMax, Dominick's Finer Foods, Eckerd Drug, Food4Less, Ralphs
Supermarkets, Bradlees, Marshall Field's, Best Buy and Builders Square, as well
as university book stores and convenience stores nationwide. SMARTALK also
offers specialized value-added promotional phone card programs to corporate
clients including Gillette, Hewlett-Packard, Wells Fargo Bank, Nabisco, Pfizer
and Prudential Securities. The company maintains strategic marketing
partnerships with Choice Hotels and HFS, the two largest hotel franchisers in
the United States, along with Simon DeBartolo Group, the largest publicly traded
real estate company and operator of shopping malls in North America.
Based in Los Angeles, with additional offices in Boston, Orlando and
San Francisco, SMARTALK is a member of the Telecommunications Resellers
Association, International Telecard Association and the Consumer Electronics
Manufacturer's Association.
NOTE: Certain statements made herein that are not historical are
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995. Such statements include, but are not limited to, the Company's
ability to complete the announced acquisition of ConQuest Telecommunications
Services Corp., including the satisfaction of the closing conditions related to
ConQuest acquisition and approval by the stockholders of ConQuest of the
acquisition; the Company's utilization of ConQuest's existing retail call center
services and call platform services relationships to expand market share; and
the Company's ability to successfully integrate ConQuest into its current
business. Investors are cautioned that all forward-looking statements involve
risks and uncertainties including, without limitation, risks related to market
acceptance and consumer demand for the company's products and services and
pricing dependence on third-party vendors. The Company's agreements with its
distributors generally do not assure that the Company will generate a specific
level of revenue and are terminable on relatively short notice. Investors who
seek more information
<PAGE> 2
about the Company's business and relevant risk factors may wish to review the
Company's SEC reports, including, but not limited to, its Annual Report on Form
10-K for 1996, and quarterly reports on Form 10-Q.
