<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MJD COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4813 13-3725229
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NUMBER)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
----------------
521 EAST MOREHEAD STREET, SUITE 250 CHARLOTTE, NORTH CAROLINA 28202 (704) 344-
8150
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
WALTER E. LEACH, JR.
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY 521 EAST MOREHEAD
STREET, SUITE 250 CHARLOTTE, NORTH CAROLINA 28202 (704) 344-8150
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
NEIL A. TORPEY, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP 399 PARK AVENUE NEW YORK, NEW YORK 10022
(212) 318-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE FEE(1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/2% Senior Subordinated Notes
due 2008....................... $125,000,000 100% $125,000,000 $36,875
- -------------------------------------------------------------------------------------------
Floating Rate Callable Securities
due 2008....................... $75,000,000 100% $75,000,000 $22,125
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Calculated pursuant to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED JUNE 9, 1998
PROSPECTUS
LOGO
MJD COMMUNICATIONS, INC.
OFFER TO EXCHANGE ITS
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
AND FLOATING RATE CALLABLE SECURITIES DUE 2008, SERIES B,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
AND FLOATING RATE CALLABLE SECURITIES DUE 2008
--------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
MJD Communications, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and together with this Prospectus, the "Exchange Offer"), to
exchange its 9 1/2% Senior Subordinated Notes due 2008, Series B (the "Fixed
Rate Exchange Notes") and Floating Rate Callable Securities due 2008, Series B
(the "Floating Rate Exchange Notes" and, together with the Fixed Rate Exchange
Notes, the "Exchange Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Statement (as defined) of which this Prospectus is a part, for an equal
principal amount of its outstanding 9 1/2% Senior Subordinated Notes due 2008
(the "Fixed Rate Original Notes") and Floating Rate Callable Securities due
2008 (the "Floating Rate Original Notes" and, together with the Fixed Rate
Original Notes, the "Old Notes") of which $125 million and $75 million
principal amount, respectively, is outstanding. The Exchange Notes and the Old
Notes are collectively referred to herein as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended (the "Expiration Date"). Tenders of
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Notes will be issued and delivered
promptly after the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for exchange. See "The
Exchange Offer." Old Notes may be tendered only in integral multiples of
$1,000. The Company has agreed to pay the expenses of the Exchange Offer.
The Exchange Notes will be obligations of the Company evidencing the same
debt as the Old Notes and will be entitled to the benefits of the same
indenture, dated as of May 5,1998 (the "Indenture"), between the Company and
United States Trust Company of New York, as trustee (the "Trustee"). The form
and terms of the Exchange Notes are substantially the same as the form and
terms of the Old Notes except that the Exchange Notes have been registered
under the Securities Act. See "The Exchange Offer."
The Exchange Notes will bear interest from May 5, 1998. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued up
until the date of the issuance of the Exchange Notes. Such waiver will not
result in the loss of interest income to such holders, since the Exchange Notes
will bear interest from the issue date of the Old Notes.
Interest on the Exchange Notes will be payable semi-annually on May 1 and
November 1 of each year, commencing on November 1, 1998 at the rate of 9 1/2%
per annum in the case of the Fixed Rate Exchange Notes, and at a rate per annum
equal to LIBOR (as defined) plus 418.75 basis points in the case of the
Floating Rate Exchange Notes. The rate of interest on the Floating Rate
Exchange Notes will be reset semi-annually. The Fixed Rate Exchange Notes will
be redeemable, in whole or in part, at the option of the Company on or after
May 1, 2003, and the Floating Rate Exchange Notes will be redeemable, in whole
or in part, at the option of the Company, at any time, in each case, at the
redemption prices, set forth herein, plus accrued and unpaid interest to the
redemption date. In addition, at any time on or prior to May 1, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Fixed
Rate Exchange Notes with the net cash proceeds of an Equity Sale (as defined),
at 109.5% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the redemption date; provided, that at least 65% of the original
aggregate principal amount of the Fixed Rate Exchange Notes originally issued
remains outstanding immediately after any redemption. Upon a Change of Control
(as defined), each holder of the Exchange Notes shall have the right to require
the Company to repurchase such holder's Exchange Notes, at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the repurchase date. See "Description of Notes--Repurchase at the Option of
the Holders Upon a Change of Control."
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that, by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities. The Company has
agreed that for a period of 180 days after consummation of the Exchange Offer,
it will make this prospectus, as it may be amended or supplemented from time to
time, available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
There has been no public market for the Old Notes. If a market for the
Exchange Notes should develop, the Exchange Notes could trade at a discount
from their principal amount. The Company does not intend to list the Exchange
Notes on a national securities exchange or quotation system. There can be no
assurance that an active public market for the Exchange Notes will develop.
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE
OFFER.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Exchange Notes
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the Exchange Notes offered hereby, reference is made to the
Registration Statement. Statements contained in this prospectus as to the
contents of certain documents filed as exhibits to the Registration Statement
are not necessarily complete and, in each case, are qualified by reference to
the copy of the document so filed. The Registration Statement can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 3475 Lenox Road, N.E., Suite 1000, Atlanta,
Georgia 30326-1232. Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Such material also can be reviewed through
the Commission's Electronic Data Gathering, Analysis, and Retrieval System
("EDGAR"), which is publicly available through the Commission's web site
(http://www.sec.gov).
The Company intends to furnish to each holder of the Exchange Notes annual
reports containing audited financial statements and quarterly reports
containing unaudited financial information for the first three quarters of
each fiscal year. The Company also will furnish to each holder of the Exchange
Notes such other reports as may be required by applicable law.
The principal executive offices of the Company are located at 521 East
Morehead Street, Suite 250, Charlotte, North Carolina 28202 and its telephone
number is (704) 344-8150.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING, WITHOUT
LIMITATION, STATEMENTS REGARDING THE COMPANY'S FUTURE FINANCIAL POSITION,
BUSINESS STRATEGY, BUDGETS, PROJECTED COSTS AND PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS
WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE FORWARD-
LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. ALL SUBSEQUENT WRITTEN AND
ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING
ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
i
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. Reference is made to, and this Summary is qualified in its entirety
by, the more detailed information, including the Company's Consolidated
Financial Statements and notes thereto, and the Company's Pro Forma
Consolidated Financial Statements and notes thereto, contained herein. Unless
otherwise indicated, references to "MJD" or the "Company" include MJD
Communications, Inc., a Delaware corporation, and its consolidated
subsidiaries. On May 5, 1998 the Company sold and issued the Old Notes (the
"Offering"). The Company acquired Kadoka Telephone Company, Columbine Telephone
Company, Chautauqua & Erie Telephone Corporation and C-R Communications, Inc.
in separate transactions during 1997 (the "1997 Acquisitions"). The Company
acquired Taconic Telephone Corp. ("Taconic") on March 30, 1998, Ellensburg
Telephone Company ("Ellensburg") on April 30, 1998 and Chouteau Telephone
Company ("Chouteau" and collectively with the acquisitions of Ellensburg and
Taconic and the 1997 Acquisitions, the "Completed Acquisitions") on June 1,
1998. The Company expects to acquire Utilities, Inc. ("Utilities") in a
transaction during 1998 (the "Pending Acquisition" and together with the
Completed Acquisitions, the "Acquisitions"). The Offering, the New Credit
Facility (as defined), the Taconic acquisition, the Ellensburg acquisition and
the Chouteau acquisition are collectively referred to in this Prospectus as the
"Completed Transactions." See "Glossary" for definitions of certain other terms
used in this Prospectus.
THE COMPANY
MJD is a growing provider of local telecommunications services to customers
in rural communities in the United States. The Company also provides
complementary services such as long distance service, enhanced calling services
and wireless telephony. Upon completion of the Pending Acquisition, the Company
believes that it will be the eighteenth largest telephone company in the United
States, and the largest telephone company in the United States that focuses
primarily on acquiring and operating rural telecommunications service
companies. For the year ended December 31, 1997, the Company had revenue and
EBITDA of $43.0 million and $22.7 million, respectively. On a pro forma basis
after giving effect to the Acquisitions, the Company would have had revenue and
EBITDA of $104.6 million and $55.0 million, respectively, for the year ended
December 31, 1997. For the three months ended March 31, 1998, the Company had
revenue and EBITDA of $13.5 million and $6.7 million, respectively. On a pro
forma basis after giving effect to the Acquisitions, the Company would have had
revenue and EBITDA of $27.6 million and $13.3 million, respectively, for the
three months ended March 31, 1998.
The Company believes that the rural telecommunications market is particularly
attractive due to limited competition and a favorable regulatory environment;
in particular, pursuant to existing state and federal regulations, the Company
is able to charge rates which enable it to recover its operating and capital
costs, plus a reasonable (as determined by the relevant regulatory authority)
rate of return on its invested capital. Rural local exchange carriers ("RLECs")
which serve this market are characterized by stable operating results and
strong cash flow margins. The Company has successfully completed acquisitions
of fourteen RLECs in ten states (Colorado, Illinois, Kansas, Maine, New
Hampshire, New York, South Dakota, Washington, Oklahoma and Vermont (the
"Current States")) and, pro forma for the Pending Acquisition, the Company will
serve over 123,000 access lines and provide local telephone service to
customers in rural locations in ten states. MJD has been successful in
improving operating margins and reducing trailing acquisition multiples by
centralizing many of the acquired companies' operations and increasing revenues
through introducing innovative marketing strategies for enhanced and ancillary
services. The Company believes that the attractive operating characteristics of
rural markets and the Company's ability to draw on its existing corporate
resources create the opportunity to achieve and maintain substantial operating
efficiencies.
The local telephone industry is comprised of a few large, well-known
companies such as the RBOCs and a large number of small independent telephone
companies. According to the United States Telecommunications Association
("USTA"), there are over 1,300 independent telephone companies with fewer than
25,000 access lines in the United States. The majority of these small telephone
companies operate in thinly populated, rural areas with limited competition due
to the unfavorable economics of constructing and operating a competing
1
<PAGE>
network in such areas. Many of these RLECs are owned by families or small
groups of individuals and were founded shortly after World War I. The Company
believes that the owners of some of these RLECs are increasingly interested in
selling their companies, thereby creating significant future opportunities to
acquire additional properties. The Company also believes that the RBOCs are
increasingly likely to dispose of rural access lines in certain markets in
order to focus more attention and resources on their urban markets.
The Company was formed in 1991 to capitalize on consolidation opportunities
in the RLEC market. The Company has assembled a senior management team with
significant industry experience and a strong track record of acquiring and
integrating RLECs. The seven most senior managers of the Company have an
average of approximately 20 years of experience in the telecommunications
industry with companies such as C&P Telephone (now a subsidiary of Bell
Atlantic Corporation), Sprint Corporation, Frontier Corporation and C-TEC
Corporation. As of May 31, 1998, senior management owned 24.0% of the common
stock of the Company on a fully diluted basis. MJD also benefits from the
financial and management expertise of its two primary equity investors, which
are investment partnerships affiliated with Kelso & Company ("Kelso") and
Carousel Capital Partners, L.P. ("Carousel" and collectively with Kelso, the
"Equity Investors"), each of which owned 38.0% of the common stock of the
Company on a fully diluted basis as of May 31, 1998. The Equity Investors have
invested a total of $47.8 million of equity capital in MJD through May 31,
1998. Kelso is one of the oldest and most established firms specializing in
leveraged investing, both as a principal and as a financial advisor, since
1971, and has significant experience with other media and communications
properties. Carousel, founded in 1996, is a merchant bank with over $160.0
million in equity commitments, focused on investing in middle market companies
located in the southeastern United States.
BUSINESS STRATEGY
The Company's objective is to become the leading provider of
telecommunications services to rural communities and the preferred acquirer of
RLECs in the United States. Key strategies in the development and fulfillment
of the Company's objectives are discussed below.
CONTINUED GROWTH THROUGH ACQUISITIONS. The Company expects to continue
growing primarily by acquiring independent RLECs and by purchasing rural
telephone operations from large telephone companies such as the RBOCs, GTE
Corporation and others. The Company focuses its acquisition efforts on rural
telephone companies that exhibit: (i) significant opportunities to realize
management and operating synergies and economies of scale; (ii) positive
economic and demographic characteristics; (iii) a positive regulatory and
operating environment; (iv) deployment of advanced technology; and (v) strong
mid-level management capabilities. Cellular, cable television, long distance
resale, paging and wireless operations may also be acquired, but primarily as
ancillary business segments of acquired RLECs.
IMPROVE OPERATING EFFICIENCY OF ACQUIRED RLECS. By consolidating RLECs under
a single corporate organization, the Company has successfully achieved
significant operating efficiencies that the Company believes the independent
RLECs could not have individually attained. For example, the Company has
consolidated the regulatory, accounting and billing functions of its acquired
companies and has reduced the overhead costs associated with executive
management of such companies. The Company's acquisition strategy is to acquire
inherently sound operating RLECs which do not require dramatic changes to core
operations. Upon acquiring such companies, the Company applies its operating,
regulatory, marketing, technical and management expertise and its financial
resources to improve the operations and profitability of the acquired RLECs.
INCREASE REVENUE THROUGH ENHANCED SERVICE OFFERINGS. The Company believes
that its local community presence and its brand recognition will allow it to
grow its revenues by offering enhanced and ancillary telecommunications
services to its existing customers. Unlike the RBOCs, MJD is not subject to
regulatory restrictions that prohibit it from marketing other services such as
long distance services in its existing franchise
2
<PAGE>
territories or elsewhere. The Company intends to pursue incremental revenue
growth through: (i) traditional ancillary telephony service offerings such as
enhanced calling services, including voice mail and conference calling; (ii)
long distance resale services, including related products such as "800" service
and long distance calling cards; (iii) multimedia services such as Internet
access, cable television and other entertainment services; and (iv) various
wireless services, including cellular, PCS and paging. For example, during the
year ended December 31, 1997, ST Long Distance (the Company's long distance
subsidiary) introduced its long distance service program in selected markets
and realized an average first year penetration rate of approximately 57% in
these markets.
EXPAND EXISTING MARKET PRESENCE BY LAUNCHING CLEC SERVICES. The Company
believes it has an opportunity to penetrate underserved markets adjacent to its
franchise areas as a competitive local exchange carrier ("CLEC"). The Company
believes that by pursuing this opportunity it may generate incremental revenue
and EBITDA growth by utilizing its existing network infrastructure, brand
recognition and experienced personnel. The Company plans to offer an array of
telecommunications services, such as local, long distance, data and wireless,
to customers in rural and small urban markets (populations between 25,000 and
75,000) within approximately 200 miles of a Company-owned RLEC. The Company
intends to implement its CLEC strategy by entering a market before other
competitors and reselling the services of an incumbent LEC ("ILEC"), capturing
a significant market share and then migrating these customers to its own
facilities-based service. The Company is currently testing this strategy in New
Hampshire and New York and plans on determining whether or not to expand its
CLEC business based on the relative success achieved in these markets. See
"Business--Business Strategy" and "Risk Factors--Future Capital Requirements;
Expected CLEC Losses" and "--Competition--Risk of Inability to Compete as a
CLEC." For purposes of the Indenture relating to the Notes, the Company will
conduct its CLEC business through Unrestricted Subsidiaries, which will limit
the amount the Company can invest in the CLEC business and exempt the CLEC
subsidiaries from most of the covenants applicable to the Notes. See
"Description of Notes."
RECENT AND PENDING ACQUISITIONS
The Company has recently completed, or plans to complete, the following RLEC
acquisitions:
TACONIC TELEPHONE CORP. On March 30, 1998, the Company acquired Taconic.
Taconic, located in the Hudson Valley area of eastern New York, 30 miles
southeast of Albany, operates approximately 24,800 access lines (approximately
83% residential). The Company purchased the common stock of Taconic for
$67.5 million and assumed $9.2 million of debt of Taconic. In the year ended
December 31, 1997, Taconic had revenues of $20.4 million.
ELLENSBURG TELEPHONE COMPANY. On April 30, 1998, the Company acquired
Ellensburg. Ellensburg, located in Ellensburg, Washington, 100 miles southeast
of Seattle, operates approximately 23,900 access lines (approximately 76%
residential). The Company purchased the common stock of Ellensburg for $91.0
million. In the year ended December 31, 1997, Ellensburg had revenues of $14.7
million.
CHOUTEAU TELEPHONE COMPANY. On June 1, 1998, the Company acquired Chouteau.
Chouteau, located in Chouteau, Oklahoma, 30 miles east of Tulsa, operates
approximately 3,400 access lines (approximately 84% residential). The Company
purchased the common stock of Chouteau for $19.0 million and assumed $3.0
million of debt of Chouteau. In the year ended December 31, 1997, Chouteau had
revenues of $4.3 million.
UTILITIES, INC. On April 3, 1998, the Company entered into an agreement to
acquire Utilities, which is expected to close in the third or fourth quarter of
1998. Utilities is headquartered in Standish, Maine, approximately 15 miles
west of Portland. Utilities operates approximately 22,200 access lines in
central and southern Maine, most of which are located in exchanges adjacent to
exchanges operated by subsidiaries of the
3
<PAGE>
Company. In the year ended December 31, 1997, Utilities had revenues of $16.2
million (which excludes the revenues of certain cellular businesses of
Utilities that are not being acquired by MJD).
The Pending Acquisition is subject to certain closing conditions. See "Risk
Factors--Risk That Pending Acquisition Will Not Be Consummated" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ACQUISITION HISTORY
The following summarizes each RLEC the Company has acquired to date and the
Pending Acquisition.
<TABLE>
<CAPTION>
ACCESS LINES
LOCATION OF AS OF
RLEC ACQUIRED OPERATIONS DECEMBER 31, 1997 DATE ACQUIRED
- ------------------------ ------------------- ----------------- -----------------------------------
<S> <C> <C> <C>
Sunflower Telephone Com- Kansas/Colorado 4,675 May 1993
pany, Inc.
Northland Telephone Com- Maine/New Hampshire 20,493 August 1994
pany of Maine, Inc.
STE/NE Acquisition Corp. Vermont 5,510 August 1994
d/b/a Northland
Telephone Company
of Vermont
Sidney Telephone Company Maine 1,359 January 1996
Big Sandy Telecom, Inc. Colorado 893 June 1996
Bluestem Telephone Com- Kansas 992 August 1996
pany
Odin Telephone Exchange, Illinois 1,164 August 1996
Inc.
Kadoka Telephone Co. South Dakota 580 January 1997
Columbine Telephone Com- Colorado 1,085 April 1997
pany, Inc.
Chautauqua & Erie Tele- New York 11,070 July 1997
phone
Corporation
C-R Communications, Inc. Illinois 910 October 1997
Taconic Telephone Corp. New York 24,832 March 1998
Ellensburg Telephone Washington 23,910 April 1998
Company
Chouteau Telephone Com- Oklahoma 3,394 June 1998
pany
-------
Subtotal: 100,867
Utilities, Inc. Maine 22,239 Third/Fourth Quarter 1998 (expected)
-------
Total: 123,106
=======
</TABLE>
The Company's principal executive offices are located at Morehead Place, 521
East Morehead Street, Suite 250, Charlotte, North Carolina 28202, and its phone
number is (704) 344-8150.
4
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer........ $1,000 principal amount of Fixed Rate Exchange
Notes and Floating Rate Exchange Notes will be
issued in exchange for each $1,000 principal
amount of Fixed Rate Original Notes and Floating
Rate Original Notes, respectively, validly
tendered pursuant to the Exchange Offer. As of
the date hereof, $125 million and $75 million in
aggregate principal amount of Fixed Rate Original
Notes and Floating Rate Original Notes,
respectively, are outstanding. The Company will
issue the Exchange Notes to tendering holders of
Original Notes promptly after the Expiration
Date.
Resales................... Based on an interpretation by the staff of the
Commission set forth in Morgan Stanley & Co.,
Incorporated, SEC No-Action Letter (available
June 5, 1991) (the "Morgan Stanley Letter"),
Exxon Capital Holdings Corporation, SEC No-Action
Letter (available May 13, 1988) (the "Exxon
Capital Letter") and similar letters, the Company
believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise
transferred by any person receiving such Exchange
Notes, whether or not such person is the holder
(other than any such holder or other person which
is (i) a broker-dealer that receives Exchange
Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making or
other trading activities, or (ii) an "affiliate"
of the Company within the meaning of Rule 405
under the Securities Act (collectively,
"Restricted Holders")) without compliance with
the registration and prospectus delivery
provisions of the Securities Act, provided that
(a) such Exchange Notes are acquired in the
ordinary course of business of such holder or
other person, (b) neither such holder nor such
other person is engaged in or intends to engage
in a distribution of such Exchange Notes, and (c)
neither such holder nor other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. If any person were to be participating in
the Exchange Offer for the purposes of
participating in a distribution of the Exchange
Notes in a manner not permitted by the
Commission's interpretation, such person (a)
could not rely upon the Morgan Stanley Letter,
the Exxon Capital Letter or similar letters and
(b) must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction. Each broker or dealer that
receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker or dealer as a result of
market-making or other activities, must
acknowledge that it will deliver a prospectus in
connection with any sale of such Exchange Notes.
See "Plan of Distribution."
Expiration Date........... 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
5
<PAGE>
Accrued Interest on the
Exchange Notes and Old
Notes.................... The Exchange Notes will bear interest from May 5,
1998. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have
waived the right to receive any payment in
respect of interest on such Old Notes accrued to
the date of issuance of the Exchange Notes.
Conditions to the
Exchange Offer............ The Exchange Offer is subject to certain
customary conditions. The conditions are limited
and relate in general to proceedings which have
been instituted or laws which have been adopted
that might impair the ability of the Company to
proceed with the Exchange Offer. As of the date
of this Prospectus, none of these events had
occurred, and the Company believes their
occurrence to be unlikely. If any such conditions
exist prior to the Expiration Date, the Company
may (a) refuse to accept any Old Notes and return
all previously tendered Old Notes, (b) extend the
Exchange Offer or (c) waive such conditions. See
"The Exchange Offer--Conditions."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, or an
Agent's Message (as defined) in connection with a
book-entry transfer together with the Old Notes
to be exchanged and any other required
documentation to the Exchange Agent (as defined)
at the address set forth herein and therein.
Tendered Old Notes, the Letter of Transmittal and
accompanying documents must be received by the
Exchange Agent by 5:00 p.m. New York City time on
the Expiration Date. See "The Exchange Offer--
Procedures for Tendering." By executing the
Letter of Transmittal, each holder will represent
to the Company that, among other things, the
Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course
of business of the person receiving such Exchange
Notes, whether or not such person is the holder,
that neither the holder nor any such other person
is engaged in or intends to engage in a
distribution of the Exchange Notes or has an
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes, and that neither the holder nor any such
other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company.
Special Procedures for
Beneficial Holders....... Any beneficial holder whose Old Notes are
registered in the name of such holder's broker,
dealer, commercial bank, trust company or other
nominee and who wishes to tender in the Exchange
Offer should contact such registered holder
promptly and instruct such registered holder to
tender on such holder's behalf. If such
beneficial holder wishes to tender on such
holder's own behalf, such beneficial holder must,
prior to completing and executing the Letter of
Transmittal and delivering such holder's Old
Notes, either make
6
<PAGE>
appropriate arrangements to register ownership of
the Old Notes in such holder's name or obtain a
properly completed bond power from the registered
holder. The transfer of record ownership may take
considerable time. See "The Exchange Offer--
Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
and a properly completed Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to
the Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Acceptance of Old Notes
and Delivery of Exchange
Notes.................... Subject to certain conditions, the Company will
accept for exchange any and all Old Notes which
are properly tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly after the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Certain Federal Income
Tax Consequences......... The exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be a
taxable event for federal income tax purposes. A
holder's holding period for Exchange Notes will
include the holding period for Old Notes. For a
discussion summarizing certain U.S. federal
income tax consequences to holders of the
Exchange Notes, see "Certain Federal Income Tax
Consequences."
Exchange Agent............ United States Trust Company of New York is
serving as exchange agent (the "Exchange Agent")
in connection with the Exchange Offer. The
mailing address of the Exchange Agent is United
States Trust Company of New York, P.O. Box 844
Cooper Station, New York 10276, Attention:
Corporate Trust Services. Deliveries by hand
before 4:30 p.m. should be delivered to United
States Trust Company of New York, 111 Broadway,
New York, New York 10006, Attention: Lower Level
Corporate Trust Window and by hand after 4:30
p.m. should be delivered to 770 Broadway, 13th
Floor, New York, New York 10003. For information
with respect to the Exchange Offer, contact the
Exchange Agent at telephone number 800-548-6565
or facsimile number (212) 420-6152.
7
<PAGE>
Use of Proceeds........... The Company will not receive any proceeds from
the Exchange Offer. See "Use of Proceeds." The
Company has agreed to bear the expenses of the
Exchange Offer pursuant to the Registration
Agreement (as defined). No underwriter is being
used in connection with the Exchange Offer.
8
<PAGE>
SUMMARY OF TERMS OF EXCHANGE NOTES
The Exchange Offer constitutes an offer to exchange up to $125 million and
$75 million aggregate principal amount of the Fixed Rate Exchange Notes and
Floating Rate Exchange Notes, respectively, for up to an equal aggregate
principal amount of Fixed Rate Original Notes and Floating Rate Original Notes,
respectively. The Exchange Notes will be obligations of the Company evidencing
the same indebtedness as the Original Notes, and will be entitled to the
benefit of the same indenture (the "Indenture"). The form and terms of the
Fixed Rate Exchange Notes and the Floating Rate Exchange Notes are
substantially the same as the form and terms of the Fixed Rate Original Notes
and Floating Rate Original Notes, respectively, except that the Exchange Notes
have been registered under the Securities Act. See "Description of the Notes."
COMPARISON WITH OLD NOTES
Freely Transferable....... The Exchange Notes will be freely transferable
under the Securities Act by holders who are not
Restricted Holders. Restricted Holders are
restricted from transferring the Exchange Notes
without compliance with the registration and
prospectus delivery requirements of the
Securities Act. The Fixed Rate Exchange Notes and
the Floating Rate Exchange Notes will be
identical in all material respects (including
interest rate, maturity and restrictive
covenants) to the Fixed Rate Old Notes and
Floating Rate Old Notes, respectively, with the
exception that the Exchange Notes will be
registered under the Securities Act. See "The
Exchange Offer--Terms of the Exchange Offer."
Registration Rights....... The holders of Old Notes currently are entitled
to certain registration rights pursuant to the
Registration Agreement, dated as of April 30,
1998 (the "Registration Agreement"), by and among
the Company and Salomon Smith Barney, BT Alex.
Brown, NationsBanc Montgomery Securities LLC and
Donaldson, Lufkin & Jenrette Securities
Corporation, the initial purchasers of the Old
Notes (collectively, the "Initial Purchasers"),
including the right to cause the Company to
register the Old Notes under the Securities Act
if the Exchange Offer is not consummated prior to
the Exchange Offer Termination Date (as defined).
See "The Exchange Offer--Conditions." However,
pursuant to the Registration Agreement, such
registration rights will expire upon consummation
of the Exchange Offer. Accordingly, holders of
Old Notes who do not exchange their Old Notes for
Exchange Notes in the Exchange Offer will not be
able to reoffer, resell or otherwise dispose of
their Old Notes unless such Old Notes are
subsequently registered under the Securities Act
or unless an exemption from the registration
requirements of the Securities Act is available.
TERMS OF THE EXCHANGE NOTES
Securities Offered........ $125 million aggregate principal amount of 9 1/2%
Senior Subordinated Notes due 2008, Series B.
$75 million aggregate principal amount of
Floating Rate Callable Securities due 2008,
Series B.
9
<PAGE>
Issuer.................... MJD Communications, Inc.
Maturity Date............. The Floating Rate Exchange Notes and the Fixed
Rate Exchange Notes will mature on May 1, 2008.
Interest Payment Dates.... Interest on the Exchange Notes will be payable
semi-annually on each May 1 and November 1,
commencing November 1, 1998. The Fixed Rate
Exchange Notes will bear interest at a rate of 9
1/2% per annum. The Floating Rate Exchange Notes
will bear interest at a rate per annum equal to
LIBOR plus 418.75 basis points. The rate of
interest on the Floating Rate Exchange Notes will
be reset semi-annually.
Subordination............. The Exchange Notes are general unsecured
obligations of the Company, subordinated in right
of payment to all existing and future Senior Debt
(as defined) of the Company, and effectively
subordinated to all existing and future debt and
other liabilities (including trade payables and
accrued liabilities) of the Company's
subsidiaries. The Company is a holding company
that derives all of its operating income and cash
flow from its subsidiaries. See "Risk Factors--
Subordination; Holding Company Structure." As of
March 31, 1998, after giving effect to the
Completed Transactions, the Company would have
had approximately $89 million of Senior Debt
outstanding (excluding unused commitments under
the New Credit Facility (as defined)) and total
balance sheet liabilities of the Company's
subsidiaries would have been approximately $137.6
million (including guaranties of $89 million of
Senior Debt of the Company); and after giving
effect to the Completed Transactions and the
Pending Acquisition, the Company would have had
approximately $147.8 million of Senior Debt
outstanding and total balance sheet liabilities
of the Company's subsidiaries would have been
approximately $217.5 million. In addition, as of
March 31, 1998, the Company would have had $7.0
million of Debt that ranked subordinate to the
Notes and no Debt outstanding that ranked
subordinate to the Notes. See "Description of the
Notes--Subordination."
Sinking Fund.............. None.
Optional Redemption....... The Fixed Rate Exchange Notes will be redeemable,
in whole or in part, at the option of the
Company, on or after May 1, 2003, and the
Floating Rate Exchange Notes will be redeemable,
in whole or in part, at the option of the
Company, at any time, in each case at the
redemption prices set forth herein, plus accrued
and unpaid interest to the date of redemption. In
addition, at any time on or prior to May 1, 2001,
the Company may redeem up to 35% of the aggregate
principal amount of the Fixed Rate Exchange Notes
with the net cash proceeds of an Equity Sale, at
a redemption price equal to 109.5% of the
principal amount thereof, plus accrued interest
to the date of redemption; provided that at least
65% of the aggregate principal amount of Fixed
Rate Exchange Notes originally issued remains
outstanding immediately after any redemption. See
"Description of the Notes--Optional Redemption."
10
<PAGE>
Change of Control......... Upon a Change of Control each holder of the
Exchange Notes will have the right to require the
Company to repurchase such holder's Exchange
Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest
to the date of repurchase. See "Description of
the Notes--Repurchase at Option of Holders upon a
Change of Control."
Certain Covenants.........
The Indenture contains limitations on, among
other things, (i) the ability of the Company and
the Restricted Subsidiaries to incur additional
Debt, (ii) the making of certain Restricted
Payments, including Investments, (iii) the
creation of certain Liens, (iv) the issuance and
sale of Capital Stock of Restricted Subsidiaries,
(v) Asset Sales, (vi) payment restrictions
affecting Restricted Subsidiaries, (vii)
transactions with Affiliates, (viii) the ability
of the Company to incur layered Debt, (ix) the
ability of the Company to enter lines of business
outside the Telecommunications Business and (x)
certain mergers, consolidations and transfers of
assets by or involving the Company (the foregoing
capitalized terms are defined in "Description of
the Notes--Certain Definitions"). All of these
limitations will be subject to a number of
important qualifications. See "Description of the
Notes--Certain Covenants."
RISK FACTORS
For a discussion of factors that should be considered in evaluating an
investment in the Exchange Notes, see "Risk Factors."
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary financial information of the Company.
The summary historical consolidated financial data for the years ended December
31, 1995, 1996, 1997 and the three months ended March 31, 1997 and 1998 are
derived from the consolidated financial statements of the Company included
elsewhere in this Prospectus which, in the case of the financial statements for
the years ended December 31, 1995, 1996 and 1997 have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The summary historical
consolidated financial statement data for the three months ended March 31, 1997
and 1998 have been derived from unaudited consolidated statements of the
Company, which, in the opinion of management, include all adjustments necessary
for a fair presentation of such data. The summary historical consolidated
financial statement data for the year ended December 31, 1994 are derived from
consolidated financial statements of the Company, not included herein, which
are audited by independent certified public accountants. The summary historical
consolidated financial statement data for the year ended December 31, 1993 have
been derived from unaudited consolidated financial statements of the Company,
not included herein, which, in the opinion of management, includes all
adjustments necessary for a fair presentation of such data. The summary pro
forma combined financial data for the year ended December 31, 1997 and as of
and for the three months ended March 31, 1998 have been derived from Company
prepared financial information, the audited consolidated financial statements
and notes thereto of certain of the Acquisitions and the audited consolidated
financial statements and notes thereto of the Company, which financial
statements appear elsewhere in this Prospectus. The following summary pro forma
combined financial and operating data are presented as if each of the
Acquisitions, the New Credit Facility and the Offering had occurred on January
1, 1997 and January 1, 1998 for the year ended December 31, 1997 and the period
ended March 31, 1998, respectively, in the case of operating data, and as of
March 31, 1998, in the case of balance sheet data. The summary pro forma
combined financial data have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations that would have been
achieved had the Acquisitions, the New Credit Facility and the Offering been
consummated as of the assumed dates, nor are the results necessarily indicative
of the Company's future results of operations. See "Risk Factors--Other Risks
associated with Acquisitions." The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements,
and notes thereto, the Pro Forma Consolidated Financial Statements, and notes
thereto, and the individual financial statements and notes thereto of certain
of the Acquisitions appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL
-----------------------------------------------------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------
(UNAUDITED)
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Operating
revenues....... $7,066 $14,025 $24,749 $30,258 $42,972 $8,767 $13,533
Operating
expenses....... 5,789 10,056 17,343 20,060 30,533 5,977 9,493
Income from
operations..... 1,276 3,968 7,406 10,198 12,439 2,790 4,039
Interest
expense, net... (791) (3,772) (7,179) (7,534) (9,588) (1,866) (2,775)
Other income
(expense)...... 750 1,755 892 829 1,515 69 70
Extraordinary
item........... -- -- -- -- (3,612) -- (2,521)
Net earnings
(loss)......... $ 930 $ 997 $ 567 $ 1,999 $(1,182) $ 593 $(1,827)
OTHER FINANCIAL
DATA:
EBITDA(6)....... $3,267 $ 8,808 $14,050 $17,639 $22,670 $4,800 $ 6,716
Depreciation and
amortization... 1,240 3,099 5,757 6,644 8,777 1,964 2,632
Capital
expenditures... 293 1,768 4,439 8,439 8,239 1,889 671
Ratio of
earnings to
fixed
charges(7)..... 2.5x 1.5x 1.2x 1.5x 1.4x 1.5x 1.5x
<CAPTION>
PRO FORMA
-------------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, 1997 ENDED MARCH 31, 1998
------------------------------ ------------------------------
COMPLETED AS ADJUSTED COMPLETED AS ADJUSTED
ACQUISITIONS, NEW FOR PENDING ACQUISITIONS, NEW FOR PENDING
CREDIT FACILITY ACQUISITION CREDIT FACILITY ACQUISITION
AND OFFERING(1)(2) (2)(3) AND OFFERING(2)(4) (2)(5)
------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Operating
revenues....... $ 88,391 $104,606 $23,479 $27,561
Operating
expenses....... 66,544 78,094 17,556 20,939
Income from
operations..... 21,847 26,512 5,923 6,622
Interest
expense, net... (30,787) (37,027) (7,646) (9,206)
Other income
(expense)...... 3,160 3,388 92 241
Extraordinary
item........... (6,287) (6,287) (2,521) (2,521)
Net earnings
(loss)......... $(11,065) $(12,275) $(3,833) $(4,365)
OTHER FINANCIAL
DATA:
EBITDA(6)....... $ 45,332 $ 55,005 $11,097 $13,260
Depreciation and
amortization... 20,377 25,170 5,107 6,422
Capital
expenditures... 15,688 19,241 1,547 1,932
Ratio of
earnings to
fixed
charges(7)..... -- -- -- --
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
ACTUAL
-------------------------------------------------------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ -----------------
(UNAUDITED)
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY CASH
FLOW DATA:
Net cash
provided
by operating
activities..... $ 5,504 $ 6,039 $ 9,772 $ 9,840 $ 2,985 $ (480)
Net cash
provided by
(used in)
investing
activities..... (50,846) (4,481) (19,790) (38,967) (1,412) (65,305)
Net cash
provided
by financing
activities..... 49,937 (2,903) 10,599 31,697 (35) 68,834
OTHER DATA:
Access lines in
service........ 4,343 28,205 28,737 34,017 48,731 34,754 74,326
<CAPTION>
PRO FORMA
-------------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, 1997 ENDED MARCH 31, 1998
------------------------------ ------------------------------
COMPLETED AS ADJUSTED COMPLETED AS ADJUSTED
ACQUISITIONS, NEW FOR PENDING ACQUISITIONS, NEW FOR PENDING
CREDIT FACILITY ACQUISITION CREDIT FACILITY ACQUISITION
AND OFFERING(1)(2) (2)(3) AND OFFERING(2)(4) (2)(5)
------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C>
SUMMARY CASH
FLOW DATA:
Net cash
provided
by operating
activities.....
Net cash
provided by
(used in)
investing
activities.....
Net cash
provided
by financing
activities.....
OTHER DATA:
Access lines in
service........ 100,867 123,106 102,101 124,665
</TABLE>
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------------------ ------------------------------
AS OF AS OF
DECEMBER 31, MARCH 31, AS OF MARCH 31, 1998
----------------- ----------- ------------------------------
(UNAUDITED) COMPLETED AS ADJUSTED
ACQUISITIONS FOR PENDING
1996 1997 1998 AND OFFERING(4) ACQUISITION(5)
------- -------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 4,253 $ 6,822 $ 9,871 $ 4,817 $ 6,777
Working capital......... 596 108 10,601 15,122 14,506
Property, plant and
equipment, net......... 41,615 61,207 88,021 122,497 144,137
Total assets............ 97,020 144,613 235,543 361,158 441,111
Long-term debt.......... 73,958 131,912 203,587 303,894 374,393
Redeemable preferred
stock.................. 10,689 130 -- -- --
Total stockholders'
equity (deficit)....... (599) (9,950) 5,061 20,061 20,061
</TABLE>
- --------
(1) Gives effect to the Completed Acquisitions, the New Credit Facility and the
Offering as if the closings thereof occurred on January 1, 1997.
(2) The summary pro forma combined operating data reflect adjustments in
connection with the relevant Acquisitions including: (i) amortization
expense to reflect goodwill recorded for purchase accounting, (ii)
elimination of certain specifically identified expenses related to
duplicative management services, directors fees, employee salaries and
related benefits, (iii) interest expense, net after giving effect to the
New Credit Facility and the Offering, and (iv) income tax expense to
reflect the effect that would result if the relevant Acquisitions had been
combined and subject to an assumed federal statutory rate and the
applicable state statutory tax rate for each of the relevant Acquisitions.
(3) Gives effect to the Completed Acquisitions, the New Credit Facility, the
Offering and the Pending Acquisition as if the closings thereof occurred on
January 1, 1997. The Pending Acquisition is subject to certain closing
conditions, See "Risk Factors--Risk that Pending Acquisition Will Not Be
Consummated."
(4) Gives effect to the Completed Acquisitions, the New Credit Facility and the
Offering as if the closings thereof occurred on January 1, 1998 in the case
of statement of operations data, and as of March 31, 1998, in the case of
balance sheet data.
(5) Gives effect to the Completed Acquisitions, the New Credit Facility, the
Offering and the Pending Acquisition as if the closings thereof occurred on
January 1, 1998, in the case of statement of operations data, and as of
March 31, 1998, in the case of balance sheet data. The Pending Acquisition
is subject to certain closing conditions. See "Risk Factors--Risk that
Pending Acquisition Will Not Be Consummated."
(6) EBITDA represents net earnings (loss) plus interest expense, income taxes,
depreciation and amortization and extraordinary items. While EBITDA is not
a measurement of financial performance under generally accepted accounting
principles and should not be construed as a substitute for net earnings
(loss) as a measure of performance, or cash flow as a measure of liquidity,
it is included herein because it is a measure commonly used in the
telecommunications industry. The definition of EBITDA stated here differs
from the definition of EBITDA applicable to the covenants for the Notes and
may not be comparable to EBITDA as defined by other companies. EBITDA
amounts may not be fully available for management's discretionary use, due
to certain requirements to conserve funds for capital expenditures, debt
service and other commitments.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, minority interest and
extraordinary items, plus fixed charges. Fixed charges include interest
expense on all indebtedness, capitalized interest and rental expense on
operating leases representing that portion of rental expense deemed to be
attributable to interest. Earnings were insufficient to cover fixed charges
on a pro forma basis as of December 31, 1997 by: (i) $5.8 million as
adjusted for the Completed Acquisitions, the New Credit Facility and the
Offering and (ii) $7.1 million as further adjusted for the Pending
Acquisition. Earnings were insufficient to cover fixed charges on a pro
forma basis as of March 31, 1998 by: (i) $1.6 million as adjusted for the
Completed Acquisitions, the New Credit Facility and the Offering and (ii)
$2.3 million as further adjusted for the Pending Acquisition.
13
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the risk factors set forth
below in evaluating an investment in the Notes offered hereby.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is highly leveraged due to the Offering. As of March 31, 1998,
on a pro forma basis after giving effect to the Completed Transactions and the
Pending Acquisition, the Company would have had approximately $374.4 million
of outstanding total consolidated indebtedness and stockholders' equity of
$19.2 million (on an historical basis, the Company had stockholders' equity of
approximately $5.1 million at March 31, 1998). The Indenture permits, subject
to certain conditions, the incurrence of additional indebtedness, all of which
may be Senior Debt or indebtedness of subsidiaries. The Company intends to
incur substantial additional indebtedness (including secured indebtedness)
following the Offering for the acquisition and expansion of RLECs and the
introduction of new service offerings (including but not limited to the
Company's proposed CLEC business). Moreover, although the CLEC business is
expected to result in operating losses, at least in initial years, such losses
will not reduce the Company's debt capacity under the Indenture because the
business will be conducted through Unrestricted Subsidiaries. See "--Future
Capital Requirements; Expected CLEC Losses," "--Subordination; Holding Company
Structure" and "Description of Notes--Certain Covenants--Limitation on Debt."
The Company's high degree of leverage could have important consequences,
including (i) a substantial portion of the Company's sources of capital and
cash flow from operations must be dedicated to debt service payments, thereby
reducing the funds available to the Company for other purposes; (ii) the
Company's ability to obtain additional debt financing in the future for
working capital, capital expenditures, acquisitions, repayment of indebtedness
or other purposes may be impaired, whether as a result of the covenants and
other terms of its debt instruments or otherwise; (iii) the Company is
substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage; (iv) the Company's high degree of
leverage may limit its ability to effect acquisitions, offer new services and
otherwise meet its growth objectives; and (v) the Company's high degree of
leverage may hinder its ability to adjust rapidly to changing market
conditions. In addition, the Company's operating and financial flexibility is
limited by the Indenture and the New Credit Facility and may be limited by
covenants contained in agreements governing future indebtedness of the Company
and its subsidiaries. Such covenants will impose significant operating and
financial restrictions on the Company and its subsidiaries and will restrict,
limit or prohibit, among other things, the ability of the Company and its
subsidiaries to incur additional indebtedness, pay dividends, repay
indebtedness prior to its stated maturity, sell assets, make investments,
engage in transactions with affiliates, create liens or engage in mergers or
acquisitions. There can be no assurance that such covenants will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interest of the
Company. See "Description of the Notes."
SUBORDINATION; HOLDING COMPANY STRUCTURE
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt of the Company. As of
March 31, 1998, after giving effect to the Completed Transactions, the Company
would have had approximately $89.0 million of Senior Debt outstanding
(excluding unused commitments under the New Credit Facility); after giving
effect to the Completed Transactions and the Pending Acquisition, the Company
would have had approximately $147.8 million of such Senior Debt. In the event
of the bankruptcy, liquidation or reorganization of the Company, the assets of
the Company will be available to pay the Notes only after all Senior Debt of
the Company has been paid in full. Sufficient funds may not exist to pay
amounts due on the Notes in such event. In addition, the subordination
provisions of the Indenture provide that no cash payment may be made with
respect to the Notes during the continuance of a
14
<PAGE>
payment default under any Senior Debt of the Company. Furthermore, if certain
nonpayment defaults exist with respect to certain Senior Debt of the Company,
the holders of such Senior Debt will be able to prevent payments on the Notes
for certain periods of time. See "Description of Notes--Subordination."
The Company is a holding company that derives all of its operating income
from the Company's subsidiaries. In addition to the Company, certain minority
investors also hold (or have the right to purchase) a portion of the capital
stock of such subsidiaries. To the extent that the capital stock of such
subsidiaries is owned by persons other than the Company, such persons are
generally entitled to receive a pro rata share of any distributions made by
such subsidiaries to the Company. The holders of the Notes will have no direct
claims against the Company's subsidiaries. Consequently, the right of holders
of the Notes to participate in any distribution of assets of such subsidiaries
upon any liquidation, bankruptcy, reorganization or otherwise will be subject
to prior claims of creditors of such subsidiaries (including, the lenders
under the Credit Facility, by virtue of guarantees of such indebtedness by the
Company's subsidiaries). Therefore, the Notes will be effectively subordinated
to all existing and future debt and other liabilities (including trade
payables and accrued liabilities) of the Company's subsidiaries. As of March
31, 1998, after giving pro forma effect to the Completed Transactions, total
balance sheet liabilities of the Company's subsidiaries would have been
approximately $137.6 million (including guarantees of $89.0 million of Senior
Debt of the Company under the New Credit Facility). The Company's subsidiaries
have other liabilities, including contingent liabilities, that could be
substantial. The Company is dependent on the earnings and cash flow of its
subsidiaries to meet its debt obligations, including its obligations with
respect to the Notes. The ability of the Company's subsidiaries to make such
payments or advances to the Company is limited by the laws of the relevant
states in which such subsidiaries are organized or located, including, in some
instances, by minimum capitalization requirements imposed by state regulatory
bodies that oversee the telecommunications industry in such states. In certain
circumstances, the prior or subsequent approval of such payments or advances
by such subsidiaries to the Company is required from such regulatory bodies or
other governmental entities. In addition, certain subsidiaries of the Company
have debt the terms of which, under certain circumstances, could prohibit such
subsidiaries' ability to pay dividends or make other payments or advances to
the Company. Accordingly, there can be no assurance that the Company's
subsidiaries will be able to, or will be permitted to, pay to the Company
amounts necessary to service the Notes. In the event such amounts are not paid
to the Company, the Company would be unable to make required principal and
interest payments on the Notes.
RISK THAT PENDING ACQUISITION WILL NOT BE CONSUMMATED
The Pending Acquisition is subject to regulatory approvals, including the
approval of the relevant public utilities commission in the state of the
company to be acquired. No assurance can be given that the necessary approvals
will be received. The agreement pertaining to the Pending Acquisition provides
that if the acquisition is not completed by December 31, 1998, such agreement
terminates. The Pending Acquisition is subject to certain other closing
conditions, and there can be no assurance as to when, or if, such acquisition
will be consummated. Investors should see the Unaudited Pro Forma Consolidated
Financial Statements included elsewhere in this Prospectus to determine the
effect on the Company's financial statements if the Pending Acquisition does
not occur.
OTHER RISKS ASSOCIATED WITH ACQUISITIONS
As part of its growth strategy, the Company regularly engages in, and is
currently engaging in, discussions and negotiations with respect to possible
acquisitions, some of which would be larger than the largest acquisitions
completed or contemplated to date, and would involve substantially more than
25,000 access lines, if such acquisitions were consummated. This acquisition
strategy presents certain substantial risks, including the following:
RISK OF LACK OF FUTURE ACQUISITION OPPORTUNITIES. A significant portion of
the Company's future growth is expected to come from acquisitions of other
companies. The Company's ability to acquire additional businesses
15
<PAGE>
will depend, among other things, on the Company's ability to identify suitable
acquisition candidates, to negotiate acceptable terms for their acquisition
and to complete the acquisitions. The Company will be subject to competition
for suitable acquisition candidates and the number of acquisition candidates
may be diminished in the future. The nature of the market for independent
telecommunications companies is such that many acquisition opportunities come
to the Company's attention only when the owners of such businesses approach
the Company seeking a buyer. Accordingly, there can be no assurance that other
independent telecommunications companies will approach the Company with
similar opportunities in the same manner as has occurred in the past, or that
such acquisition opportunities will otherwise come to the Company's attention.
As a result, there can be no assurance that any such acquisitions will occur
or that any such acquisitions, if made, would be made in a timely manner or on
terms favorable to the Company.
RISK OF UNAVAILABILITY OF CAPITAL TO FUND FUTURE ACQUISITIONS. The
acquisitions made by the Company have required the expenditure of significant
amounts of capital, a substantial portion of which the Company has had to fund
through additional debt or equity financings. The Company's growth strategy
hinges on its ability to continue to complete acquisitions beyond the Pending
Acquisition. The Company does not presently have financing commitments
sufficient to allow it to effect significant acquisitions. Inability to secure
such financing could, therefore, have a substantial impact on the Company's
ability to grow beyond the completion of the Pending Acquisition, or otherwise
consummate any other acquisitions that it may wish to undertake. See "--Future
Capital Requirements; Expected CLEC Losses."
RISK OF FAILURE TO REALIZE ACQUISITION SYNERGIES. While the Company has
previously been able to increase the profitability of the businesses it has
acquired, there can be no assurance that it will continue to be able to do so
in the future. Specifically, each of the Taconic, Utilities and Ellensburg
acquisitions are significantly larger than any of the individual acquisitions
that the Company has previously undertaken. The size and nature of such
acquisitions could present complexities that the Company has not previously
encountered, and could therefore interfere with the Company's ability to
achieve results comparable to those it has achieved in the past.
Furthermore, many of the acquisition synergies that the Company has
recognized in the past have resulted from its ability to substitute the costs
of the former senior management of acquired companies with management fees
charged by the Company to its subsidiaries. To the extent regulators recognize
such inter-company management fees as legitimate costs, the Company's
operating subsidiaries are allowed, under current regulations, to recover such
costs from their customers. However, the Company's ability to recover such
costs is subject to periodic review by regulators. In addition, regulations
governing the Company's ability to recover such costs are subject to change.
There can be no assurance, therefore, that the Company will continue to be
able to recover such costs, and failure to be able to do so could have a
substantial impact on the Company's growth strategy, as well as a material
adverse effect on its financial condition and results of operations. See "Risk
Factors--Regulation" and "Regulation."
In addition, the Company believes it will have opportunities to acquire
access lines from RBOCs and other large companies. The Company expects that
such opportunities would be limited to the possible acquisition of certain
facilities and access lines, rather than businesses that have previously
operated independently. Such acquisitions, should the Company be in a position
to make them, would in all likelihood be more difficult for the Company to
integrate into its existing operations. This in turn could interfere with the
Company's ability to obtain the same results from such acquisitions as it
might be able to obtain from the acquisition of a previously independent
company. See "--Implementation of Growth Strategy."
FUTURE CAPITAL REQUIREMENTS; EXPECTED CLEC LOSSES
Expansion of the Company's existing RLEC networks and services, and the
acquisition of new RLECs and other facilities, will require significant
capital expenditures. Furthermore, the Company's plan to enter additional
markets as a CLEC anticipates the Company's incurring initial losses, followed
by significant capital expenditures. The Company's ability to succeed in its
CLEC strategy is therefore predicated on its having
16
<PAGE>
sufficient capital to sustain such losses and make such capital expenditures.
The Indenture limits the Company's ability to make investments in the
subsidiaries conducting the CLEC business, which could adversely affect its
ability to successfully develop this business. In addition, there can be no
assurances that the Company will be successful in implementing its CLEC
strategy, or that it will be able to recover the initial losses it expects to
sustain in relation to such business. Because the CLEC business will be
conducted through Unrestricted Subsidiaries, any operating losses sustained
will not reduce the Company's debt capacity under the Indenture. See
"Description of Notes--Certain Covenants--Limitation on Debt."
The Company will also require additional capital to complete its
acquisitions, or if customer demand in the Company's markets exceeds current
expectations, the Company's funding needs may increase. In addition, the
Company expects to incur additional capital requirements as it seeks to take
advantage of future opportunities. In order to take advantage of such
opportunities, the Company expects that it will need to secure additional debt
or equity financing. There can be no assurance, however, that the Company will
be successful in raising sufficient additional debt or equity capital on terms
that it will consider acceptable or that the Company's operations will produce
cash flow in sufficient amounts to make up any shortfall. Failure to raise and
generate sufficient funds may require the Company to delay or abandon some of
its planned future expansion or expenditures, which could have a material
adverse effect on the Company's growth and its ability to compete in the
telecommunications industry. The Company's expectations of required future
capital expenditures are based on the Company's current estimates. There can
be no assurance that actual expenditures will not be significantly higher or
lower.
IMPLEMENTATION OF GROWTH STRATEGY
The expansion and development of the Company's operations will depend, among
other things, on the Company's ability to recruit and hire personnel, install
facilities, implement and improve its operating and administrative systems and
obtain and maintain any required government authorizations, franchises and
permits, all in a timely manner, at reasonable costs and on satisfactory terms
and conditions. As a result, there can be no assurance that the Company will
be able successfully to expand its existing networks, integrate newly acquired
businesses or offer additional products and services in a timely manner in
accordance with its strategic objectives. In addition, as a result of the
Company's strategy to achieve rapid growth, the operating complexity of the
Company is expected to increase. The Company's ability to manage its expansion
effectively will depend on, among other things, the expansion, training and
management of the Company's employee base and the Company's successful
development of operational, financial and management plans, systems and
controls. There can be no assurance that the Company will be able to satisfy
these requirements or otherwise manage its growth effectively. Such failures
could have a material adverse effect on the Company's results and financial
condition.
DEPENDENCE ON KEY PERSONNEL
The Company's businesses are managed by a relatively small number of senior
management and operating personnel, the loss of certain of whom could have a
material adverse effect on the Company. The Company believes that its ability
to manage its planned growth successfully will depend in large part on its
continued ability to attract and retain highly skilled and qualified
personnel. There can be no assurance that the Company will be able to retain
its key employees or that the Company can attract or retain additional skilled
personnel in the future.
COMPETITION
Industry trends of consolidation, deregulation and the utilization of new
technologies all pose substantial risks to the Company's ability to compete
effectively in the markets it serves and in the market for acquisitions. The
effects of these trends on the Company could be substantial. The summary below
sets forth a general summary of certain of the competitive risks facing the
Company, and is not meant to be comprehensive.
COMPETITION FOR ACQUISITIONS. The telecommunications industry is subject to
a continuing trend toward combinations and strategic alliances, including
consolidations among existing telecommunications providers, and
17
<PAGE>
between such providers and new entrants into the field. This trend could lead
to increased competition with the Company for acquisitions, which could have
the effect of increasing the price for acquisitions or reducing the number of
suitable acquisitions, thereby having an adverse effect on the Company's
growth strategy. In addition, the Company's eligibility for certain subsidies
decreases as the Company increases in size, thereby creating the potential
that certain acquisition candidates will be less attractive to the Company
than they would be to other potential buyers. The number of suitable
acquisition candidates for the Company could therefore decrease as the Company
increases in size. See "Risk Factors--Regulation" and "Regulation."
COMPETITION FROM NEW MARKET ENTRANTS. In each of the areas served by the
Company's networks, the services offered by the Company may compete with
services offered by current and potential market entrants, including CLECs,
IXCs, cable television companies, electric utilities, microwave carriers,
wireless telephone system operators and private networks built by large end
users. Many of the Company's current and potential competitors may have
financial, personnel and other resources substantially greater than those of
the Company, as well as other competitive advantages over the Company.
The Company believes that various legislative initiatives, including the
Telecommunications Act of 1996 (the "Telecommunications Act"), as well as a
recent series of completed and proposed transactions between ILECs, IXCs and
cable companies, may result in the introduction of competition in areas served
by the Company, including from entities that do not currently compete with the
Company in any significant way. The timing and effectiveness of any
competitive entry will be affected by the implementation of the
Telecommunications Act. This implementation is subject to change, and its full
effect cannot be predicted with any accuracy.
In addition, aggressive competition for customers in communities served by
the Company could result in, among other things, reductions in the Company's
customer base, the lowering of rates in order to compete, and increased
marketing expenditures by the Company. Resulting reductions in the Company's
customer base and rates and increases in the Company's costs could have a
material adverse effect on the Company's financial condition and results of
operations.
COMPETING TECHNOLOGIES. Changes in technology, including in wireless
technology, could lead to the introduction of competitive telecommunications
systems in the rural areas served by the Company in ways that have not
heretofore been economically viable. Such technologies could result in the
introduction of novel services that the Company may be unable to provide, or
would be ill-equipped to compete with using its existing facilities.
RISK OF INABILITY TO COMPETE AS A CLEC. Finally, the Company's plans to
enter new markets as a CLEC pose significant risks. Such plans call for the
Company to compete as a new entrant in markets where its competitors will have
established customers and brand identity. The CLEC market, therefore, is
highly competitive and poses a significant competitive challenge for the
Company. In particular, several well capitalized and experienced long distance
carriers and others have entered or announced that they intend to enter the
CLEC business. In addition, this market differs significantly from the markets
in which the Company usually operates. Normally, the Company's markets are
characterized by a protective regulatory environment that puts potential
competitors at a significant disadvantage to the Company. See "Risk Factors--
Regulation." The Company, however, is inexperienced in competing for business
in such a competitive marketplace, and there can be no assurance that it will
be able to do so effectively. Moreover, the Indenture will limit the Company's
ability to invest in the subsidiaries conducting the CLEC business, which
could represent a competitive disadvantage. See "Description of Notes--Certain
Covenants--Limitation on Restricted Payments."
Because of such high levels of competition, the Company's ability to expand
its operations and increase market share is uncertain. No assurance can be
given that the Company can achieve growth in products or revenues or that the
Company will not lose market share due to competitive pricing, the greater
resources of its competitors or other factors. See "Business--Competition."
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<PAGE>
REGULATION
The Company operates in a heavily regulated industry, and the majority of
the Company's revenues generally have been supported by regulations. See
"Regulation." Laws and regulations applicable to the Company and its
competitors may be, and have been, challenged in the courts, and could be
changed by Congress or regulators at any time. In addition, any of the
following have the potential to have a significant impact on the Company:
RISK OF LOSS OR REDUCTION OF ACCESS CHARGE REVENUES. The majority of the
Company's revenues come from access charges, which are paid to the Company by
intrastate carriers and interstate long distance carriers for originating and
terminating calls in the regions served by the Company's RLECs. The amount of
access charge revenues that the Company receives is calculated based on
guidelines set by federal and state regulatory bodies, and such guidelines
could change at any time. The FCC has indicated that it intends to begin a
rulemaking during 1998 to reform the federal access charge system. States
often mirror these federal rules in establishing intrastate access charges. It
is unknown at this time what changes, if any, the FCC may eventually adopt.
The FCC did adopt some changes to the federal access charge rules in May 1997.
These rules are currently the subject of review by courts, the outcome of
which review cannot be predicted. Furthermore, to the extent the Company's
RLECs become subject to competition in their own local exchange areas, such
access charges could be paid to competing local exchange providers rather than
to the Company. Either of the above circumstances could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business--Products and Services" and "Regulation."
RISK OF LOSS OR REDUCTION OF UNIVERSAL SERVICE SUPPORT SUBSIDIES. The USSF
revenues received by the Company are paid to the Company to support the high
cost of its operations in rural markets. Revenues from such USSF subsidies
represented 13.1% of the Company's revenues for the year ended December 31,
1997. If the Company's RLECs were unable to receive USSF subsidies, or if such
subsidies were reduced, many of such RLECs would be unable to operate
profitably. Furthermore, under the current regulatory scheme, as the number of
access lines that the Company has in any given state increases, the rate at
which it can recover certain subsidies decreases. Therefore, as the Company
implements its growth strategy, its ability to recoup such subsidies is likely
to decrease.
In addition, the Company's RLECs generally benefit from a special status
under the current laws, which prohibits potential competitors from receiving
the same universal service support subsidies enjoyed by the Company. The
effect of this advantage is that the Company's RLECs enjoy a significant
barrier to entry by competitors, which could be removed by regulators at any
time. The Telecommunications Act provides that competitors could obtain the
same subsidies as the Company if a state commission determines that granting
such subsidies to competitors would be in the public interest. If such
universal service subsidies were to become available to potential competitors,
there could be no assurance that the Company would be able to compete
effectively or otherwise continue to operate profitably. Any shift in
universal service regulation could, therefore, have a material adverse effect
on the Company's financial condition and results of operations.
Recently, the FCC made certain modifications to the universal service
support system that limit the subsidies available to the Company, and which
could adversely impact the Company's operations in the future. Furthermore,
the method for calculating the amount of such subsidies is set to change in
2001. Subject to certain pending proceedings, it is expected that at such
time, such subsidies will be calculated based on forward looking economic
costs. This will be a new means of calculating such costs, and it is unclear
whether such a methodology will accurately reflect the costs incurred by the
Company's RLECs, and whether it will provide for the same amount of universal
service support subsidies that such RLECs have enjoyed in the past. In
addition, several parties have raised objections to the size of the universal
service support fund and the types of services eligible for subsidization. The
outcome of any of these events or issues, including any legislative or
regulatory changes to universal service subsidies, could affect the amount of
universal service support subsidies that the Company receives, and could have
a material adverse effect on the Company's financial condition and results of
operations.
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<PAGE>
RISK OF LOSS OF PROTECTED STATUS UNDER INTERCONNECTION RULES. The Company's
RLECs enjoy certain protections under the Telecommunications Act against
having to comply with the Telecommunications Act's more burdensome
requirements governing the rights of competitors to interconnect to the
Company's networks. See "Regulation." If state regulators make the public
interest and other factual findings necessary to impose these interconnection
requirements on the Company, more competitors could enter the Company's
markets than is currently expected, and the Company could incur additional
administrative and regulatory expenses as a result of such inter-connection
requirements.
RISK OF INABILITY TO OBTAIN INTERCONNECTION IN ADJACENT TERRITORIES. The
Company seeks to enter the local telephone service business in neighboring
geographic territories to its RLECs. If neighboring LECs are entitled to the
same protections that the Company enjoys in its operating territories, the
Company may be unable to obtain access to such networks, which could
significantly detract from the Company's ability to implement its CLEC
strategy. Even if neighboring LECs are not entitled to such protections, the
Company could nonetheless be unable to obtain interconnection on favorable
terms.
RISKS POSED BY COSTS OF REGULATORY COMPLIANCE. Regulations create
significant compliance costs for the Company. In addition, because regulations
differ from state to state, the Company could face significant obstacles in
obtaining information necessary to compete effectively as it tries to enter
markets in different regulatory environments. Such information barriers could
cause the Company to suffer substantial costs, obstacles and delays in
entering such markets. Compliance costs and information barriers could also
affect the Company's ability to evaluate and compete for new acquisition
opportunities as they arise, and pose other obstacles to the Company's ability
to grow or operate, any of which could be material.
The Company's subsidiaries that provide intrastate services are also
generally subject to certification and tariff filing requirements by state
regulators. Challenges to these tariffs by regulators or third parties could
cause the Company to incur substantial legal and administrative expenses. In
addition, as the Company seeks to enter new mandates and ancillary business
segments, it will be required to obtain necessary authorizations and be
subject to a variety of additional ongoing regulatory requirements.
CHANGES IN TECHNOLOGY AND CUSTOMER REQUIREMENTS
The telecommunications industry is subject to rapid and significant changes
in technology, frequent new service introductions and evolving industry
standards, the effect of which cannot be predicted. Thus, there can be no
assurance that technological developments will not have a material adverse
effect on the Company. The Company's future success may depend, to some
extent, on its ability to anticipate such changes and to offer services that
meet these standards on a timely basis.
CONTROL BY LIMITED NUMBER OF STOCKHOLDERS; POTENTIAL CONFLICTS OF INTEREST
As of May 31, 1998, the Equity Investors controlled approximately 76.0% on a
fully diluted basis of the total voting power in the Company. As a result of
such control and pursuant to the terms of certain agreements among the
Company's stockholders, the Equity Investors will continue to have the ability
to effectively control the future operations of the Company. See "Security
Ownership of Certain Beneficial Owners and Management." The Company pays
substantial management and consulting fees to its shareholders. See "Certain
Relationships and Related Transactions." In addition to their investment in
the Company, the Equity Investors or their affiliates currently have
significant investments in other telecommunications companies and may in the
future invest in other entities engaged in the telecommunications business or
in related businesses (including entities engaged in business in areas in
which the Company operates). As a result, the Equity Investors have, and may
develop, relationships with businesses that are or may be competitive with the
Company. In addition, the Company and the Equity Investors have agreed that
such investors are under no obligation to offer the Company any investment or
business opportunities of which they become aware, even if such opportunities
are within the primary objectives of the Company.
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<PAGE>
LACK OF PUBLIC MARKET FOR THE NOTES
The Exchange Notes will be new securities for which there is currently no
public market. The Company does not intend to list the Exchange Notes on any
national securities exchange or quotation system. The Initial Purchasers have
advised the Company that they currently intend to make a market in the
Exchange Notes but they are not obligated to do so and, if commenced, may
discontinue such market making at any time. Accordingly, there can be no
assurance as to the development of any market or liquidity of any market that
may develop for the Exchange Notes. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the aggregate principal amount of Old
Notes outstanding will decrease, with a resulting decrease in the liquidity of
the market therefor.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of the Old Notes set forth in the legend thereon as a consequence
of the issuance of the Old Notes pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act. In general, Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company currently does not anticipate that it will register the Old Notes
under the Securities Act.
LIMITATIONS ON REPURCHASE OF NOTES
Upon a Change of Control, each holder of Notes will have the right, at the
holder's option, to require the Company to repurchase all, or a portion, of
such holder's Notes, as the case may be. If a Change of Control were to occur,
there can be no assurance that the Company would have sufficient funds to pay
the repurchase price for all Notes tendered by the holders thereof. In
addition, the Company's repurchase of Notes as a result of the occurrence of a
Change of Control may be prohibited or limited by, or create an event of
default under, the terms of agreements related to borrowings that the Company
may enter into from time to time, including Senior Debt. See "Description of
Notes--Repurchase at the Option of Holders upon a Change of Control."
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has assessed its systems and believes them to be year 2000
compliant. In addition, the Company has received assurance from its major
software vendors that the products used by the Company are or will be year
2000 compliant by early 1999. If the systems of other companies on whose
services the Company depends or with whom the Company's systems interface are
not year 2000 compliant, it could have a material adverse effect on the
Company.
The Company will continue its year 2000 issue assessment and, if it comes to
the attention of the Company's management that any of its systems, or the
systems of those on whom the Company relies, are not year 2000 compliant, the
Company expects to develop an action plan and devote the resources to address
such problem. There can be no assurance that devoting further resources of the
Company to the year 2000 issue, if the need should arise, would not have a
material adverse effect on the Company.
ENVIRONMENTAL AND WORKER HEALTH AND SAFETY MATTERS
The Company's operations and properties are subject to federal, state and
local laws and regulations relating to protection of the environment, natural
resources, and worker health and safety, including laws and regulations
governing the management, storage and disposal of hazardous substances,
materials and wastes. Under certain
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<PAGE>
environmental laws, the Company could be held liable, jointly and severally
and without regard to fault, for the costs of investigating and remediating
any contamination at currently-owned or operated properties; or for
contamination arising from the disposal by it or its predecessors of hazardous
wastes at formerly-owned properties or at third party waste disposal sites. In
addition, the Company could be held responsible for third-party property or
personal injury claims relating to any such contamination or relating to
violations of environmental laws, depending on proof of causation and similar
matters. Although the Company has in the past been able to maintain
substantial compliance with all such laws and regulations without incurring
significant costs, changes in existing laws or regulations or future
acquisitions of RLECs (or of other properties or businesses) could require the
Company to incur substantial costs in the future relating to such matters.
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<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. In
consideration of issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive in exchange Old Notes of like principal
amount, the terms of which are identical in all material respects to the
Exchange Notes. The Old Notes surrendered in exchange for Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase in the indebtedness of the
Company. The Company has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Agreement. No underwriter is being used in
connection with the Exchange Offer.
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CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth (i) the total capitalization of the Company
as of March 31, 1998, (ii) such capitalization presented on a pro forma basis
to give effect to the Completed Acquisitions, the New Credit Facility and the
Offering, and (iii) such capitalization presented on a pro forma basis to give
effect to the Completed Acquisitions, the New Credit Facility, the Offering
and the Pending Acquisition. The Pending Acquisition is subject to certain
closing conditions. See "Risk Factors--Risk that Pending Acquisition Will Not
Be Consummated." The information set forth below should be read in conjunction
with the Company's consolidated financial statements, and notes related
thereto, the financial statements related to certain of the Acquisitions and
the unaudited pro forma consolidated financial statements, and notes related
thereto, included elsewhere in this Prospectus. See "Use of Proceeds" and "
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------------------
ACTUAL PRO FORMA
-------- ---------------------------
COMPLETED
ACQUISITIONS,
COMPLETED NEW CREDIT
ACQUISITIONS, FACILITY,
NEW CREDIT OFFERING AND
FACILITY AND PENDING
OFFERING ACQUISITION
------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents............... $ 9,871 $ 4,817 $ 6,777
======== ======== ========
Demand notes payable.................... $ 830 $ 859 $ 859
-------- -------- --------
Long-term debt, including current
portion:
Existing term debt(1).................. 8,191 -- --
Acquired term debt(2).................. -- 7,131 19,635
Revolving credit facility.............. 3,000 -- --
Tranche B loan facility................ 117,000 14,763 72,758
Tranche C loan facility................ 75,000 75,000 75,000
Other debt(3).......................... 396 7,000 7,000
Senior subordinated notes(4)........... -- 200,000 200,000
-------- -------- --------
Total long-term debt.................. 203,587 303,894 374,393
-------- -------- --------
Minority interest....................... 2,852 2,852 2,889
-------- -------- --------
Stockholders' equity:
Common stock........................... 1 2 2
Additional paid-in capital............. 33,748 48,747 48,747
Retained earnings (deficit)............ (28,688) (28,688) (28,688)
-------- -------- --------
Total stockholders' equity............ 5,061 20,061 20,061
-------- -------- --------
Total capitalization.................. $212,331 $327,666 $398,202
======== ======== ========
</TABLE>
- --------
(1) Existing term debt consists of fixed rate notes owed to Rural Utilities
Service at 8.7% and 10.8% due December 31, 2009 and 2016, respectively.
(2) Includes the acquired term debt of Chouteau and Utilities. Term debt of
Chouteau consists of fixed rate notes owed to Rural Utilities Service at
2% and 5% annually and fixed rate notes owed to Rural Telephone Bank at
7.5% annually due July 2010 and March 2002, respectively. Term debt of
Utilities payable to RTFC includes the following terms: (i) variable rate
through October 2008, (ii) fixed rate of 9.2% annually through October
2008 and (iii) fixed rate of 8.8% annually through October 2001, then
variable.
(3) Other debt consists of notes in the aggregate principal amount of $396,000
which bear interest at rates ranging between 5.8% to 9.5% annually and
have maturity dates between 1998 and 2002. Other debt, pro forma, consists
of a note in the principal amount of $7.0 million which bears interest at
7% annually and matures in year 2005.
(4) Includes $125 million of 9 1/2% Senior Subordinated Notes due 2008 and $75
million Floating Rate Callable Securities due 2008.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS)
The following table sets forth selected financial information of the
Company. The selected historical consolidated financial data for the years
ended December 31, 1995, 1996, 1997 and the three months ended March 31, 1997
and 1998 are derived from the consolidated financial statements of the Company
included elsewhere in this Prospectus which, in the case of the financial
statements for the years ended December 31, 1995, 1996 and 1997 have been
audited by KPMG Peat Marwick LLP, independent certified public accountants.
The selected historical consolidated financial statement data for the three
months ended March 31, 1997 and 1998 have been derived from unaudited
consolidated statements of the Company, which, in the opinion of management,
include all adjustments necessary for a fair presentation of such data. The
selected historical consolidated financial statement data for the year ended
December 31, 1994 are derived from consolidated financial statements of the
Company, not included herein, which are audited by independent certified
public accountants. The selected historical consolidated financial statement
data for the year ended December 31, 1993 have been derived from unaudited
consolidated financial statements of the Company, not included herein, which,
in the opinion of management, includes all adjustments necessary for a fair
presentation of such data. The selected pro forma combined financial data for
the year ended December 31, 1997 and as of and for the three months ended
March 31, 1998 have been derived from Company prepared financial information,
the audited consolidated financial statements and notes thereto of certain of
the Acquisitions and the audited consolidated financial statements and notes
thereto of the Company, which financial statements appear elsewhere in this
Prospectus. The following selected pro forma combined financial and operating
data are presented as if each of the Acquisitions, the New Credit Facility and
the Offering had occurred on January 1, 1997 and January 1, 1998 for the year
ended December 31, 1997 and the period ended March 31, 1998, respectively, in
the case of statement of operations data, and as of March 31, 1998, in the
case of balance sheet data. The selected pro forma combined financial data
have been prepared for comparative purposes only and do not purport to be
indicative of the results of operations that would have been achieved had the
Acquisitions, the New Credit Facility and the Offering been consummated as of
the assumed dates, nor are the results necessarily indicative of the Company's
future results of operations. See "Risk Factors--Other Risks Associated with
Acquisitions." The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements, and notes
thereto, the Pro Forma Consolidated Financial Statements, and notes thereto,
and the individual financial statements and notes thereto of certain of the
Acquisitions appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL
------------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------ ----------------
(UNAUDITED)
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OP-
ERATIONS DATA:
Operating reve-
nues:
Switched servic-
es............. $4,803 $12,655 $22,763 $27,876 $39,257 $ 8,132 $11,653
Other........... 2,263 1,369 1,986 2,383 3,715 634 1,880
------ ------- ------- ------- ------- ------- -------
Total operating
revenues....... 7,066 14,025 24,749 30,258 42,972 8,767 13,533
------ ------- ------- ------- ------- ------- -------
Operating ex-
penses:
Plant opera-
tions.......... 595 1,886 3,746 4,181 6,857 1,125 2,290
Corporate and
customer serv-
ices........... 2,270 3,991 6,433 7,577 11,581 2,269 3,413
Depreciation and
amortization... 1,240 3,099 5,757 6,644 8,777 1,964 2,632
Other........... 1,684 1,081 1,407 1,658 3,318 620 1,159
------ ------- ------- ------- ------- ------- -------
Total operating
expenses....... 5,789 10,056 17,343 20,060 30,533 5,977 9,493
------ ------- ------- ------- ------- ------- -------
Income from op-
erations....... 1,276 3,968 7,406 10,198 12,439 2,790 4,039
------ ------- ------- ------- ------- ------- -------
Other income
(expense):
Net loss on sale
of investments
and other
assets......... 598 1,030 (29) (3) (19) -- 7
Interest in-
come........... 60 143 225 180 212 45 37
Dividend in-
come........... -- 553 664 667 1,182 -- 29
Interest ex-
pense.......... (791) (3,772) (7,179) (7,534) (9,588) (1,866) (2,775)
Other nonoperat-
ing, net....... 62 29 33 (15) 140 24 (3)
------ ------- ------- ------- ------- ------- -------
Total other in-
come (ex-
pense)......... (41) (2,017) (6,287) (6,705) (8,073) (1,797) (2,705)
------ ------- ------- ------- ------- ------- -------
Earnings (loss)
before income
taxes and
extraordinary
item........... 1,235 1,951 1,119 3,494 4,367 993 1,334
Income tax (ex-
pense) bene-
fit............ (305) (940) (547) (1,462) (1,876) (377) (615)
------ ------- ------- ------- ------- ------- -------
Earnings (loss)
before
extraordinary
item........... 930 1,011 572 2,032 2,491 616 719
Extraordinary
item........... -- -- -- -- (3,612) -- (2,521)
------ ------- ------- ------- ------- ------- -------
Earnings (loss)
before minority
interest....... 930 1,011 572 2,032 (1,121) 616 (1,802)
Minority
interest in
income of
subsidiaries... -- (14) (6) (33) (62) (22) (25)
------ ------- ------- ------- ------- ------- -------
Net earnings
(loss)......... $ 930 $ 997 $ 567 $ 1,999 $(1,182) $ 593 $(1,827)
====== ======= ======= ======= ======= ======= =======
<CAPTION>
PRO FORMA
-----------------------------------------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, 1997 ENDED MARCH 31, 1998
-------------------------------- --------------------------------
COMPLETED COMPLETED
ACQUISITIONS, ACQUISITIONS,
NEW CREDIT AS ADJUSTED NEW CREDIT AS ADJUSTED
FACILITY AND FOR PENDING FACILITY AND FOR PENDING
OFFERING(1)(2) ACQUISITION(2)(3) OFFERING(2)(4) ACQUISITION(2)(5)
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OP-
ERATIONS DATA:
Operating reve-
nues:
Switched servic-
es............. $ 76,751 $ 91,589 $19,776 $23,557
Other........... 11,640 13,017 3,704 4,004
-------------- ----------------- -------------- -----------------
Total operating
revenues....... 88,391 104,606 23,479 27,561
-------------- ----------------- -------------- -----------------
Operating ex-
penses:
Plant opera-
tions.......... 15,592 20,241 3,952 5,542
Corporate and
customer serv-
ices........... 22,663 24,179 5,824 6,127
Depreciation and
amortization... 20,377 25,170 5,107 6,422
Other........... 7,913 8,504 2,673 2,848
-------------- ----------------- -------------- -----------------
Total operating
expenses....... 66,544 78,094 17,556 20,939
-------------- ----------------- -------------- -----------------
Income from op-
erations....... 21,847 26,512 5,923 6,622
-------------- ----------------- -------------- -----------------
Other income
(expense):
Net loss on sale
of investments
and other
assets......... (9) (9) 38 38
Interest in-
come........... 595 595 120 120
Dividend in-
come........... 1,182 1,381 32 107
Interest ex-
pense.......... (30,787) (37,027) (7,646) (9,206)
Other nonoperat-
ing, net....... 1,392 1,421 (98) (24)
-------------- ----------------- -------------- -----------------
Total other in-
come (ex-
pense)......... (27,627) (33,639) (7,554) (8,964)
-------------- ----------------- -------------- -----------------
Earnings (loss)
before income
taxes
and
extraordinary
item........... (5,780) (7,127) (1,631) (2,342)
Income tax (ex-
pense) bene-
fit............ 1,064 1,203 344 524
-------------- ----------------- -------------- -----------------
Earnings (loss)
before
extraordinary
item........... (4,717) (5,923) (1,288) (1,818)
Extraordinary
item........... (6,287) (6,287) (2,521) (2,521)
-------------- ----------------- -------------- -----------------
Earnings (loss)
before minority
interest....... (11,004) (12,210) (3,809) (4,339)
Minority
interest in
income of
subsidiaries... (62) (65) (25) (26)
-------------- ----------------- -------------- -----------------
Net earnings
(loss)......... $(11,065) $(12,275) $(3,833) $(4,365)
============== ================= ============== =================
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
ACTUAL
------------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------ ----------------
(UNAUDITED)
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL
DATA:
EBITDA (6)...... $3,267 $ 8,808 $14,050 $17,639 $22,670 $ 4,800 $ 6,716
Capital expendi-
tures.......... 293 1,768 4,439 8,439 8,239 1,889 671
Ratio of
earnings to
fixed charges
(7)............ 2.5x 1.5x 1.2x 1.5x 1.4x 1.5x 1.5x
SUMMARY CASH
FLOW DATA:
Net cash
provided by
operating
activities..... 5,504 6,039 9,772 9,840 2,985 (480)
Net cash
provided by
(used in)
investing
activities..... (50,846) (4,481) (19,790) (38,967) (1,412) (65,305)
Net cash
provided by
financing
activities..... 49,937 (2,903) 10,599 31,697 (35) 68,834
OPERATING DATA:
Access lines in
service........ 4,343 28,205 28,737 34,017 48,731 34,754 74,326
<CAPTION>
PRO FORMA
-----------------------------------------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, 1997 ENDED MARCH 31, 1998
-------------------------------- --------------------------------
COMPLETED COMPLETED
ACQUISITIONS, ACQUISITIONS,
NEW CREDIT AS ADJUSTED NEW CREDIT AS ADJUSTED
FACILITY AND FOR PENDING FACILITY AND FOR PENDING
OFFERING(1)(2) ACQUISITION(2)(3) OFFERING(2)(4) ACQUISITION(2)(5)
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
OTHER FINANCIAL
DATA:
EBITDA (6)...... $ 45,322 $ 55,005 $ 11,097 $ 13,260
Capital expendi-
tures.......... 15,688 19,241 1,547 1,932
Ratio of
earnings to
fixed charges
(7)............ -- -- -- --
SUMMARY CASH
FLOW DATA:
Net cash
provided by
operating
activities.....
Net cash
provided by
(used in)
investing
activities.....
Net cash
provided by
financing
activities.....
OPERATING DATA:
Access lines in
service........ 100,867 123,106 102,101 124,665
</TABLE>
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------------------------------------------ ----------------------------
AS OF
AS OF DECEMBER 31, MARCH 31, AS OF MARCH 31, 1998
----------------------------------------- ----------- ----------------------------
COMPLETED
ACQUISITIONS,
NEW CREDIT AS ADJUSTED
(UNAUDITED) FACILITY AND FOR PENDING
1993 1994 1995 1996 1997 1998 OFFERING(4) ACQUISITION(5)
------- ------- ------- ------- -------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 421 $ 5,016 $ 3,672 $ 4,253 $ 6,822 $ 9,871 $ 4,817 $ 6,777
Working capital......... 19 1,406 1,026 596 108 10,601 15,122 14,506
Property, plant and
equipment, net......... 8,353 37,616 37,048 41,615 61,207 88,021 122,497 144,137
Total assets............ 24,324 82,281 79,218 97,020 144,613 235,543 361,158 441,111
Long-term debt.......... 18,034 66,991 64,180 73,958 131,912 203,587 303,894 374,393
Redeemable preferred
stock.................. -- 6,618 6,701 10,689 130 -- -- --
Total stockholders' eq-
uity (deficit)......... (275) (333) 172 (599) (9,950) 5,061 20,061 20,061
</TABLE>
- -------
(1) Gives effect to the Completed Acquisitions, the New Credit Facility and
the Offering as if the closings thereof occurred on January 1, 1997.
(2) The selected pro forma combined operating data reflect adjustments in
connection with the relevant Acquisitions including: (i) amortization
expense to reflect goodwill recorded for purchase accounting, (ii)
elimination of certain specifically identified expenses related to
duplicative management services, directors fees, employee salaries and
related benefits, (iii) interest expense, net after giving effect to the
New Credit Facility and the Offering, and (iv) income tax expense to
reflect the effect that would result if the relevant Acquisitions had been
combined and subject to an assumed federal statutory rate and the
applicable state statutory tax rate for each of the relevant Acquisitions.
(3) Gives effect to the Completed Acquisitions, the New Credit Facility, the
Offering and the Pending Acquisition as if the closings thereof occurred
on January 1, 1997. The Pending Acquisition is subject to certain closing
conditions, See "Risk Factors--Risk that Pending Acquisition Will Not Be
Consummated."
(4) Gives effect to the Completed Acquisitions, the New Credit Facility and
the Offering as if the closings thereof occurred on January 1, 1998 in the
case of statement of operations data, and as of March 31, 1998, in the
case of balance sheet data.
(5) Gives effect to the Completed Acquisitions, the New Credit Facility, the
Offering and the Pending Acquisition as if the closings thereof occurred
on January 1, 1998, in the case of statement of operations data, and as of
March 31, 1998, in the case of balance sheet data. The Pending Acquisition
is subject to certain closing conditions. See "Risk Factors--Risk that
Pending Acquisition Will Not Be Consummated."
(6) EBITDA represents net earnings (loss) plus interest expense, income taxes,
depreciation and amortization and extraordinary items. While EBITDA is not
a measurement of financial performance under generally accepted accounting
principles and should not be construed as a substitute for net earnings
(loss) as a measure of performance, or cash flow as a measure of
liquidity, it is included herein because it is a measure commonly used in
the telecommunications industry. The definition of EBITDA stated here
differs from the definition of EBITDA applicable to the covenants for the
Notes and may not be comparable to EBITDA as defined by other companies.
EBITDA amounts may not be fully available for management's discretionary
use, due to certain requirements to conserve funds for capital
expenditures, debt service and other commitments.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, minority interest
and extraordinary items, plus fixed charges. Fixed charges include
interest expense on all indebtedness, capitalized interest and rental
expense on operating leases representing that portion of rental expense
deemed to be attributable to interest. Earnings were insufficient to cover
fixed charges on a pro forma basis as of December 31, 1997 by: (i) $5.8
million as adjusted for the Completed Acquisitions, the New Credit
Facility and the Offering and (ii) $7.1 million as further adjusted for
the Pending Acquisition. Earnings were insufficient to cover fixed charges
on a pro forma basis as of March 31, 1998 by: (i) $1.6 million as adjusted
for the Completed Acquisitions, the New Credit Facility and the Offering
and (ii) $2.3 million as further adjusted for the Pending Acquisition.
26
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the sale of Old Notes to the Initial Purchasers pursuant
to the Purchase Agreement, dated April 30, 1998, among the Company and Salomon
Smith Barney, BT Alex. Brown Incorporated, NationsBanc Montgomery Securities
LLC and Donaldson, Lufkin & Jenrette Securities Corporation (collectively, the
"Initial Purchasers"), the holders of the Old Notes became entitled to the
benefits of the Registration Agreement.
Under the Registration Agreement, the Company became obligated to (a) file a
registration statement in connection with a registered exchange offer within
60 days after May 5, 1998, the date the Old Notes were issued (the "Issue
Date"), and (b) cause the registration statement relating to such registered
exchange offer to become effective within 150 days after the Issue Date. The
Exchange Offer being made hereby, if consummated within the required time
periods, will satisfy the Company's obligations under the Registration
Agreement. This Prospectus, together with the Letter of Transmittal, is being
sent to all such beneficial holders known to the Company.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in the
Morgan Stanley Letter, the Exxon Capital Letter and similar letters, the
Company believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any person who received such Exchange Notes, whether or not
such person is the holder (other than Restricted Holders) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such holder's or other person's business, neither such holder nor such other
person is engaged in or intends to engage in any distribution of the Exchange
Notes and such holders or other persons have no arrangement or understanding
with any person to participate in the distribution of such Exchange Notes.
If any person were to be participating in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes in a manner not
permitted by the Commission's interpretation, such person (a) could not rely
upon the Morgan Stanley Letter, the Exxon Capital Letter or similar letters
and (b) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Old Notes where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after consummation of
the Exchange Offer, it will make this Prospectus, as it may be amended or
supplemented from time to time, available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds." The Company has agreed to bear the expenses of the Exchange
Offer pursuant to the Registration Agreement. No underwriter is being used in
connection with the Exchange Offer.
27
<PAGE>
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purposes of receiving the Exchange Notes from the Company
and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain conditions set forth herein under
"--Conditions" without waiver by the Company, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering
holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes, pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes in connection with the Exchange
Offer. See "--Fees and Expenses."
In the event the Exchange Offer is consummated, the Company will not be
required to register the Old Notes. In such event, holders of Old Notes
seeking liquidity in their investment would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act. See "Risk Factors--Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The term "Expiration Date" shall mean the expiration date set forth on the
cover page of this Prospectus, unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall
mean the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will issue a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offer for a specified
period of time.
The Company reserves the right (a) to delay accepting any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept
Old Notes not previously accepted if any of the conditions set forth herein
under "--Conditions" shall have occurred and shall not have been waived by the
Company (if permitted to be waived by the Company), by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (b)
to amend the terms of the Exchange Offer in any manner deemed by it to be
advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Old Notes of such amendment and the
Company may extend the Exchange Offer, depending upon the significance of the
amendment and the manner of disclosure to holders of the Old Notes, if the
Exchange Offer would otherwise expire during such extension period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely
release to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from May 5, 1998 payable semiannually
on May 1 and November 1 of each year, commencing November 1, 1998, at the rate
of 9 1/2 per annum in the case of the Fixed
28
<PAGE>
Rate Exchange Notes and at a rate per annum equal to LIBOR plus 418.75 basis
points in the case of the Floating Rate Exchange Notes. The rate of interest
on the Floating Rate Exchange Notes will be reset semi-annually. Holders of
Old Notes whose Old Notes are accepted for exchange will be deemed to have
waived the right to receive any payment in respect of interest on the Old
Notes accrued up until the date of the issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by instruction 2 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile or an
Agent's Message in connection with a book entry transfer, together with the
Old Notes and any other required documents. To be validly tendered, such
documents must reach the Exchange Agent before 5:00 p.m., New York City time,
on the Expiration Date. Delivery of the Old Notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of
such book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent, forming a part of a
confirmation of a book-entry transfer, which states that such book-entry
transfer facility has received an express acknowledgment from the participant
in such book-entry transfer facility tendering the Notes that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal
and that the Company may enforce such agreement against such participant.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery to the Exchange Agent before 5:00 p.m. New
York City time, on the Expiration Date. No Letter of Transmittal or Old Notes
should be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
Any beneficial holder whose Old Notes are registered in the name of its
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on its behalf. If such beneficial holder wishes to
tender on its own behalf, such registered holder must, prior to completing and
executing the Letter of Transmittal and delivering its Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States (an "Eligible Institution") unless the Old Notes tendered
pursuant thereto are tendered (a) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (b) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal
29
<PAGE>
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by appropriate bond powers and a proxy which authorizes such
person to tender the Old Notes on behalf of the registered holder, in each
case signed as the name of the registered holder or holders appears on the Old
Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority so to act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes the Company's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any irregularities or conditions of tender as to particular
Old Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. None of the Company, the Exchange
Agent or any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes, nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned without cost to such holder by the
Exchange Agent to the tendering holders of Old Notes, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date or, as set forth under "--Conditions," to terminate the
Exchange Offer in accordance with the terms of the Registration Agreement and
(b) to the extent permitted by applicable law, purchase Old Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers will differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (a) the Exchange Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of such holder or other
person, (b) neither such holder nor such other person is engaged in or intends
to engage in a distribution of the Exchange Notes, (c) neither such holder or
other person has any arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, and (d) such holder or
other person is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company or, if such holder or other person is such an
affiliate, will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Old Notes where such Old Notes were acquired by such broker-
dealer as result of market-making activities or other trading activities. The
Company has agreed that, for a period of 180 days after consummation of the
Exchange Offer, it will make this Prospectus, as it may be amended or
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<PAGE>
supplemented from time to time, available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with DTC's procedures for such
transfer. Although delivery of the Old Notes may be effected through book-
entry transfer into the Exchange Agent's account at DTC, an appropriate Letter
of Transmittal properly completed and duly executed with any required
signature guarantee, or an Agent's Message in lieu thereof, and all other
required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to DTC does not constitute delivery to the Exchange
Agent.
The Old Notes were issued on May 5, 1998 and there is no public market for
them at present. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the principal amount of outstanding Old Notes will decrease
with a resulting decrease in the liquidity in the market therefor. Following
the consummation of the Exchange Offer, holders of Old Notes will continue to
be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Notes could be adversely affected.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (a) whose Old Notes are not
immediately available or (b) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if: (i) the tender is made through an
Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old Notes,
the certificate number or numbers of such Old Notes and the principal amount
of Old Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three business days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof or Agent's Message in lieu
thereof) together with the certificate(s) representing the Old Notes to be
tendered in proper form for transfer and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing all tendered Old Notes in proper form for transfer and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within three business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (a) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (b) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes or, in
the case of Old Notes transferred by book-entry transfer, the name and number
of the account at DTC to be credited), (c) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
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<PAGE>
of the Depositor withdrawing the tender and (d) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange, any Exchange Notes for any
Old Notes, and may terminate or amend the Exchange Offer before the acceptance
of any Old Notes for exchange, if the Exchange Offer violates any applicable
law or interpretation by the staff of the Commission.
If the Company determines in its sole discretion that the foregoing
condition exists, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders who tendered
such Old Notes to withdraw their tendered Old Notes, or (iii) waive such
condition, if permissible, with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the holders, and the Company will extend the Exchange Offer as
required by applicable law.
Pursuant to the Registration Agreement, if an Exchange Offer shall not be
consummated prior to the Exchange Offer Termination Date, the Company will be
obligated to cause to be filed with the Commission a shelf registration
statement with respect to the Old Notes (the "Shelf Registration Statement")
as promptly as practicable after the Exchange Offer Termination Date and
thereafter use its best efforts to have the Shelf Registration Statement
declared effective.
"Exchange Offer Termination Date" means the date on which the earliest of
any of the following events occurs: (a) applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange
Offer, (b) any holder of Notes notifies the Company that either (i) such
holder is not eligible to participate in the Exchange Offer or (ii) such
holder participates in the Exchange Offer and does not receive freely
transferable Exchange Notes in exchange for tendered Old Notes or (c) the
Exchange Offer is not consummated within 180 days after the Issue Date.
If any of the conditions described above exists, the Company will refuse to
accept any Old Notes and will return all tendered Old Notes to exchanging
holders of the Old Notes.
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<PAGE>
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal and
deliveries of completed Letters of Transmittal with tendered Old Notes should
be directed to the Exchange Agent addressed as follows:
By Registered, Certified or By Hand (before 4:30 p.m.)
Overnight Mail:
UNITED STATES TRUST COMPANY
UNITED STATES TRUST COMPANY OF NEW YORK
OF NEW YORK 111 Broadway
Attn: Corporate Trust Services New York, New York 10006
P.O. Box 844 Cooper Station Attention: Lower Level Corporate
New York, New York 10276 Trust Window
By Hand (after 4:30 p.m.): By Facsimile:
(For Eligible Institutions Only)
UNITED STATES TRUST COMPANY (212) 420-6152
OF NEW YORK
770 Broadway, 13th Floor Telephone Number:
New York, New York 10003 (800) 548-6565
The Company will indemnify the Exchange Agent and its agents for any loss,
liability or expense incurred by them, including reasonable costs and expenses
of their defense, except for any such loss, liability or expense caused by
negligence or bad faith.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telephone or facsimile.
The Company will not make any payments to brokers, dealers, or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of
Transmittal and related documents to the beneficial owners of the Old Notes,
and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees and expenses, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes (or Old Notes for principal amounts not tendered
or accepted for exchange) are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
The Company will not recognize any gain or loss for accounting purposes upon
the consummation of the Exchange Offer. The expense of the Exchange Offer will
be amortized by the Company over the term of the Exchange Notes under GAAP.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
General. MJD was founded in 1991 to participate in the consolidation
opportunities that exist in the highly fragmented, independent, largely
family-owned and operated, rural segment of the telecommunications industry.
According to the USTA, as of December 31, 1997, there were over 1,300
independent telephone companies serving small towns in rural America. RLEC
subscribers are predominantly residential and typically exhibit the stable
economic and demographic characteristics often associated with rural America.
As of December 31, 1997, the Company owned and operated eleven RLECs with
48,731 access lines in rural locations in eight states. For the year ended
December 31, 1997, the Company had revenue and EBITDA of $43.0 million and
$22.7 million, respectively. Pro forma as of December 31, 1997, the Company
believes it will be the eighteenth largest telephone company in the United
States with over 123,000 access lines in ten states, and pro forma revenue and
EBITDA for the year ended December 31, 1997 of $104.6 million and $55.0
million, respectively.
The Company's operations have been characterized by stable growth and cash
flow. The primary reasons for the growth in the Company's cash flow has been
the acquisition of additional RLECs. In addition, the RLECs owned by the
Company have realized access line growth and increases in minutes of use
("MOU"). Although new access line growth is correlated with general economic
activity, economic downturns typically have not significantly impacted the
Company's established base of access lines or MOU.
REVENUES: The Company generates revenue primarily through: (i) the provision
of basic local telephone service to customers within its service areas
(including federal and state USSF revenues, which accounted for approximately
13.1% of 1997 revenue); (ii) the provision of network access to IXCs for
origination and termination of interstate and intrastate long distance
telephone calls; and (iii) the provision of ancillary services such as billing
and collection, long distance resale, enhanced services, wireless services,
cable services, Internet services and customer premises equipment sales. The
revenues listed in clauses (i) and (ii) above are classified by the Company as
"Switched Revenue." The revenues listed in clause (iii) above are classified
by the Company as "Other Revenue."
<TABLE>
<CAPTION>
% OF REVENUE
----------------
REVENUE SOURCE 1995 1996 1997
-------------- ---- ---- ----
<S> <C> <C> <C>
Basic Local Service...................................... 25.1% 29.4% 31.0%
Interstate and Intrastate Access......................... 68.0% 61.6% 60.9%
Other Services........................................... 6.9% 9.0% 8.1%
</TABLE>
The Company's historically stable revenues are the result of the basic
utility of telecommunications services, the highly regulated nature of the
telecommunications industry and underlying cost recovery settlement and
support mechanisms. The Company's subscribers are predominantly residential.
Basic local service is generally provided at a flat monthly rate and allows
the user to place unlimited calls within a defined local calling area. USSF
revenues are a subsidy paid to the Company to support the high cost of its
operations in rural markets. Access revenues are generated by providing IXCs
access to the Company's local network and its customers. Other service revenue
is generated from the ancillary services described above.
The Company's RLECs have two basic tiers of customers: (i) local customers
located in the RLEC's LATA(s) who pay for local telephone service and (ii) the
IXCs which pay the RLEC, directly or via NECA, for access to customers located
within the RLEC's LATA(s). The RLECs provide access service to numerous IXCs
and also bill and collect long distance charges from customers on behalf of
the IXCs. The amount of access charge revenue associated with a particular IXC
varies depending upon the RLEC's local customers' long distance calling
patterns and choice of long distance carrier.
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<PAGE>
OPERATING EXPENSES: The Company's operating expenses are categorized as
plant operations, corporate and customer service, other expenses and
depreciation and amortization. Year to year changes in such expenses are
typically influenced by access line growth and general business inflationary
adjustments. Plant operations expenses consist of operating expenses incurred
by the Company in connection with the operation of its central offices and
outside plant facilities and related operations. Corporate and customer
service expenses consist of expenses generated by the Company's general
management, accounting, engineering, marketing and customer service functional
groups. Other expenses consist of miscellaneous expenses such as operating
taxes.
OTHER (INCOME) EXPENSES: The Company's income includes interest income,
dividends, gain or loss on sale of assets and other miscellaneous, non-
operating income. The Company's other expenses consist primarily of interest
on the Company's debt and other non-operating expenses.
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the "Selected
Consolidated Financial and Operating Data" and the Financial Statements and
related notes thereto of the Company included elsewhere in this Prospectus.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
As of March 31, 1998, the Company owned and operated twelve RLEC's with
74,326 access lines in rural locations in eight states.
OPERATING REVENUE. Net revenue increased $4.8 million or 54.4% to $13.5
million for the three months ended March 31, 1998 from $8.8 million for the
three months ended March 31, 1997. The inclusion of revenue from the RLECs
acquired by the Company during 1997 provided approximately $3.6 million of the
increase. For RLECs owned and operated for a comparable period in 1998 and
1997, operating revenue improved approximately $1.2 million or 13.7% to $10.0
million from $8.8 million in 1997, primarily due to access line growth and
increases in switched access revenue and billing and collection revenues.
OPERATING EXPENSES. Operating expenses increased $3.5 million or 58.8% to
$9.5 million for the three months ended March 31, 1998 from $6.0 million for
the three months ended March 31, 1997. This increase was primarily due to the
inclusion of operating expenses from the RLECs acquired by the Company in
1997, which contributed approximately $2.4 million to the increase. For RLECs
owned and operated for a comparable period in 1998 and 1997, operating
expenses increased approximately $1.1 million or 18.6% to $7.1 million in 1998
from $6.0 million in 1997, primarily due to an increase in general corporate
overhead expense related to the Company's acquisition activities and other
related expenses.
INCOME FROM OPERATIONS. As a result of the factors described above, income
from operations increased $1.3 million or 44.8% to $4.0 million for the three
months ended March 31, 1998 from $2.8 million for the three months ended March
31, 1997. The inclusion of income from operations for the 1997 Acquisitions
accounted for most of the increase. The income from operations margin was
29.9% in 1998 as compared to 31.8% in 1997. For RLECs owned and operated for a
comparable period in 1997, income from operations increased $0.1 million or
3.3% to $2.9 million in 1998 from $2.8 million in 1997 and the income from
operations margin was 28.9% in 1998 compared to 31.8% in 1997.
EBITDA. As a result of the factors described above, EBITDA increased 39.9%
to $6.7 million (adjusted for the extraordinary loss relating to a debt pre-
payment penalty and the write-off of unamortized loan origination costs
associated with the retirement of existing debt) for the three months ended
March 31, 1998 from $4.8 million for the three months ended March 31, 1997.
The EBITDA margin was 49.6% in 1998 compared to 54.7% for the same period in
1997. The EBITDA margin decline at March 31, 1998 compared to the same period
in March 31, 1997 is related to start-up expenses during the three months
ended March 31, 1998 from the Company's long distance and CLEC ventures.
OTHER INCOME (EXPENSE). Other income (expense) increased $0.9 million or 50%
to $2.7 million for the three months ended March 31, 1998 from $1.8 million
for the three months ended March 31, 1997. The increase
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<PAGE>
was primarily due to an increase in interest expense associated with
additional debt incurred to complete the 1997 Acquisitions.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
OPERATING REVENUE. Net revenue increased $12.7 million or 42.0% to $43.0
million in the year ended December 31, 1997 from $30.3 million in the year
ended December 31, 1996. The inclusion of revenue from the acquisition by the
Company in 1997 of Kadoka Telephone Co., Columbine Telephone Company,
Chautauqua & Erie Telephone Corp. ("C&E") and C-R Communications, Inc.
(collectively, the "1997 Acquisitions") as well as the full year results for
the RLECs acquired by the Company in 1996 (collectively, the "1996
Acquisitions"), provided for 61.5% of the increase. For RLECs owned and
operated for a comparable period in 1997 and 1996, net revenue improved
approximately $4.9 million or 17.8% to $32.4 million in 1997 from $27.5
million in 1996 primarily due to access line growth and increased intrastate
MOU.
OPERATING EXPENSES. Operating expenses increased $10.5 million or 52.2% to
$30.5 million in the year ended December 31, 1997 from $20.1 million during
the year ended December 31, 1996. The increase was primarily attributable to
the operating expenses incurred by the 1996 Acquisitions and the 1997
Acquisitions, which contributed an aggregate of $6.0 million to the increase.
For RLECs owned and operated for a comparable period in 1997 and 1996,
operating expenses increased approximately $4.5 million or 24.1% to
$23.0 million in 1997 from $18.6 million in 1996. Most of this increase can be
attributed to a $1.2 million increase in corporate overhead expense, a $0.9
million change in regulatory treatment for a reciprocal use agreement with
Bell Atlantic Corporation, $0.9 million in expenses at STLD and a $0.8 million
increase in toll costs related to new ISP activity.
INCOME FROM OPERATIONS. As a result of the factors described above, income
from operations increased $2.2 million or 22.0% to $12.4 million in the year
ended December 31, 1997 from $10.2 million in the year ended December 31,
1996. The income from operations margin was 28.9% in 1997 as compared to 33.7%
in 1996. For RLECs owned and operated for comparable periods in 1997 and 1996,
the income from operations increased $0.4 million or 4.7% to $9.3 million in
1997 from $8.9 million in 1996 and the income from operations margin decreased
to 28.8% from 32.4%. The lower margins in 1997 are attributable to start-up
expenses and lower margins related to the Company's long distance business.
EBITDA. As a result of the factors described above, EBITDA increased 28.5%
from $17.6 million in the year ended December 31, 1996 to $22.7 million in the
year ended December 31, 1997. The EBITDA margin decreased to 52.8% in 1997
from 58.3% in 1996 due primarily to the start-up expenses and lower margins
related to the Company's long distance business.
OTHER INCOME (EXPENSE). Other expense increased $1.4 million or 20.4% to
$8.1 million in the year ended December 31, 1997 from $6.7 million during the
year ended December 31, 1996. The increase was primarily due to the interest
expense associated with the additional debt incurred to complete the 1996
Acquisitions and the 1997 Acquisitions. Such increase in other expenses was
partially offset by an increase of $0.5 million in dividend and interest
income on the Company's investments in 1997, which increase in dividend and
interest income represented a 64.6% increase over 1996.
EXTRAORDINARY ITEM. For the year ended December 31, 1997, the Company
recognized $3.6 million (net of taxes) in expenses related to the early
retirement of subordinated debt.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
OPERATING REVENUE. Net revenue increased $5.5 million or 22.3% to $30.3
million in the year ended December 31, 1996 from $24.7 million in the year
ended December 31, 1995. The inclusion of revenue from the RLECs acquired by
the Company during 1996 provided approximately $2.8 million of the increase.
For RLECs owned and operated for a comparable period in 1996 and 1995,
operating revenue improved approximately $2.7 million or 11.0% to $27.5
million in 1996 from $24.7 million in 1995, primarily due to access line
growth, increased intrastate MOU and improved selling efforts.
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<PAGE>
OPERATING EXPENSES. Operating expenses increased $2.7 million or 15.7% to
$20.1 million in the year ended December 31, 1996 from $17.3 million in the
year ended December 31, 1995. This increase was primarily due to the inclusion
of operating expenses from the RLECs acquired by the Company, which
contributed approximately $1.6 million to the increase. For RLECs owned and
operated for a comparable period in 1996 and 1995, operating expenses
increased approximately $1.1 million or 6.2% to $18.4 million in 1996 from
$17.3 million in 1995 primarily due to general corporate overhead expenses.
INCOME FROM OPERATIONS. As a result of the factors described above, income
from operations increased $2.8 million or 37.7% to $10.2 million in the year
ended December 31, 1996 from $7.4 million in the year ended December 31, 1995.
The inclusion of income from operations for the 1996 Acquisitions accounted
for most of the increase. The income from operations margin was 33.7% in 1996
as compared to 29.9% in 1995. For RLECs owned and operated for a comparable
period in 1996, income from operations increased $1.7 million or 22.3% to $9.1
million in 1996 from $7.4 million in 1995 and the income from operations
margin increased to 33.0% from 29.9%.
EBITDA. As a result of the factors described above, EBITDA increased 25.5%
from $14.0 million in the year ended December 31, 1995 to $17.6 million in the
year ended December 31, 1996. The EBITDA margin increased to 58.3% in 1996
from 56.8% in 1995.
OTHER INCOME (EXPENSES). Other expense increased $0.4 million or 6.7% to
$6.7 million in the year ended December 31, 1996 from $6.3 million in the year
ended December 31, 1995. The increase was due primarily to interest expense
associated with additional debt incurred to complete the 1996 Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Implementation of the Company's acquisition strategy has required a
significant portion of the Company's capital resources. The Company
historically has used the proceeds of bank debt and private equity offerings,
supplemented by the Company's available cash flow, to fund the implementation
of the Company's acquisition strategy.
As a result of the financing of its acquisitions, the Company has a
substantial amount of long-term indebtedness. The Company expects that
payments under the New Credit Facility and payments to the holders of the
Notes will be one of the Company's principal uses of cash for the foreseeable
future. In the year ended December 31, 1997, the Company made principal
payments of $22.1 million, or 97.5% of EBITDA, to service its debt.
In addition to debt service, the Company's principal liquidity requirements
are expected to be for general corporate purposes, capital expenditures and to
consummate the Pending Acquisition. The Company's annual capital expenditures
for existing operations have historically been significant. Because existing
regulations allow the Company to recover its operating and capital costs, plus
a reasonable return on its invested capital in regulated telephone assets,
capital expenditures constitute an attractive use of the Company's cash flow.
The Company has historically generated sufficient cash flow from operations to
meet all of its capital expenditure requirements for existing operations. In
1996 and 1997, the Company spent approximately $8.4 million and $8.2 million
on capital expenditures, respectively. The Company expects capital
expenditures in 1998 for all existing operations and the Pending Acquisition
to be approximately $15.0 million.
The Company may require additional financing for future acquisitions, if
any, and there can be no assurance that it will be able to obtain such
financing on favorable terms, if at all. Management evaluates potential
acquisitions on an ongoing basis and has had, and continues to have,
preliminary discussions concerning the purchase of additional RLECs and other
telecommunications properties.
The Company's plan to enter additional markets as a CLEC is expected to
result in the Company's incurring initial operating losses followed by
significant capital expenditures. The Company currently estimates that it will
incur approximately $5.0 million of initial capital expenditures in 1998 and
$15.0 million in 1999 related to the
37
<PAGE>
planned rollout of nine CLEC markets in 1998 and fifteen CLEC markets in 1999.
In addition, the Company anticipates that building facilities to migrate CLEC
customers to the Company's existing networks will require substantially more
capital expenditures in 1999 and 2000. The New Credit Facility limits the
funding of such losses and capital expenditures to (i) $5.0 million per year
so long as the senior debt leverage ratio exceeds 4.0x and (ii) $15.0 million
per year whenever such leverage ratio is under 4.0x. The terms of the Notes
also impose certain restrictions on the Company's ability to fund its CLEC
expansion. See "Description of the Notes--Certain Covenants--Limitation on
Debt" and "--Limitation on Restricted Payments." If the CLEC plan does not
prove successful in the next few years, the Company will likely not continue
to invest capital in the business. If the CLEC plan proves to be successful,
the Company believes it will be able to raise separate financing for future
CLEC capital requirements as permitted under the New Credit Facility and the
Indenture for the Notes.
Net cash provided by operating activities was $9.8 million for each of the
years ended December 31, 1997 and 1996. Net cash provided by (used in)
operating activities was $(0.5) million and $3.0 million for the three months
ended March 31, 1998 and 1997, respectively. Net cash used in investing
activities was $39.0 million and $19.8 million for the years ended December
31, 1997 and 1996, respectively, and $65.3 million and $1.4 million for the
three months ended March 31, 1998 and 1997, respectively. These cash flows
primarily reflect expenditures relating to acquisitions of telephone
properties of $30.8 million and $11.3 million for the years ended December 31,
1997 and 1996, respectively, and $63.9 million for the three months ended
March 31, 1998 and capital expenditures of $8.2 million and $8.4 million for
the years ended December 31, 1997 and 1996, respectively, and $.7 million and
$1.9 million for the three months ended March 31, 1998 and 1997, respectively.
Net cash provided by financing activities was $31.7 million and $10.6
million for the years ended December 31, 1997 and 1996, respectively. Net cash
provided by (used in) financing activities was $68.8 million and $(.04)
million for the three months ended March 31, 1998 and 1997, respectively.
These cash flows primarily represent borrowings, the proceeds of which were
$71.1 million in 1997 and $195.0 million in the first three months of 1998
from $12.8 million in 1996, and proceeds from the issuance of common stock of
$15.9 million in 1997 and $16.8 million in the first three months of 1998. A
majority of the 1997 proceeds were utilized to repay long-term debt of $22.1
million and repurchase preferred stock and warrants for an aggregate amount of
$31.5 million. A majority of the 1998 proceeds were utilized to repay long-
term debt of $133.9 million and to purchase Taconic. On July 31, 1997, a
recapitalization (the "Recapitalization") of the Company was completed. The
Company (i) issued 43,794 shares of the Company's Class A voting common stock
for proceeds of $15.0 million in the aggregate to Carousel and Kelso and (ii)
issued 440 shares to members of management for proceeds of $150,705. Proceeds
from the Recapitalization and related borrowings of $39.2 million from CoBank
ACB ("CoBank") were utilized to (i) retire certain subordinated notes issued
by STE (as defined), a wholly-owned subsidiary of the Company; (ii) repurchase
all of the outstanding shares of preferred stock of MJD not owned by
management; and (iii) repurchase certain common stock purchase warrants that
were owned by Fleet Equity Partners and its affiliates. In October 1997, the
Company issued an additional 4,379 shares of common stock to Kelso and
Carousel for an aggregate of approximately $1.5 million. The proceeds of this
stock issuance were utilized to finance the acquisition of C-R Communications,
Inc.
As of December 31, 1997, the four individuals who founded the Company in
1991 (the "Co-Founders") (through their partnership interests in MJD Partners,
L.P.) and management, Kelso, and Carousel owned 47%, 26% and 26% of the
Company, respectively, on a fully diluted basis. The Equity Investors invested
an additional $16.3 million on March 30, 1998 to finance the acquisition of
Taconic and an additional $15.0 million on April 30, 1998 to finance the
acquisition of Ellensburg, resulting in a total of $47.8 million of equity
capital invested in MJD through April 30, 1998. As of May 31, 1998, the Co-
Founders and management, Kelso and Carousel owned approximately 24%, 38% and
38% of the Company, respectively, on a fully-diluted basis.
As of December 31, 1997, in connection with the implementation of its
business plan, the Company had incurred an aggregate of approximately $128.0
million of long term debt from CoBank and the Rural Telephone Finance
Cooperative ("RTFC"). Such debt typically had a term of 14 years and an
interest rate fixed at a spread of 200 basis points above the commensurate
Treasury rate, resulting in an average rate approximating 8.12%.
38
<PAGE>
On March 30, 1998, the Company closed a $315.0 million senior secured credit
facility (the "New Credit Facility") which included (i) $75.0 million of term
debt (Tranche C) amortized over nine years, (ii) $155.0 million of term debt
(Tranche B) amortized over eight years and (iii) an $85.0 million reducing
revolving credit facility (the "Revolver") with a term of six and one-half
years. The Company believes that the New Credit Facility, when combined with
the proceeds of the Offering, provides sufficient resources to fund the
Pending Acquisition. See "Description of New Credit Facility."
The Company may secure additional funding through the sale of public or
private debt and equity securities or enter into another bank credit facility
to fund future acquisitions. If the Company's growth occurs more rapidly than
is currently anticipated or if its operating results are below expectations,
there can be no assurance that the Company will be successful in raising
sufficient additional capital on terms that it will consider acceptable, or
that the Company's operations will produce positive cash flow in sufficient
amounts to meet its debt obligations. The Company's failure to raise and
generate sufficient funds may require it to delay or abandon some of its
planned future growth or expenditures, which could have a material adverse
effect on the Company's growth and its ability to compete in the
telecommunications industry.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which establishes standards for the way that public business
enterprises report information regarding their operating segments in annual
financial statements and requires that those enterprises report selected
information regarding their operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
regarding products and services, geographic areas, and major customers. SFAS
131 is effective for fiscal years beginning after December 15, 1997. The
Company believes that adopting this accounting pronouncement in 1998 will not
have a significant effect on the level of disclosures in its consolidated
financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pensions and other Postretirement
Benefits" ("SFAS 132"), which is effective for fiscal years beginning after
December 15, 1997. SFAS 132 revises disclosure requirements for pension and
other postretirement benefits plans. The Company does not expect any impact on
its financial statements due to SFAS 132 because the Company does not sponsor
defined benefit or other postretirement benefits covered by this standard.
INFLATION
The Company does not believe that inflation has a significant effect on its
operations.
39
<PAGE>
BUSINESS
COMPANY OVERVIEW
MJD is a growing provider of local telecommunications services to customers
in rural communities in the United States. The Company also provides
complementary services such as long distance service, enhanced calling
services and wireless telephony. Upon completion of the Pending Acquisition,
the Company believes that it will be the eighteenth largest telephone company
in the United States, and the largest telephone company in the United States
that focuses primarily on acquiring and operating rural telecommunications
service companies. For the year ended December 31, 1997, the Company had
revenue and EBITDA of $43.0 million and $22.7 million, respectively. On a pro
forma basis after giving effect to the Acquisitions, the Company would have
had revenue and EBITDA of $104.6 million and $55.0 million, respectively, for
the year ended December 31, 1997. For the three months ended March 31, 1998,
the Company had revenue and EBITDA of $13.5 million and $6.7 million,
respectively. On a pro forma basis after giving effect to the Acquisitions,
the Company would have had revenue and EBITDA of $27.6 million and $13.3
million, respectively, for the three months ended March 31, 1998.
The Company believes that the rural telecommunications market is
particularly attractive due to limited competition and a favorable regulatory
environment; in particular, pursuant to existing state and federal
regulations, the Company is able to charge rates which enable it to recover
its operating and capital costs, plus a reasonable (as determined by the
relevant regulatory authority) rate of return on its invested capital. RLECs
which serve this market are characterized by stable operating results and
strong cash flow margins. The Company has successfully completed acquisitions
of fourteen RLECs in ten states (Colorado, Illinois, Kansas, Maine, New
Hampshire, New York, South Dakota, Washington, Oklahoma and Vermont (the
"Current States")) and, pro forma for the Ellensburg acquisition and the
Pending Acquisition, the Company will serve over 123,000 access lines and
provide local telephone service to customers in rural locations in ten states.
MJD has been successful in improving operating margins and reducing trailing
acquisition multiples by centralizing many of the acquired companies'
operations and increasing revenues through introducing innovative marketing
strategies for enhanced and ancillary services. The Company believes that the
attractive operating characteristics of rural markets and the Company's
ability to draw on its existing corporate resources creates the opportunity to
achieve and maintain substantial operating efficiencies.
The local telephone industry is comprised of a few large, well-known
companies such as the RBOCs and a large number of small independent telephone
companies. According to USTA, there are over 1,300 independent telephone
companies with fewer than 25,000 access lines in the United States. The
majority of these small telephone companies operate in thinly populated, rural
areas with limited competition due to the unfavorable economics of
constructing and operating a competing network in such areas. Many of these
RLECs are owned by families or small groups of individuals and were founded
shortly after World War I. The Company believes that the owners of some of
these RLECs are increasingly interested in selling their companies, thereby
creating significant future opportunities to acquire additional properties.
The Company also believes that the RBOCs are increasingly likely to dispose of
rural access lines in certain markets in order to focus more attention and
resources on their urban markets.
The Company was formed in 1991 to capitalize on consolidation opportunities
in the RLEC market. The Company has assembled a senior management team with
significant industry experience and a strong track record of acquiring and
integrating RLECs. The seven most senior managers of the Company have an
average of approximately 20 years of experience in the telecommunications
industry with companies such as C&P Telephone (now a subsidiary of Bell
Atlantic Corporation), Sprint Corporation, Frontier Corporation and C-TEC
Corporation. As of May 31, 1998, senior management owned 24.0% of the common
stock of the Company on a fully diluted basis. MJD also benefits from the
financial and management expertise of its two primary equity investors, which
are Kelso and Carousel, each of which owned 38.0% of the common stock of the
Company on a fully diluted basis as of May 31, 1998. The Equity Investors have
invested a total of $47.8 million of equity capital in MJD through May 31,
1998. Kelso is one of the oldest and most established firms specializing in
40
<PAGE>
leveraged investing, both as a principal and as a financial advisor, since
1971, and has significant experience with other media and communications
properties. Carousel, founded in 1996, is a merchant bank with over $160.0
million in equity commitments, focused on investing in middle market companies
located in the southeastern United States.
BUSINESS STRATEGY
The Company's objective is to become the leading provider of
telecommunications services to rural communities and the preferred acquirer of
RLECs in the United States. Key strategies in the development and fulfillment
of the Company's objectives are discussed below.
CONTINUED GROWTH THROUGH ACQUISITIONS. The Company expects to continue
growing primarily by acquiring independent RLECs and by purchasing rural
telephone operations from large telephone companies such as the RBOCs, GTE
Corporation and others. The Company focuses its acquisition efforts on rural
telephone companies that exhibit: (i) significant opportunities to realize
management and operating synergies and economies of scale; (ii) positive
economic and demographic characteristics; (iii) a positive regulatory and
operating environment; (iv) deployment of advanced technology; and (v) strong
mid-level management capabilities. Cellular, cable television, long distance
resale, paging and wireless operations may also be acquired, but primarily as
ancillary business segments of acquired RLECs.
IMPROVE OPERATING EFFICIENCY OF ACQUIRED RLECS. By consolidating RLECs under
a single corporate organization, the Company has successfully achieved
significant operating efficiencies that the Company believes the independent
RLECs could not have individually attained. For example, the Company has
consolidated the regulatory, accounting and billing functions of its acquired
companies and has reduced the overhead costs associated with executive
management of such companies. The Company's acquisition strategy is to acquire
inherently sound operating RLECs which do not require dramatic changes to core
operations. Upon acquiring such companies, the Company applies its operating,
regulatory, marketing, technical and management expertise and its financial
resources to improve the operations and profitability of the acquired RLECs.
INCREASE REVENUE THROUGH ENHANCED SERVICE OFFERINGS. The Company believes
that its local community presence and its brand recognition will allow it to
grow its revenues by offering enhanced and ancillary telecommunications
services to its existing customers. Unlike the RBOCs, MJD is not subject to
regulatory restrictions that prohibit it from marketing other services such as
long distance services in its existing franchise territories or elsewhere. The
Company intends to pursue incremental revenue growth through: (i) traditional
ancillary telephony service offerings such as enhanced calling services,
including voice mail and conference calling; (ii) long distance resale
services, including related products such as "800" service and long distance
calling cards; (iii) multimedia services such as Internet access, cable
television and other entertainment services; and (iv) various wireless
services, including cellular, PCS and paging. For example, during the year
ended December 31, 1997, ST Long Distance (the Company's long distance
subsidiary) introduced its long distance service program in selected markets
and realized an average first year penetration rate of approximately 57% in
these markets.
EXPAND EXISTING MARKET PRESENCE BY LAUNCHING CLEC SERVICES. The Company is
currently initiating a plan to introduce CLEC services in targeted rural and
small urban markets that are within 200 miles of certain of its existing
RLECs. The plan contemplates the Company entering nine such markets in 1998
and fifteen such markets in 1999. In the first phase of this strategy, the
Company plans to enter markets as a reseller of local exchange services and
attempt to capture market share without owning facilities in the targeted
market. If the Company succeeds in capturing a meaningful portion of the
market, the Company then plans to migrate its customers to its own facilities-
based service that incorporates unbundled elements from the ILEC connected
back to the Company's RLEC network and switching facilities. This second phase
contemplates significant capital expenditures that the Company believes would
be required to make such a venture profitable. Once these facilities have been
installed, all new CLEC customers would be serviced from the Company's
network. The Company believes that this strategy will permit an efficient use
of the Company's capital resources and rapid
41
<PAGE>
deployment of service. The Company also believes that its target markets are
likely to sustain only one or two competitors in addition to the ILEC. For
this reason, the Company intends to enter its target markets as quickly as is
possible.
The targeted markets are small urban markets with residential populations
between 25,000 and 75,000. The Company plans to target its CLEC services
initially to small and medium businesses, which management believes to be a
lucrative and underserved customer segment. The Company has identified more
than 500 small urban markets throughout the United States that could be served
by MJD as a CLEC.
The Company's customer acquisition strategy is expected to emphasize local,
personal sales and customer service. Under its CLEC plan, the Company expects
to establish an office in each of its markets, staffed with locally-hired
salespeople and customer service personnel who will be trained to provide a
high level of customer service. The Company plans to utilize the technical and
administrative personnel of its RLECs, thereby reducing the expenses required
to operate the CLEC business. The implementation of the Company's CLEC
strategy is in the early stages, and there can be no assurance that the
Company will be able to implement its CLEC strategy successfully. See "Risk
Factors--Future Capital Requirements; Expected CLEC Losses" and "--
Competition--Risk of Inability to Compete as a CLEC." For purposes of the
Indenture relating to the Notes, the Company will conduct its CLEC business
through Unrestricted Subsidiaries, which will limit the amount the Company can
invest in the CLEC business and exempt the CLEC subsidiaries from most of the
covenants applicable to the Notes. See "Description of Notes."
RECENT AND PENDING ACQUISITIONS
The Company has recently completed, or plans to complete, the following RLEC
acquisitions:
TACONIC TELEPHONE CORP. On March 30, 1998, the Company acquired Taconic.
Taconic, located in the Hudson Valley area of eastern New York, 30 miles
southeast of Albany, operates approximately 24,800 access lines (approximately
83% residential). The Company purchased the common stock of Taconic for
$67.5 million and assumed $9.2 million of debt of Taconic. In the year ended
December 31, 1997, Taconic had revenues of $20.4 million.
ELLENSBURG TELEPHONE COMPANY. On April 30, 1998, the Company acquired
Ellensburg. Ellensburg, located in Ellensburg, Washington, 100 miles southeast
of Seattle, operates approximately 23,900 access lines (approximately 76%
residential). The Company will purchase the common stock of Ellensburg for
$91.0 million. In the year ended December 31, 1997, Ellensburg had revenues of
$14.7 million.
CHOUTEAU TELEPHONE COMPANY. On June 1, 1998, the Company acquired Chouteau.
Chouteau, located in Chouteau, Oklahoma, 30 miles east of Tulsa, operates
approximately 3,400 access lines (approximately 84% residential). The Company
purchased the common stock of Chouteau for $19.0 million and assumed $3.0
million of debt of Chouteau. In the year ended December 31, 1997, Chouteau had
revenues of $4.3 million.
UTILITIES, INC. On April 3, 1998, the Company entered into an agreement to
acquire Utilities, which is expected to close in the third or fourth quarter
of 1998. Utilities is headquartered in Standish, Maine, approximately 15 miles
west of Portland. Utilities operates approximately 22,200 access lines in
central and southern Maine, most of which are located in exchanges adjacent to
exchanges operated by subsidiaries of the Company. In the year ended December
31, 1997, Utilities had revenues of $16.2 million (which excludes the revenues
of certain cellular businesses of Utilities which are not being acquired by
MJD).
The Pending Acquisition is subject to certain closing conditions. See "Risk
Factors--Risk that Pending Acquisition Will Not Be Consummated" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
42
<PAGE>
ACQUISITION HISTORY
The following summarizes each RLEC the Company has acquired to date and the
Pending Acquisition.
<TABLE>
<CAPTION>
ACCESS LINES
LOCATION OF AS OF
RLEC ACQUIRED OPERATIONS DECEMBER 31, 1997 DATE ACQUIRED
- ------------------------ ------------------- ----------------- -----------------------------------
<S> <C> <C> <C>
Sunflower Telephone Com- Kansas/Colorado 4,675 May 1993
pany, Inc.
Northland Telephone Com- Maine/New Hampshire 20,493 August 1994
pany of Maine, Inc.
STE/NE Acquisition Corp. Vermont 5,510 August 1994
d/b/a Northland
Telephone Company
of Vermont
Sidney Telephone Company Maine 1,359 January 1996
Big Sandy Telecom, Inc. Colorado 893 June 1996
Bluestem Telephone Com- Kansas 992 August 1996
pany
Odin Telephone Exchange, Illinois 1,164 August 1996
Inc.
Kadoka Telephone Co. South Dakota 580 January 1997
Columbine Telephone Com- Colorado 1,085 April 1997
pany, Inc.
Chautauqua & Erie Tele- New York 11,070 July 1997
phone
Corporation
C-R Communications, Inc. Illinois 910 October 1997
Taconic Telephone Corp. New York 24,832 March 1998
Ellensburg Telephone Washington 23,910 April 1998
Company
Chouteau Telephone Com- Oklahoma 3,394 June 1998
pany
-------
Subtotal: 100,867
Utilities, Inc. Maine 22,239 Third/Fourth Quarter 1998 (expected)
-------
Total: 123,106
=======
</TABLE>
INDUSTRY OVERVIEW
The LEC industry is composed of a small number of large, well-known
companies such as the RBOCs and GTE, and a very large number of relatively
small independent companies. These small, independent telephone companies
provide telephone service to more than five million residences and businesses
in secondary and rural marketplaces.
According to USTA, there are over 1,300 independent telephone companies with
less than 25,000 access lines in the U.S., many of which could be potential
acquisition candidates for the Company. A majority of these small telephone
companies operate in sparsely populated rural areas where competition from
bypass companies including CAPs, CATV operators or wireless telecommunications
companies (such as cellular or PCS providers) is limited due to the generally
unfavorable economics of constructing and operating such competitive systems.
Most RLECs are owned by families or small groups of individuals, and were
founded soon after World War I. The Company believes that the owners of these
small companies are increasingly interested in selling such companies as the
growing technical, administrative and regulatory complexities of the local
telephone business challenge the capabilities of the existing management. In
addition, certain large telephone companies are selling many of their small
rural exchanges to focus their attention on their major metropolitan
operations that generate the bulk of their consolidated revenue and which are
increasingly threatened by competition. The Company believes that these
companies cannot continue to invest time and capital in rural operations that
make up a relatively insignificant portion of their consolidated operations.
As a result of these circumstances, the Company believes that it has, and in
the future will have, numerous opportunities to acquire RLECs and rural
telephone operations currently owned by the large telephone companies.
43
<PAGE>
The FCC has taken steps to limit the ability of companies to gain regulatory
subsidies when large telephone companies sell individual telephone exchanges
to small companies. A smaller company can be entitled to significant increases
in universal service subsidies relating to the same exchange because of
specific rules that favor small companies and because small companies do not
have to average their costs over wide geographic areas, which could include
low cost areas, as do larger carriers. In the past, on a case by case basis,
the FCC has only approved the sale of individual exchanges if such sale did
not increase the amount of universal service subsidy going to the acquiring
company. The FCC has proposed to make this policy a permanent rule. Several
LECs and industry organizations have requested the FCC not to adopt this
policy. However, the acquiring company can request a waiver to increase the
amount of universal service support based on its own cost characteristics,
demographics and particular situation. If the FCC continues to enforce this
policy or adopts it as a final rule, it could adversely affect the Company's
ability to acquire additional individual exchanges from large telephone
companies.
RURAL TELEPHONE INDUSTRY. RLECs typically exhibit the stable economic and
demographic characteristics often associated with rural America. All of the
Company's telephone company subsidiaries qualify as "RLECs" under the
Telecommunications Act, and are therefore entitled to benefit from a number of
cost recovery mechanisms associated with the "rural carrier" designation. See
"Regulation."
Because RLECs serve primarily rural areas and small towns, they tend to have
unique characteristics that differentiate them from larger LECs. For instance,
the per minute cost of operating both telephone switches and interoffice
facilities is higher in rural areas as RLECs typically have fewer, more
geographically dispersed customers and lower calling volumes. Also, the
distance from the telephone switch to the customer is typically longer in
rural areas, which results in increased distribution facilities costs. These
relatively high costs tend to discourage competitors from entering territories
served by RLECs. As a result, RLECs are rarely faced with the threat of
competition, as compared to the RBOCs which often serve densely populated
areas that contain a high concentration of profitable business accounts. As a
result of legislative and regulatory initiatives, however, it is possible that
RLECs, including the Company, may become subject to competition. See "Risk
Factors--Competition," "Risk Factors--Regulation" and "Business--Competition."
HIGH RURAL SWITCHING COSTS DUE TO LACK OF ECONOMIES OF SCALE. RLECs
typically lack the economies of scale in switching associated with high call
traffic volume and inherently have considerably higher costs per access line
and per minute for switching than do larger LECs. Also, RLECs typically serve
much smaller communities and therefore typically have smaller central offices
than the RBOCs; however, this often does not translate into lower costs for
RLECs because software costs, which can account for most of the cost of a
switch, are similar regardless of the size of the office. Additionally, RLECs
typically own only a few central offices and do not have the negotiating power
to demand the discounts enjoyed by larger LECs, which purchase a significant
number of switches each year.
REVENUE COMPONENTS. RLECs typically receive the majority of their revenue
from access charges (the rates IXCs pay to a LEC for use of the LEC's network
to originate and terminate toll calls), as compared to the RBOCs which receive
a greater percentage of their revenues from basic local service charges. In
addition, RLECs on average receive greater USSF revenue to support local
telephone service rates in high cost locations than do RBOCs.
Although RLECs' residential customers may have lower local service bills
than their urban counterparts, they typically have higher long distance bills,
which makes the total amount of a typical telephone bill for rural and urban
residential customers about the same. The higher long distance bills are the
result of smaller local calling areas for rural customers, which requires many
of the calls placed for routine daily activities to be toll calls. Unlike
urban customers, rural customers often must pay toll rates to make calls
considered "local" in the urban settings, including calls to schools, stores,
doctors and government agencies.
CAPITAL EXPENDITURES. In most years, RLECs' capital expenditures are for (i)
capital expenditures for maintenance and (ii) expenditures for any expansions
required for growth within the RLEC's service area.
44
<PAGE>
Occasionally, however, RLECs are required to make significant capital
investments in a particular year to replace a central switch, or to rebuild or
upgrade elements or components of the RLEC's local loop.
Due to the relatively high cost associated with serving rural telephone
properties, universal telephone service could not be provided without the
support mechanisms historically made available to RLECs. The government has
preserved these support mechanisms in the Telecommunications Act with an
established system of cost recovery mechanisms that ensure a minimum rate of
return on capital investment in rural telephone assets. As a result, RLECs are
entitled to recover a minimum rate of return on all capital invested in
regulated telephone assets. See "Regulation."
SERVICES
The Company offers a broad portfolio of high-quality telecommunications
services for residential, business, government and carrier customers in each
of the markets in which it operates. The Company's service offerings are
locally managed to better serve the needs of each community. The Company
believes it is able to efficiently and reliably provide, by using local
personnel, all of the telecommunications services required by its customers,
thereby allowing the Company to establish and maintain a recognized and
respected brand identity within each of its service areas. These include
services traditionally associated with local telephone companies, as well as
other services such as long distance, multimedia and wireless, and Internet
services. Based on its understanding of its local customers' needs, the
Company has attempted to be proactive by offering bundled services designed to
simplify the customer's purchasing and management process.
GENERATION OF REVENUE
The Company primarily generates revenue through: (i) the provision of basic
local telephone service to customers within its service areas; (ii) the
provision of network access to IXCs for origination and termination of
interstate and intrastate long distance phone calls; (iii) USSF payments; and
(iv) the provision of ancillary services such as billing and collection, long
distance resale, enhanced services, wireless services, cable television
services, Internet services and customer premises equipment sales.
The following chart summarizes each component of the Company's revenue
sources for the year ended December 31, 1997:
<TABLE>
<CAPTION>
% 1997
REVENUE SOURCE REVENUE DESCRIPTION
-------------- ------- -----------------------------------------------------------------
<C> <S> <C>
Basic Local Service 17.9% Enables the local customer to originate and receive an unlimited
number of calls within a defined "exchange" area. The
customer is charged a flat monthly fee which is regulated by
state agencies.
Intrastate Access 30.0% Enables an IXC to utilize the Company's local network to
originate or terminate an intrastate call. The access charge is
paid by the IXC to the Company and is regulated by state
regulatory agencies.
Interstate Access 30.9% Enables an IXC to utilize the Company's local network to
originate or terminate an interstate call. The access charge is
paid by the IXC to the Company and is regulated by the FCC.
USSF Revenue 13.1% The Company receives funds to subsidize the cost of providing
high cost local telephone service in rural locations. The funds
are allocated and distributed to the Company from pools of
funds generated by IXCs and LECs.
Other Services 8.1% The Company generates revenues from billing and collection,
long distance resale, enhanced services, wireless services, cable
services, Internet services and customer premises equipment
sales.
</TABLE>
45
<PAGE>
BASIC LOCAL SERVICE
Basic local service includes basic local lines, ISDN, Centrex, foreign
exchange, private lines and switched data services. The Company provides basic
local services to residential, business and government customers, generally
for a fixed monthly charge. In the RLECs' territories, the amount that the
Company can charge a customer for local service is determined by rate
proceedings involving the appropriate state regulatory authorities.
NETWORK ACCESS CHARGES
Network access charges relate to long distance, or toll calls, that
typically involve more than one company in the provision of telephone service.
Since toll calls are generally billed to the customer originating the call, a
mechanism is required to compensate each company providing services relating
to the call. The Company bills access charges to the IXC for the use of the
Company's facilities to access the customer, as described below:
INTRASTATE ACCESS CHARGES. The Company generates intrastate access revenue
when an intrastate long distance call (which involves an IXC) is originated by
a customer within the same state but in another local access and transport
area ("LATA," i.e., the calling area controlled by a LEC). The IXC pays the
Company an intrastate access payment for either terminating or originating the
call. The Company records the details of the call through its carrier access
billing system ("CABS") and receives the access payment from the IXC. When a
customer of the Company originates the call, the Company typically provides
billing and collecting for the IXC through a billing and collection agreement.
The access charge for the Company's intrastate service is regulated and
approved by the state regulatory authority.
INTERSTATE ACCESS CHARGES. The Company generates interstate access revenue
when an interstate long distance call is originated by a customer calling from
a LATA in one state to a LATA in another state. The Company bills interstate
access charges in the same manner as it bills intrastate access charges;
however, the interstate access charge is regulated and approved by the FCC
instead of the state regulatory authority.
USSF REVENUE
The USSF supplements the amount of local service revenue received by the
Company to ensure that basic local service rates for customers in high cost
rural areas are consistent with rates charged in lower cost urban and suburban
areas. The USSF is funded by monthly customer fees charged to IXCs and
administered by the USAC which then distributes funds to the Company on a
monthly basis based upon the Company's costs for providing local service. See
"Regulation."
OTHER SERVICES
The Company seeks to capitalize on its local presence and network
infrastructure by offering services to customers such as long distance,
enhanced services, wireless services, cable services, Internet services,
billing and collection for IXCs and customer premises equipment sales.
LONG DISTANCE RESALE. In 1997, the Company began offering long distance
services to its customers in select markets. The Company offers switched and
dedicated long distance services throughout its service areas through resale
agreements with national IXCs. In addition, in late 1997, the Company began to
offer wholesale long distance services to other independent telephone
companies. Currently, the Company provides long distance services to four
other independent telephone companies, principally in the northeastern United
States. As of March 31, 1998, the Company's wholesale customers had subscribed
to approximately 5,800 access lines of the Company's long distance service.
The Company plans to increase its wholesale marketing effort, with a
continuing emphasis on independent telephone companies.
ENHANCED SERVICES. The Company's advanced digital switch platform allows it
to offer enhanced services such as call waiting, call forwarding, call return,
continuous redial, caller ID, voice mail, teleconferencing, video
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conferencing, store-and-forward fax and follow-me numbers. As of March 31,
1998, approximately 36% of the Company's customers subscribed to one or more
enhanced services.
WIRELESS SERVICES. The Company owns interests in various RSA or MSA
properties and also operates a paging subsidiary in western Kansas. The
Company resells cellular services in western New York State and may expand
this wireless reseller strategy to other markets. The Company owns a PCS
license in the Yakima Valley region.
CABLE AND DIRECT BROADCAST SATELLITE ("DBS") SERVICES. The Company currently
offers cable television services to customers in its New York and Colorado
telephone markets. The Company continually evaluates opportunities to expand
these markets or add DBS resale to its existing markets where appropriate.
INTERNET SERVICES. The Company offers dedicated and dial-up Internet access
services in certain of its service areas. The Company operates and manages its
own servers and is also an agent for a third-party Internet service provider.
The Company currently provides Internet services to over 3,460 customers in
select markets, representing an average penetration rate in such markets of
9.2%.
BILLING AND COLLECTION. Many IXCs provide long distance services to the
Company's RLEC customers and elect to use the Company's billing and collection
services. The Company charges IXCs a billing and collection fee for each call
record generated by the IXC's customer.
CUSTOMER PREMISES EQUIPMENT SALES. In its New York markets, the Company
sells and services equipment on its customers' premises. This equipment
includes private branch exchanges, key systems, telephone sets and
accessories. In addition, the Company offers inside wire maintenance plans to
most of its customers.
SALES AND MARKETING
The Company's marketing approach emphasizes locally-managed, customer-
oriented sales, marketing and service. The Company believes most
telecommunications companies devote their resources and attention primarily
toward customers in more densely populated markets. The Company seeks to
differentiate itself from its competitors by providing a superior level of
service to each of the customers in the rural market it serves.
Each of the Company's RLECs has a long history in the communities it serves.
It is the Company's policy to maintain and enhance the strong brand identity
and reputation that it enjoys in its markets, as it believes this is a
significant competitive advantage. As the Company markets new services, or
reaches out from its franchised territories to serve other markets as a CLEC,
it will seek to continue to utilize its brand identity in order to attain
higher recognition with potential customers.
To demonstrate its commitment to the markets it serves, the Company
maintains local offices in most of the population centers within its service
territories. These offices are typically staffed by local residents and
provide sales and customer support services in the community. The Company
believes that local offices facilitate a direct connection to the community,
which improves customer satisfaction and loyalty. The Company intends to open
additional offices in its larger markets as it expands its CLEC operations.
Many of the RLECs acquired by the Company have not traditionally devoted a
substantial amount of their operating budget to sales and marketing
activities. After acquiring the RLECs, the Company typically changes this
practice to provide additional support for existing products and services as
well as to support the introduction of one or more new services. The Company
expects to substantially increase its sales and marketing staff over the
coming years, particularly to support expansion of its CLEC activities. As of
May 31, 1998, the Company had 107 employees engaged in sales, marketing and
customer service.
The Company has two basic tiers of customers: (i) local customers located in
the Company's LATAs who pay for local phone service and (ii) the IXCs which
pay the Company for access to customers located within the
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Company's LATAs. In general, the vast majority of the Company's local
customers are residential, as opposed to business, which is typical for rural
telephone companies. In addition, no single customer within any of the
Company's RLECs represents more than one half of one percent of such RLEC's
total revenue.
COMPETITION
The Company believes that the Telecommunications Act of 1996 (the
"Telecommunications Act") as well as other recent actions by the FCC and state
regulatory authorities promote competition in the provision of
telecommunications services; however, many of the competitive threats now
confronting the large telephone companies do not currently exist in the RLEC
marketplace. Since the enactment of the Communications Act of 1934 and its
reaffirmation in the Telecommunications Act, regulations promoting "universal
service" have allowed RLECs to maintain advanced technology while keeping
prices affordable for rural customers. In light of the high cost per access
line of installing lines and switches and providing telephone service in
sparsely-populated rural areas, a system of cost recovery mechanisms has been
established to, among other things, keep rural customer telephone charges at a
"reasonable" level and yet allow owners of rural telephone companies to earn a
fair return on their investment. These cost recovery mechanisms, which are
generally unavailable to an RLEC's competitors, have resulted in robust RLEC
telecommunications networks and an economic barrier to entry for potential
competitors. All of the Company's telephone operating subsidiaries currently
qualify as RLECs as defined under the Telecommunications Act. See
"Regulation."
In markets where the Company implements its CLEC strategy, the Company will
be subject to competition from ILECs in those markets, and possibly other
CLECs. In addition, the Company may compete against other CLECs for customer
business. The ongoing consolidation in the CLEC industry could change the
nature of the Company's competitive environment.
The Company will be subject to competition for suitable acquisition
candidates from other competitors engaged in the acquisition of RLECs. There
is a pool of over 1,300 small independent companies from which the Company has
historically chosen its acquisition candidates; however, a continuing trend
toward business combinations and alliances in the telecommunications industry
may increase competition for such acquisition candidates. The Company believes
it has a proven track record of identifying suitable acquisition candidates,
negotiating acceptable terms for their acquisition and successfully completing
acquisitions, which gives it a competitive advantage in identifying and
completing future acquisitions.
NETWORK FACILITIES
As of December 31, 1997, (i) the Company's RLEC franchise areas included 60
exchanges serving 48,731 access lines that were located across approximately
9,400 square miles and (ii) the Company maintained over 6,700 miles of copper
plant and 600 miles of fiber optic plant that interconnects the Company's
remote central offices with IXCs serving the Company's subscribers. Upon
completion of the Taconic acquisition, Chouteau acquisition, Ellensburg
acquisition and the Pending Acquisition, as of December 31, 1997, the Company
on a pro forma basis would have operated 92 exchanges serving over 123,000
access lines that were located across approximately 12,000 square miles served
by over 12,500 miles of copper and 900 miles of fiber optic plant. All of the
Company's host and central office sites have advanced digital switches
manufactured by Nortel or Siemens and up to date software which allows the
Company to provide advanced calling features, products and services to its
rural subscribers. The outside plant consists of transport and distribution
delivery networks connecting the Company's host central office with remote
central offices and ultimately to the Company's customers. Fiber optic
technology is being deployed throughout the Company's network and is the
primary transport technology between the Company's host and remote central
offices and interconnection points with the RBOCs, GTE, long distance carriers
or other RLECs. Where topography and geography permit, cable is generally
buried reducing the risk of service interruption from adverse weather. The
Company believes that its facilities exceed generally accepted industry
standards and are maintained to provide high quality customer service.
The Company's fiber optic transport systems are primarily synchronous
optical networks ("SONET"), allows the Company to build and design more
durable networks, while utilizing the less durable asynchronous
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optical systems for limited local or specialized applications. The Company's
fiber optic transport system is capable of supporting increasing customer
demand for high bandwidth transport services and applications. For example,
the Company has deployed 100Mb/sec transport systems for high speed data and
fiber optic based Interactive Video Distance Learning Systems to serve certain
area schools and education consortia. In addition, the Company is considering
the deployment of asynchronous digital subscriber line ("ADSL") technologies,
which allow for improved technical performance on rural copper plant. The
Company believes that the addition of ADSL technology on rural copper plant
combined with the Company's advanced fiber optic facilities will significantly
enhance the Company's competitive position and ability to deploy higher
revenue services throughout its entire network.
The Company has integrated numerous elements of its network to offer a
variety of services and applications that it believes are required to serve
increasingly sophisticated rural communications customers. These network
elements include SS7 signaling networks, voice messaging platforms, switch
based large Meet-Me Conference Bridges, switched 56Kb/sec digital data and
ISDN lines, and numerous customer located key and PBX systems. Since the
telecommunications industry is subject to rapid and significant changes in
technology, the Company consistently endeavors to introduce additional
elements of functionality to its network, including Frame Relay and ATM
switches, Local Number Portability, Advanced Intelligent Network (AIN)
services, and Voice over I/P (Internet) opportunities.
The Company has been segmenting its predominantly rural copper plant network
into Carrier Serving Areas ("CSA's"), effectively multiplying embedded copper
plant capacity and enabling unencumbered service deployment throughout the
Company's service areas. The Company's strategy is to push all of the
intelligence and unencumbered capabilities of the host digital central office
switch and transport closer to its increasingly sophisticated rural
communications customers by deploying remote switches throughout the Company's
service areas. The Company believes that this strategy will enable it to build
a high bandwidth, fully digital, data capable and ready communications
infrastructure.
The Company maintains numerous communications vendor relationships that the
Company believes have resulted in favorable equipment prices for the Company
due to its increased aggregate purchase volumes. Although Nortel and Siemens
currently supply the Company with most of its digital central office
equipment, the Company believes that vendor competition will result in
additional unit costs reductions which will be made available to the Company.
The Company plans to prudently invest capital to maintain, replace and
upgrade its entire telecommunications infrastructure. The Company continually
reviews expenditures to ensure they are economically justifiable and result
from an integrated network planning process that considers age, maintenance
history, market requirements, customer growth and acceptable returns on
capital. For the year ending December 31, 1998, the Company has budgeted
annual capital expenditures of approximately 22% for normal growth and
maintenance, 15% for general support facilities, 37% for central office, and
26% for outside plant requirements.
INTERSTATE BILLING AND SETTLEMENT
Most of the Company's billing is administered by Mid America Computer
Corporation ("MACC"), a billing company located in Blair, Nebraska, as
follows:
LOCAL SERVICE. On a monthly basis, the Company provides MACC with local
service billing information from the Company's accounting center located in
Dodge City, Kansas. Both local service and long distance charges are printed
on the local customer's bill. Although a few of the Company's customers mail
their payments to a lock box, most of its customers mail payments, or deliver
payments personally, to the Company's local offices.
LONG DISTANCE. All information necessary to bill the local customers for
long distance calls on behalf of IXCs is stored in the memory of the Company's
central office switches. MACC polls these switches on a
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scheduled basis, downloads the billing data, calculates the charges and
includes them on the local customer's bill. MACC then mails the bills to the
local customers and simultaneously credits the IXCs with the same amount of
long distance revenue. MACC also determines and bills the IXCs a per message
billing and collection charge to cover the Company's cost for handling the
IXCs' long distance billing functions.
From time to time, various IXCs consider assuming responsibilities for their
own billing. If one or more IXCs decide to perform their own billing, revenues
that the Company receives for performing such billing and collection services
could decline.
CARRIER ACCESS BILLING SYSTEM. During the process of calculating long
distance charges to bill the local customers, MACC also calculates access
charges and bills the IXCs through CABS. The IXCs then remit these access
charges to the Company which in turn returns such charges to the National
Exchange Carrier Association ("NECA"). The monthly settlement payment the
Company receives from NECA is an amount based upon the invested capital and
operating expenses of the Company allocated to the interstate jurisdiction.
See "Regulation."
EMPLOYEES
As of May 31, 1998, the Company employed a total of 427 full-time employees,
of whom 86 were represented by unions. The Company has collective bargaining
agreements with (i) Local 23-26 of the International Brotherhood of Electrical
Workers (AFL-CIO) 107 covering 7 employees employed by its Northland Telephone
Company of Vermont subsidiary; (ii) Local 1115 of the Communications Workers
of America, covering 15 employees employed by its Chautauqua & Erie Telephone
Corp. subsidiary in New York; and (iii) Local 166 of the International
Brotherhood Electrical Workers (AFL-CIO), covering 64 employees employed by
its Taconic Telephone Corp. subsidiary in New York. The contracts expire in
February 1999, January 2000 and March 2000, respectively. The Company believes
that its relations with its employees are good. Following the Pending
Acquisition, the Company expects to employ approximately 522 employees.
PROPERTIES
The Company owns most of its administrative and maintenance facilities,
rolling stock, central office and remote switching platforms and outside
plant. Administrative and maintenance facilities are generally located in or
near community centers. Central offices are often within the administrative
building and outlying customer service centers. Auxiliary battery or other
non-utility power sources are at each central office to provide uninterrupted
service in the event of an electrical power failure. Transport and
distribution network facilities (outside plant) include fiber optic backbone
and copper wire distribution facilities which connect customers to remote
switch locations or to the central office and to points of presence or
interconnection with the IXCs. These facilities are located on land pursuant
to permits, easements or other agreements. Rolling stock includes service
vehicles, construction equipment and other required maintenance equipment. The
Company believes that all facilities are well maintained and generally meet or
exceed industry standards.
LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation and
regulatory proceedings incidental to the conduct of its business, but the
Company is not a party to any lawsuit or proceeding which, in the opinion of
the Company, is likely to have a material adverse effect on the Company.
On April 6, 1998, Latin World Communications, Inc., ("LWC") and Debra A.
Boudrot, LWC's principal (collectively, "Plaintiffs") sued B. Stephen May
("May"), who is a former officer of S T Long Distance (a subsidiary of STE),
Siesta Telecom, Inc. ("Siesta"), which is a company controlled by May, and S T
Long Distance in the Circuit Court for the Twelfth Judicial Circuit, Sarasota
County, Florida. From March 1997 through early 1998, S T Long Distance
provided long distance services to Plaintiffs in connection with Plaintiffs'
prepaid telephone card distribution business. Plaintiffs have alleged, among
other things, that May, Siesta and
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S T Long Distance have engaged in fraud, misappropriation of trade secrets,
unfair competition, deceptive trade practices and trade slander; and that May,
Siesta and S T Long Distance have breached various contractual obligations to
the Plaintiffs and received certain overpayments from the Plaintiffs.
Plaintiffs seek approximately $1 million in damages relating to such alleged
overpayments, and unspecified monetary damages and injunctive relief relating
to certain other matters. The Company intends to vigorously contest all of the
Plaintiffs' allegations, and believes that it has no liability to the
Plaintiffs. While the outcome of such litigation cannot be predicted, the
Company does not believe that such litigation, even if determined adversely to
the Company, would have a material adverse effect on its financial condition
or results of operations.
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REGULATION
INTRODUCTION
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state, and local
regulation and legislation affecting the telecommunications industry. Other
existing federal and state laws and regulations are currently the subject of
judicial proceedings, legislative hearings and administrative proposals that
could change, in varying degrees, the manner in which this industry operates.
Neither the outcome of these proceedings, nor their impact upon the
telecommunications industry or the Company, can be predicted at this time.
This section also sets forth a brief description of regulatory and tariff
issues pertaining to the operation of the Company.
OVERVIEW. The Company's services are subject to varying degrees of federal,
state and local regulation. The FCC exercises jurisdiction over all
telecommunications common carriers, including the Company, that provide,
originate or terminate interstate or international communications. State
regulatory commissions retain jurisdiction over most of the same companies to
the extent they originate or terminate intrastate communications.
FEDERAL REGULATION. The Company must comply with the Communications Act of
1934, as amended (the "Communications Act"). The Telecommunications Act
brought about comprehensive changes to the Communications Act, effecting
plenary changes in regulation at both the federal and state levels that affect
virtually every segment of the telecommunications industry. The
Telecommunications Act is intended to promote competition in all areas of
telecommunications and to reduce regulation. While the Company believes that
it will take years for the industry to experience the full impact of the
Telecommunications Act, it is already clear that the legislation provides the
Company with both opportunities and challenges.
Although the Telecommunications Act substantially revised the Communications
Act and was intended, among other things, to eliminate certain regulatory
burdens, telecommunications carriers such as the Company continue to be
subject to ongoing regulatory requirements. Among other regulatory mandates,
the FCC requires common carriers to file periodic reports concerning
interstate circuits and deployment of network facilities. The FCC also
requires carriers providing access services to file tariffs with the FCC
reflecting the rates, terms and conditions of those services. These tariffs
are subject to review and potential objection by the FCC or third parties.
The FCC also requires prior approval of transfers of control and assignments
of operating authorizations by FCC-regulated entities. The FCC generally has
the authority to condition, modify, cancel, terminate or revoke operating
authority for failure to comply with applicable federal laws or rules,
regulations and policies of the FCC. Fines or other penalties also may be
imposed for such violations.
The FCC has required that telephone operating companies, like the Company,
that provide interstate long distance services originating from their local
exchange service territories, must do so in accordance with structural
separation rules. These rules require that the Company's long distance
affiliate (1) maintain separate books of account, (2) not own transmission or
switching facilities jointly with the local exchange affiliate, and (3)
acquire any services from its affiliated local exchange telephone company at
tariffed rates, terms and conditions. This ruling is currently being
challenged on reconsideration before the FCC. If the ruling is upheld, the
Company could face increased costs related to the operation of its long
distance business.
STATE REGULATION. Local service rates generally are regulated by state
regulatory agencies, which usually are called public service commissions or
public utility commissions ("PUCs"). Many PUCs have traditionally regulated
pricing through "rate of return" regulation that focuses on authorized levels
of earnings by LECs. As part of the movement toward deregulation, several
states are moving away from traditional rate of return regulation towards
"price cap" regulation and incentive regulation. Currently, however, in most
states the Company continues to be regulated under rate of return regulation.
Many PUCs also regulate the purchase and sale of LECs, prescribe certain
accounting procedures, and regulate various other matters, including service
standards and operating procedures. PUCs, like the FCC, can
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sanction a carrier, order fines and penalties, or revoke authorizations for
violations of applicable state laws and PUC regulations. In most states, the
Company is required to file tariffs setting forth the terms, conditions, and
prices for services that are classified as intrastate. While state procedures
with respect to tariffs vary, these tariffs generally are subject to review
and potential objection by PUCs or third parties.
LOCAL REGULATION. The Company is also subject to numerous local regulations,
such as building code requirements. These regulations may vary greatly from
state to state and from city to city.
TELECOMMUNICATIONS ACT
As discussed in greater detail below, passage of the Telecommunications Act,
coupled with certain state legislative and regulatory initiatives and
technological changes, has fundamentally altered the telecommunications
industry by permitting additional competition and reducing some regulations.
Although the Company anticipates that these trends towards reduced regulation
and increased competition will continue, the Company cannot predict the form
or degree of future regulation and competition which will exist in the
Company's service areas.
As a result of the passage of the Telecommunications Act, LECs, including
RLECs, face the prospect of being subject to competition for the first time in
the provision of traditional local telephone and intrastate toll services.
However, the Telecommunications Act also provides for the codification of the
principles of "universal service" and establishes safeguards to foster the
provision of telecommunications services in the areas served by RLECs by
adopting an explicit federal USSF. See "--Promotion of Universal Service." The
implementation of the Telecommunications Act has included the establishment of
new rules for interconnection between competing carriers and the development
of new universal service fund programs. The Telecommunications Act provides
that LECs are entitled to recover their costs for providing interconnection to
competitors. In addition, the Telecommunications Act requires that the FCC and
states ensure that affordable service is provided to consumers in rural,
insular and high cost areas of the country (i.e., universal service).
Nevertheless, the ability to recover adequately costs of interconnection and
to ensure universal service are dependent on the decisions of the FCC and
state regulatory bodies, which could in the future take actions that affect
the Company's ability to continue to operate at a profit.
The Telecommunications Act makes competitive entry into the
telecommunications industry more attractive to other carriers by, among other
things, removing most state and local barriers to competition, and may
increase the level of competition the Company faces. In particular, after
notice and an opportunity for comment, the FCC may preempt a state requirement
that prohibits or has the effect of prohibiting a carrier from providing
intrastate or interstate telecommunications services.
THE PROMOTION OF LOCAL SERVICE COMPETITION AND RURAL TELEPHONE COMPANIES
As discussed above, the Telecommunications Act provides, in general, for the
removal of barriers to entry into the telecommunications industry in order to
promote local service competition. Congress, however, recognized that states
should not be prohibited from taking actions necessary to preserve and advance
universal service, and further recognized that special consideration should be
given to the appropriate conditions for competitive entry in areas served by
RLECs.
Pursuant to the Telecommunications Act, LECs, including both ILECs and new
competitive carriers, are required to: (i) allow others to resell their
services at retail rates; (ii) ensure that customers can keep their telephone
numbers when changing carriers; (iii) ensure that competitors' customers can
use the same number of digits when dialing and receive nondiscriminatory
access to telephone numbers, operator service, directory assistance and
directory listing; (iv) ensure access to telephone poles, ducts, conduits and
rights of way; and (v) compensate competitors for the competitors' costs of
completing calls to competitors' customers. Competitors are required to
compensate the ILEC for the cost of providing these interconnection services.
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Under the Telecommunications Act, the Company, as a rural carrier, is
eligible to request exemption, suspension or modification of any or all of the
requirements described above from state PUCs. A PUC may grant such a petition
to the extent that it determines that such suspension or modification is
necessary to avoid a significant adverse economic impact on telecommunications
users generally, to avoid imposing a requirement that is technically
unfeasible or unduly economically burdensome, and that such suspension or
modification is consistent with the public interest. It is not known at this
time how state regulators will respond to such a request. If the regulators
deny some or all of a request and if the regulators do not allow the Company
adequate compensation for the costs of providing interconnection, the
Company's costs could increase. In addition, with such a denial, competitors
could enjoy benefits that would make their services more attractive than if
they did not receive such interconnection rights.
Pursuant to the Telecommunications Act, with certain exceptions, ILECs are
required to: (i) interconnect their facilities and equipment with any
requesting telecommunications carrier at any technically feasible point; (ii)
unbundle and provide nondiscriminatory access to network elements (such as
local loops, switches and transport facilities) at nondiscriminatory rates and
on nondiscriminatory terms and conditions; (iii) offer their retail services
for resale at wholesale rates; (iv) provide reasonable notice of changes in
the information necessary for transmission and routing of services over the
ILEC's facilities or in the information necessary for interoperability; and
(v) provide, at rates, terms and conditions that are just, reasonable and
nondiscriminatory, for the physical co-location of equipment necessary for
interconnection or access to unbundled network elements at the premises of the
ILEC. Competitors are required to compensate the ILEC for the cost of
providing these interconnection services.
However, pursuant to the Telecommunications Act, the Company, as a small
carrier, is also automatically exempt from these additional ILEC requirements.
This exemption can be lifted or modified by a state PUC if a competing carrier
files a bona fide request for such interconnection services, or network
elements. If such a request is filed by a potential competitor with respect to
one of the Company's operating territories, the Company is likely to ask a
state PUC to retain the exemption. A PUC may grant such a potential
competitor's petition to the extent that it determines such interconnection
request is not unduly economically burdensome, is technically feasible and is
consistent with universal service obligations. If a state PUC lifts such
exemption in whole or in part and if the state PUC does not allow the Company
adequate compensation for the costs of providing the interconnection, the
Company's costs would significantly increase and it could suffer a significant
loss of customers to competition. Finally, the FCC issued an order in May 1997
that directed that ILECs could not impose access charges on long distance and
other carriers that purchase unbundled network elements from the ILECs. This
decision could serve to reduce access revenues for the Company and other
ILECs. Several parties have appealed this and other aspects of the FCC's May
1997 order, but the Company is unable to predict the outcome of such appeals
at this time.
The risk to the Company from competitive entrants into its local telephone
markets must be weighed against any new opportunities the Company could take
advantage of in terms of new services offerings, such as interstate service,
Internet access, PCS or other wireless service, cable TV or international
services.
The Company believes that competition in its telephone service areas will
ultimately increase as a result of the Telecommunications Act, although the
form and degree of competition cannot be ascertained until such time as the
FCC (and, in certain instances, state regulatory bodies), adopts final
regulations.
PROMOTION OF UNIVERSAL SERVICE
Newly codified universal service principles are being implemented by both
the FCC and the state PUCs. One of the initial changes that has been
implemented is that USSF funds are distributed only to carriers that are
designated as eligible telecommunications carriers ("ETCs") by a state PUC.
All of the Company's telephone operating companies have been designated as
ETCs pursuant to the Telecommunications Act.
In order to promote competition in areas served by incumbents that are not
RLECs, the Telecommunications Act requires the designation of two or more
ETCs. In areas served by RLECs, however, the Telecommunications
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Act provides that a state PUC may designate more than one ETC only after
determining that the designation of an additional ETC will serve the public
interest. As a result, an incumbent RLEC has an opportunity to maintain its
status as the sole recipient of USSF payments in its service area even if it
is subsequently subjected to competition. All of the Company's telephone
operating companies have been designated as RLECs pursuant to the
Telecommunications Act.
RLECs temporarily will receive USSF payments pursuant to existing mechanisms
for determining the amounts of such payments with some limitations, such as on
the amount of corporate operating expense that can be recovered from the USSF.
In 2001, after a transition period, RLECs will secure USSF payments based upon
forward-looking economic costs. The FCC is expected to initiate a proceeding
in October 1998 to develop "cost proxy models" to establish the forward-
looking costs of RLECs, and the Federal-State Joint Board on Universal Service
is establishing a working group to assist in that process.
It is uncertain whether the proxy model will allow for an accurate cost
assessment for rural telephone companies. Also, even if the model accurately
predicts the forward looking economic costs of an RLEC, if that number is
significantly less than its embedded costs, full cost recovery will not be
assured. Several parties have expressed objections to the size of the fund and
the services eligible for subsidization. In addition, the FCC also decided
that it would fund only 25% of the nationwide universal service costs, leaving
to the states the responsibility to fund the remaining 75% of the costs.
Parties, including state PUCs, also have objected to the recovery of only 25%
of costs in the federal USSF, arguing that the remaining burden on states will
result in increased rates for local services.
In addition, there are a number of petitions for reconsideration challenging
several aspects of the Commission's universal service rules. Legislation has
been introduced that would require the FCC to modify the rules. It is not
possible to predict at this time whether the FCC or Congress will order
modification to the fund, or the ultimate impact from any such modification on
the Company.
COST RECOVERY OF REGULATED SERVICES; SOURCES OF REGULATED REVENUES
INTRODUCTION
As regulated common carriers, RLECs are entitled by law to an opportunity to
recover the reasonable costs they incur in the provision of regulated
telecommunications services and to earn a reasonable rate of return on the
investment required to provide the regulated services.
The costs of providing regulated services are recovered through rates
established by the appropriate regulatory authority (i.e., the FCC for
interstate services and generally the state PUC for intrastate services). For
RLECs, the cost recovery process may also be achieved through the application
of "pooling" and distributions from the USSF. In general, the rate regulated
services provided by RLECs include basic local exchange services and
interexchange access service that entails originating and terminating
connections of the local telephone network to long distance networks. The rate
making process for LEC rate regulated services is complicated by the fact that
the costs incurred by LECs in the provision of rate regulated services are
utilized for both local exchange services and interexchange access services.
Moreover, the provision of interexchange access service is required for the
origination and termination of both interstate and intrastate long distance
calls.
The fact that a cost incurred by a carrier may be simultaneously associated
with the provision of both interstate and intrastate services results in the
need to allocate the costs between the jurisdictions for rate making purposes.
This process is referred to as "separations" and is governed by the FCC's
rules and regulations. The underlying legal purpose of the separations rules
is to define how a carrier's expenses are to be allocated between the federal
and state jurisdiction--i.e., how much of the company's costs are recovered
from the interstate jurisdiction and how much from the intrastate
jurisdiction.
Because government regulators generally recognize that such an allocation
could have a significant impact on RLECs' abilities to provide needed services
to their customers, such regulators typically allow RLECs to
55
<PAGE>
recover a reasonable level of expenses and return on investment while
concurrently charging acceptable service rates regardless of the demographics
and economic market conditions of their rural service areas.
INTERSTATE REGULATION
Although the network of a RLEC may be confined to its facilities within a
state, the RLEC is subject to FCC regulation of the rates it charges for
interstate access service.
ESTABLISHMENT OF INDIVIDUAL ACCESS SERVICE COSTS. To the extent that a
telecommunications carrier engages in the provision of any nonregulated
services, interstate or otherwise, the applicable law requires that the
provision of any such services can not be subsidized by the provision of
regulated services. Accordingly, when a carrier incurs an expense that is
utilized for the provision of both regulated and nonregulated service, the FCC
requires the carrier to engage in a process similar to the separations process
described above in order to first allocate expenses between regulated and
nonregulated services.
After identifying the LEC's regulated costs, the carrier applies a
separation analysis to identify the company's interstate costs or revenue
requirements including its authorized rate of return. The rates for interstate
access services are established to allow LECs to recover their identified
interstate costs.
One of the most significant of such costs are those associated with
deployment of the local loop. As a general rule, the FCC has determined that
25% of the cost of a local loop will be allocated to the interstate
jurisdiction. The FCC has established a rate structure that provides for the
recovery of these costs (up to an established level per month) directly from
the end user customer through the assessment of a subscriber line charge.
Generally, the remaining interstate portion of the loop costs are recovered
from access charges, assessed in accordance with FCC rules, to the long
distance carriers for the utilization of the local loop to originate and
terminate interstate long distance calls.
As a result of the market and geographic conditions in rural areas, the
costs of providing local loop and switching services are often higher for
RLECs than for other LECs. In the absence of an accommodation in the FCC rules
to address this fact, a substantial portion of an RLEC's costs would remain
unrecovered, and it would have little alternative other than to charge very
high rates for intrastate services. Accordingly, the FCC provides for
additional interstate recovery by eligible RLECs through the USSF, which is
available to those companies whose loop costs are significantly above the
national average as calculated pursuant to the FCC rules. In addition, the FCC
rules also provide for additional interstate cost recovery of switching costs
for smaller companies serving fewer than 50,000 access lines.
INDIVIDUAL COMPANY ACCESS TARIFFS OR THE NECA TARIFF. The purpose of
applying the FCC's separations and access rules is to identify the interstate
allocation of costs to be recovered from each of the various access rate
elements. Individual LEC interstate access service rates are developed on the
basis of the individual LEC's determination of its access costs divided by its
projected demand for each service. The resulting individual company rates are
published in a company's interstate access tariff and filed with the FCC,
where they are subject to challenge by third parties and FCC review.
The FCC recognized that this individual company rate making and tariff
filing process may be administratively and economically burdensome for small
LECs. In order to address this concern, the FCC established the National
Exchange Carrier Association ("NECA") in 1983. Among the duties and
responsibilities assigned to NECA is the development of interstate access
service tariff rates, terms, and conditions in which LECs may concur.
NECA develops interstate access rates on the basis of data that is provided
individually by each LEC that participates in the various portions of its
tariff and that is aggregated for presentation to the FCC. The result yields
blended rates based upon averaged costs of all of the participating LECs that
reflect a level intended to generate revenue equal to the aggregate costs and
a return on the investment of all of the participants. As a result of this
process, individual participating LECs are likely to have costs of providing
service that are either higher
56
<PAGE>
or lower than the revenues generated by applying the NECA tariff rate. In
order to rectify this result, the revenues generated by applying the NECA
rates are pooled by all of the participating companies and redistributed on
the basis of each individual company's costs. The result of this process not
only eliminates the burden of individual tariff filing, it also produces a
system whereby small companies can share and spread risk. For example, if an
RLEC filed its own tariff and subsequently suffered the loss of major
customers that utilize interstate access service, the RLEC could suffer
significant under-recovery of its costs. In the NECA pool environment, the
impact of the loss of access usage and associated revenues is reduced because
it is spread over all of the pool participants and may be offset by increases
in usage and associated revenues realized through service provided by another
pool member.
Many of the NECA pool participants derive their interstate revenues from the
NECA pool on the basis of "average schedule" settlements as an alternative to
reporting their individual company specific costs. By participating in this
process, a LEC avoids the requirement of applying the procedures otherwise
necessary to separate regulated and nonregulated costs and interstate and
intrastate regulated costs. In order to be an average schedule company, a LEC
must have been utilizing the average schedules since December 1, 1983, or have
been permitted to convert to average schedule status pursuant to an FCC
waiver.
All average schedule companies must participate in the NECA tariff and, as
with all other NECA tariff pool participants, average schedule companies
charge for interstate access services on the basis of the rates, terms and
conditions set forth in the NECA tariff, and they report their interstate
access revenues to NECA. Instead of recovering their company specific
identified interstate revenue requirement, however, a company that utilizes
average schedules receives payments based on formulas developed by NECA and
submitted for approval to the FCC. The average schedule formulas are applied
to each average schedule company and produce average schedule settlements for
each company that are based in part on the number of access lines served by
each company and in part on the number of interstate access messages handled
by each company.
The average schedule formulas are developed in a manner intended to yield
results that would approximate the results derived from the utilization of
actual costs based on individual company costs and jurisdictional separations.
In practice, an average schedule company will typically receive either more or
less revenues than its individual company interstate costs. If the company
experiences significant growth in messages without a proportionate increase in
costs the formulas provide, to an extent, for growth in revenue. A company
that is not currently receiving settlements on an average schedule basis
cannot convert to average schedule status without a waiver from the FCC, which
has clearly made known its intent that it is not likely to grant any such
waiver requests.
If a company that utilizes average schedules experiences a decline in usage,
or if its growth does not generate revenues that keep pace with increased
costs, the company may not recover its actual costs from the average
schedules. The FCC rules do permit a LEC to address this concern by converting
from average schedule status to an actual cost basis for the determination of
its interstate access costs. The FCC rules, however, do not permit a LEC to
convert back to average schedules subsequent to its election to convert to a
cost based settlement. However, the Company is not an average schedule
company.
In May 1997, the FCC issued a decision modifying its rules and policies
governing interstate exchange access services of ILECs. This decision applied,
with limited exceptions, solely to ILECs that are governed by the FCC's price
cap system of regulation. As for ILECs that are subject to federal rate-of-
return regulation, the FCC stated that it plans to initiate a separate
proceeding in 1998. The FCC has also proposed modification of its existing
separations procedures, which allocate the costs of facilities providing
intrastate and interstate services between the federal and state
jurisdictions. The outcome of each of these proceedings, and their ultimate
impact on the Company, cannot be predicted at this time.
INTRASTATE JURISDICTION
Intrastate Revenue Requirement and Rate Regulation. A LEC incurs expenses
that are utilized for the provision of both interstate and intrastate
services. The FCC rules establish the separations process that identifies
57
<PAGE>
the LEC's interstate costs. The remainder of the costs represent the LEC's
intrastate costs. Generally, the LEC's intrastate regulated revenue
requirement is recovered by the revenues the rates for which are established
by the LEC generates from its intrastate regulated services, in accordance
with the applicable rules of each state.
Although the rules and processes vary from state to state, general
principles emerge that are useful in understanding intrastate regulated cost
recovery. The following discussion is limited to those general principles and
does not address specific states or the development of intrastate incentive
regulation mechanisms. As with federal incentive regulation programs, however,
these alternative regulatory systems are generally useful only for RLECs that
have lower than average costs and serve areas with a likelihood of continued
high growth.
INTRASTATE INTRALATA TOLL AND INTRASTATE ACCESS CHARGES. Intrastate
regulated services are generally subject to traditional "rate of return"
regulation. The intrastate regulated services provided by RLECs can typically
be divided into three categories: intrastate interLATA access service;
intrastate intraLATA access and long distance service; and local services. The
term LATA is a remnant from the break-up of the Bell system. In connection
with the divestiture of the local operating companies from AT&T, the RBOCs
were limited to providing service within a LATA or a group of LATAs; AT&T and
other long distance carriers handled traffic between LATAs. As a result, the
shorter haul long distance calls within a LATA were generally handled by an
RBOC together with any other LECs providing service within the LATA. The rules
regarding the provision of intraLATA toll service are changing to provide for
competitive choice in the same way interLATA toll service is offered. In
addition, the Telecommunications Act permits RBOCs to provide intraLATA
services outside of their regions, and within their region conditioned upon a
demonstration that the RBOC had opened its local markets to competition. To
date, no RBOC has been deemed by the FCC to have made this demonstration. The
amount of competition to which the Company is subject may also be affected by
a recent decision of the U.S. District Court in Texas invalidating those
portions of the Telecommunications Act that prohibit RBOCs from providing
certain services, including in-region intraLATA services. The decision has
been stayed, and an appeal is currently pending.
While all states have established an access charge environment for LECs to
charge long distance carriers for originating and terminating intrastate long
distance calls, variations exist among the states with respect to the
treatment of the role of the RLECs in the provision of intrastate intraLATA
toll service.
The development of service specific costs and rates for the establishment of
intrastate regulated services also varies among the states. Some states
require the utilization of the FCC separations rules with state specific
modifications to specifically identify an intrastate toll and access revenue
requirement. In other states, intrastate access rates are adopted that mirror
interstate access rates as an alternative to the development of LEC specific
intrastate access costs and rates. Another variation that has developed is a
process that has resulted in the establishment of intrastate access charges
and subsequent modifications through industry negotiation and consensus.
LOCAL SERVICE RATES. Regardless of the variation of the process utilized to
establish the intrastate access rates, the local service revenue requirement
is residually derived as the remaining costs. Local services include basic
service rates, custom calling features, installation and repair services, and
any other services that are not designated interexchange (including extended
area service, measured usage, area calling plans and other variations of
services that are not subject to long distance charges).
PENDING REGULATORY CHANGE AND CONCLUSION. Although there is no single model
for state regulatory change, many states have initiated proceedings to review
the level of intrastate access charges and to consider changes in the
provision of intraLATA toll services. Concurrent consideration is often given
to issues regarding whether decreased revenue resulting from reduced access
charges should be offset by increases in local service rates; or support from
a state universal service funding mechanism.
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MANAGEMENT
The directors and executive officers of the Company are listed below.
Executive officers are generally elected annually by the Board of Directors to
serve, subject to the discretion of the Board of Directors, until their
successors are appointed. There are currently eight members of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ----------------------------------------------------------------------
<S> <C> <C>
Daniel G. Bergstein..... 54 Co-Founder, Chairman of the Board of Directors
Meyer Haberman.......... 56 Co-Founder, Vice Chairman of the Board of Directors
Jack H. Thomas.......... 56 Co-Founder, Chief Executive Officer, President and Director
Eugene B. Johnson....... 50 Co-Founder, Executive Vice President, Assistant Secretary and Director
Walter E. Leach, Jr..... 46 Senior Vice President, Chief Financial Officer and Secretary
John P. Duda............ 50 Chief Operating Officer
Timothy W. Henry........ 42 Vice President of Finance and Treasurer
George E. Matelich...... 41 Director
Reid G. Leggett......... 42 Director
Nelson Schwab III....... 53 Director
Frank K. Bynum, Jr. .... 35 Director
</TABLE>
DANIEL G. BERGSTEIN. Mr. Bergstein is a founder and has been a director of the
Company since 1991. Since 1988, Mr. Bergstein has been a senior partner in the
New York office of the national law firm Paul, Hastings, Janofsky & Walker
LLP, where he is the Chairman of the Firm's Corporate Department as well as
its National Telecommunications Practice. Mr. Bergstein is a corporate and
securities lawyer, specializing in mergers and acquisitions and corporate
finance transactions.
MEYER HABERMAN. Mr. Haberman is a founder and has been a director of the
Company since 1991. Since 1973, Mr. Haberman has been the principal
shareholder, President and Chief Executive Officer of Interquest Incorporated,
an international management consulting and executive search firm which he
founded.
JACK H. THOMAS. Mr. Thomas is a founder and has been a director of the Company
since 1991 and has acted as President and Chief Executive Officer since 1993.
From 1985 to 1993, Mr. Thomas was Chief Operating Officer of C-TEC
Corporation, a diversified telecommunications concern which at the time owned
Commonwealth Telephone Company, a 240,000 access line LEC. From 1982 to 1985,
Mr. Thomas served as Vice President, Operations of United Telephone Company of
Ohio and was a member of its board of directors. Prior to his service with
United Telephone Company of Ohio, Mr. Thomas worked for nearly twenty years at
C&P Telephone (now a Bell System company) in various positions including
division manager from 1976-1982.
EUGENE B. JOHNSON. Mr. Johnson is a founder and has been a director of the
Company since 1991. Mr. Johnson has served as Executive Vice President of the
Company since 1993. From 1987 to 1993, Mr. Johnson served as President and
principal shareholder of JC&A, Inc., an investment banking and brokerage firm
providing services to the cable television, telephone and related industries.
From 1985 to 1987, Mr. Johnson served as the director of the mergers and
acquisitions department of Cable Investments, Inc., an investment banking
firm. From 1980 to 1985, Mr. Johnson served as President of a cable television
construction and engineering company. Mr. Johnson currently is director of
OPASTCO, the primary industry organization for small independent telephone
companies and serves on its membership education and finance committees.
WALTER E. LEACH, JR. Mr. Leach has served as Chief Financial Officer and
Secretary of the Company since October 1994 and Senior Vice President since
February of 1998. From 1984 through September 1994, Mr. Leach served as
Executive Vice President of Independent Hydro Developers, where he had
responsibility for all project acquisition, financing and development
activities. From 1980 to 1984, Mr. Leach served as Vice President, Investor
Relations for The Pillsbury Company and served as Treasurer, Assistant
Treasurer and Controller for Burger King Corporation. Mr. Leach's career also
includes various finance-related positions at Sambo's Restaurants, Inc. and
First Union National Bank where he was the Manager of their New York City
office. He is currently chairman of the finance committee of the National
Telephone Cooperative Association ("NTCA").
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<PAGE>
JOHN P. DUDA. Mr. Duda has served as Chief Operating Officer of the Company
since January 1994. From 1993 to 1994, Mr. Duda served as Vice President,
Operations and Engineering of Rochester Tel Mobile Communications. From 1985
to 1993, Mr. Duda served as State Vice President--Minnesota, Nebraska and
Wyoming and Director of Network Planning and Operations for Pennsylvania and
New Jersey for Sprint and from 1970 to 1985 he served in various management
positions with C&P Telephone and Bell Atlantic including District Manager--
Planning and New Technology for Bell Atlantic Corporation. Mr. Duda is
currently on the United States Telephone Association's Board of Directors and
serves on its Executive, Regulatory Policy and Small Company committees. He
also serves on OPASTCO's Separations and Access Committee.
TIMOTHY W. HENRY. Mr. Henry has served as Vice President of Finance and
Treasurer of the Company since December 1997. From 1992 to December 1997, Mr.
Henry served as Vice President/Portfolio Manager at CoBank, ACB, and managed a
$225 million telecommunications loan portfolio which included responsibility
for CoBank's relationship with the Company. From 1985 to 1992, he was a Loan
Officer/Assistant Vice President for Springfield Bank for Cooperatives.
GEORGE E. MATELICH. Mr. Matelich has served as a Director of the Company since
July 1997. Mr. Matelich is currently a Managing Director of Kelso & Company
("Kelso"), with which he has been associated since 1985. Mr. Matelich serves
on the Boards of Directors of CCA Holdings Corp., CCT Holdings Corp., Charter
Communications Long Beach Inc., Harris Specialty Chemicals, Inc. and Humphreys
Inc. Mr. Matelich is also a Trustee of the University of Puget Sound.
REID G. LEGGETT. Mr. Leggett has served as a Director of the Company since
July 1997. Mr. Leggett is currently serving as a Managing Director of Carousel
Capital Partners, L.P., with which he has been associated since 1996. From
1988 to 1996, Mr. Leggett served as Managing Director of Bowles Hollowell
Conner & Co. From 1993 to 1996, Mr. Leggett served as President and Managing
Director of Bowles Hollowell Conner & Co.
NELSON SCHWAB III. Mr. Schwab has served as a Director of the Company since
July 1997. Mr. Schwab is currently serving as a Managing Director of Carousel
Capital Partners, L.P., with which he has been associated since 1996. From
1992 to 1995, Mr. Schwab was Chairman and Chief Executive Officer of Paramount
Parks. From 1984 to 1992, Mr. Schwab served as Chairman and Chief Executive
Officer of Kings Entertainment Company ("KECO") from which Paramount Parks
acquired its regional theme parks in 1992. Mr. Schwab serves on the Boards of
Directors of Burlington Industries Inc., First Union National Bank of North
Carolina, Summit Properties, Inc., and two privately-held middle market
companies.
FRANK K. BYNUM, JR. Mr. Bynum has served as a Director of the Company for
approximately one month. He is also a Managing Director of Kelso. Prior to
joining Kelso in 1987, he was an Investment Analyst with The New York Life
Insurance Company ("New York Life"). While with New York Life, Mr. Bynum
served primarily in the Risk Capital Group, which focused on leveraged buyout
and venture capital investments. Mr. Bynum received a B.A. in History from the
University of Virginia. Mr. Bynum is a director of Cygnus Publishing, Inc.,
Hillside Broadcasting of NC, Hosiery Corporation of America, IXL Holdings,
Inc. and 21st Century Newspapers, Inc.
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SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued for services
rendered to the Company in all capacities, for the year ended December 31,
1997, by the Chief Executive Officer and each of the other executive officers
of the Company employed as of December 31, 1997 (the "Named Executive
Officers"). The compensation paid to Mr. Thomas and Mr. Johnson was paid by
MJD in the form of management fees paid to MJD Partners, L.P.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- ------------
NUMBER OF
OTHER SECURITIES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------ ---- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jack H. Thomas.......... 1997 $300,000 $82,500 $69,128 1,421 --
Chief Executive Officer 1996 260,000 70,000 68,528 -- --
and President 1995 250,000 12,500 99,030 -- --
Eugene B. Johnson....... 1997 240,000 62,000 29,535 1,066 --
Executive Vice 1996 182,000 56,000 31,990 -- --
President and 1995 175,000 8,750 29,607 -- --
Assistant Secretary
John P. Duda............ 1997 131,000 31,000 24,018 1,066 --
Chief Operating Officer 1996 123,000 35,000 22,188 -- --
1995 115,000 30,500 71,337 -- --
Walter E. Leach, Jr..... 1997 108,000 32,400 15,598 711 --
Senior Vice President, 1996 100,000 27,000 13,372 -- --
Chief Financial Officer 1995 90,000 22,500 15,017 -- --
and Secretary
Patrick Morse........... 1997 86,500 27,850 14,108 -- --
Vice President and 1996 84,000 16,300 12,970 -- --
General Manager--STE 1995 84,000 15,500 11,027 -- --
</TABLE>
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Plan") was adopted on February 22,
1995. The Plan provides for the grant of options to purchase up to an
aggregate of 5,684 shares of the Company's common stock (the "Common Stock").
The Plan is administered by the Board of Directors which makes discretionary
grants of options to officers or directors and employees of the Company.
Options granted under the Plan may be Incentive Stock Options, which qualify
for favorable Federal income tax treatment under Section 422A of the Internal
Revenue Code of 1986, or Nonstatutory Stock Options.
The selection of participants, allotment of shares, determination of price
and other conditions of purchase of such options are determined by the Board,
in its sole discretion. Each option grant is evidenced by a written Incentive
Stock Option Agreement or Nonstatutory Stock Option Agreement dated as of the
date of grant and executed by the Company and the optionee. Such agreement
also sets forth the number of options granted, the option price, the option
term and such other terms and conditions as may be determined by the Board of
Directors. As of January 1, 1998, the Board of Directors had granted options
to purchase at $50 per share a total of 4,264 shares of the Company's Class A
Voting Common Stock to officers, directors and employees.
Options granted under the Plan are nontransferable, other than by will or by
the laws of descent and distribution.
WARRANTS
Certain members of management were issued warrants pursuant to their
purchases of Series C Preferred Stock of the Company in 1996 and 1997. The
Series C Preferred Stock has since been redeemed by the Company. The warrants
are exercisable into 83 shares of Common Stock at an exercise price of $0.01
per share.
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<PAGE>
EMPLOYEE AGREEMENTS
The Company has entered into severance agreements (the "Severance
Agreements") with John P. Duda, Jack H. Thomas, Eugene B. Johnson and Walter
E. Leach, Jr. (each an "Executive" and, collectively, the "Executives"). Each
of the Severance Agreements provides that upon the termination of the
Executive's employment due to a Change of Control (as defined therein), the
Executive is entitled to receive from the Company in a lump sum payment an
amount equal to such Executive's base salary as of the date of termination for
a period ranging from twelve months to twenty-four months. In addition, the
Company has agreed to maintain the Executives' long term disability and
medical benefits for a similar period. In the event that any Executive's
employment with the Company is terminated without cause and not as a result of
a Change of Control, such Executive is entitled to receive a lump sum payment
from the Company in an amount equal to such Executive's base salary for a
period ranging from six months to twelve months and is also entitled to long
term disability and medical benefits for a similar period. In the event that
any Executive's employment is terminated for cause, such Executive is not
entitled to any benefits pursuant to the Severance Agreements.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of
the Company's common stock ("Common Stock") as of May 31, 1998 for (i) each of
the Named Executive Officers and each director of the Company, (ii) all
officers and directors of the Company as a group, and (iii) each stockholder
of the Company who beneficially owns 5% or more of the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
OWNED (1) SHARES (1)
------------ -----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Daniel G. Bergstein (2).............................. 15,258 8.4%
Meyer Haberman (3)................................... 9,536 5.3%
Jack H. Thomas (4)................................... 11,157 6.1%
Eugene B. Johnson (5)................................ 5,501 3.0%
John P. Duda (6)..................................... 1,390 0.8%
Walter E. Leach, Jr. (7)............................. 916 0.5%
Timothy W. Henry..................................... 85 0.05%
George E. Matelich (8)............................... 69,779 38.5%
Frank K. Bynum, Jr. (8).............................. 69,779 38.5%
Reid G. Leggett (9).................................. 69,779 38.5%
Nelson Schwab III (9)................................ 69,779 38.5%
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
(10 STOCKHOLDERS)................................... 181,015 99.0%
5% STOCKHOLDERS:
MJD Partners, L.P. (10) ............................. 38,145 21.1%
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Carousel Capital Partners, L.P. (9).................. 69,779 38.5%
201 North Tryon Street, Suite 2450
Charlotte, North Carolina 28202
Kelso Investment Associates V, L.P. and Kelso Equity
Partners V, L.P. (8) ............................... 69,779 38.5%
320 Park Avenue, 24th Floor
New York, New York 10022
</TABLE>
- --------
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned by them, subject to community property laws
where applicable. The percentage of beneficial ownership is based on
181,015 shares of common stock outstanding as of May 31, 1998. Vested
options granted to purchase 3,766 shares and warrants to purchase 83
shares result in 184,864 fully diluted shares as of May 31, 1998.
(2) Includes 15,258 shares owned by MJD Partners, L.P. Mr. Bergstein has an
interest of approximately 40% in MJD Partners, L.P. through JED
Associates, Inc., a corporation owned 100% by Mr. Bergstein and his
immediate family. JED Associates, Inc. beneficially owns 21 warrants to
purchase Common Stock.
(3) Includes 9,536 shares owned by MJD Partners, L.P. Mr. Haberman has an
approximately 25% interest in MJD Partners, L.P.
(4) Includes 9,536 shares owned by MJD Partners, L.P. Mr. Thomas has an
approximately 25% interest in MJD Partners, L.P. Includes 1,421 shares of
Common Stock issuable upon exercise of options that are either currently
exercisable or exercisable during the next 60 days; and 200 shares of
Common Stock owned by Mr. Thomas individually. Excludes warrants to
purchase 10 shares of Common Stock.
(5) Includes 3,815 shares owned by MJD Partners, L.P. Mr. Johnson has a 10%
interest in MJD Partners, L.P. Includes 1,066 Common Stock issuable upon
exercise of options that are either currently exercisable or exercisable
during the next 60 days. Excludes warrants to purchase 21 shares of Common
Stock and includes 620 shares of Common Stock owned by Mr. Johnson
individually.
(6) Includes 853 shares of Common Stock issuable upon exercise of options that
are either currently exercisable or exercisable during the next 60 days.
Excludes warrants to purchase 17 shares of Common Stock, and includes 537
shares individually owned.
(7) Includes 427 shares of Common Stock issuable upon exercise of options that
are either currently exercisable or exercisable during the next 60 days.
Excludes warrants to purchase 15 shares of Common Stock, and includes 490
shares individually owned.
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<PAGE>
(8) Includes 63,498 shares owned by Kelso Investment Associates V, L.P.
("KIAV") and 6,280 shares owned by Kelso Equity Partners V, L.P. ("KEPV").
KIAV and KEPV, due to their common control, could be deemed to beneficially
own each others' shares, but each disclaims such beneficial ownership.
Joseph S. Schuchert, Frank T. Nickell, Thomas R. Wall, IV, George E.
Matelich, Michael B. Goldberg, David I. Wahrhaftig and Frank K. Bynum, Jr.
may be deemed to share beneficial ownership of shares of Common Stock owned
of record by KIAV and KEPV, by virtue of their status as general partners
of the general partner of KIAV and as general partners of KEPV. Messrs.
Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig and Bynum share
investment and voting power with respect to securities owned by KIAV and
KEPV, but disclaim beneficial ownership of such securities. The business
address for each such person and KIAV and KEPV is c/o Kelso & Company, 320
Park Avenue, 24th Floor, New York, New York 10022.
(9) Includes 47,882 shares owned by Carousel Capital Partners, L.P.
("Carousel"). Reid Leggett and Nelson Schwab III may be deemed to share
beneficial ownership of the shares of Common Stock owned of record by
Carousel, by virtue of their status as general partners of Carousel.
Messrs. Leggett and Schwab share investment and voting power with respect
to securities owned by Carousel, but disclaim beneficial ownership of such
securities. The business address for each such person and Carousel is 201
North Tryon Street, Suite 2450, Charlotte, North Carolina 28202.
(10) The partnership interests of MJD Partners, L.P. are held as follows: MJD
Partners, Inc. holds a 1% interest as a general partner; JED Associates,
Inc. holds a 39.6% interest as a limited partner; Jack H. Thomas holds a
24.75% interest as a limited partner; Meyer Haberman holds a 24.75%
interest as a limited partner; and Eugene B. Johnson holds a 9.9%
interest as a limited partner. JED Associates, Inc., a company wholly
owned by Mr. Bergstein, and Messrs. Thomas, Haberman and Johnson own MJD
Partners, Inc. in proportions similar to their ownership interests in MJD
Partners L.P.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT SERVICES AGREEMENTS
On July 31, 1997, the Company entered into Management Services Agreement
with MJD Partners, L.P. ("Partners LP") pursuant to which Partners LP provided
certain management services to the Company, including, maintaining and
supervising the engineering and operations of the Company and its
subsidiaries, monitoring the payment of all expenses and capital expenditures,
and advising and assisting the Company and its subsidiaries regarding various
other matters. The terms of the contract provided that Partners LP receive
$75,000 per month from the Company for rendering such services. In 1997,
Partners L.P. was paid $1,020,000 under the agreement, a significant portion
of which was for compensation paid to Mr. Thomas and Mr. Johnson, whose sole
compensation came from Partners, L.P. The Management Services Agreement was
terminated on April 1, 1998 and, in lieu thereof, Messrs. Thomas and Johnson
will receive compensation directly from the Company.
FINANCIAL ADVISORY AGREEMENTS
In connection with the Recapitalization, the Company entered into Financial
Advisory Agreements, dated July 31, 1997, with each of the Equity Investors,
pursuant to which the Equity Investors provide certain consulting and advisory
services, related, but not limited to equity financings and strategic
planning. Pursuant to these agreements, the Company pays annual advisory fees
in an aggregate amount of $400,000 to the Equity Investors, payable on a
quarterly basis until December 31, 2007. During 1997, the Company paid $45,833
in such fees to the Equity Investors. The agreements also provide that the
Company will reimburse the Equity Investors for travel relating to the
Company's Board of Directors meetings. In the event of additional equity
investments in the Company by the Equity Investors, the parties have agreed to
negotiate in good faith to increase the advisory fee. The Indenture for the
Notes provides that the payment of such fees may be increased above the
amounts currently stipulated in such Financial Advisory Agreements. See
"Description of Notes--Certain Covenants--Limitation on Transactions with
Affiliates."
CONSULTING AGREEMENT
The Company has entered into a consulting agreement dated as of July 31,
1997 with an entity controlled by Daniel G. Bergstein pursuant to which Mr.
Bergstein has agreed to provide general consulting and advice to the Company
as reasonably requested from time to time. Pursuant to the terms of the
agreement, the consulting company is paid an annual fee of $120,000 in monthly
installments plus all of Mr. Bergstein's out-of-pocket business expenses up to
$30,000. The term of the agreement is one year, subject to automatic renewal
for successive periods of one year each thereafter.
LEGAL SERVICES
Daniel G. Bergstein, a senior partner of Paul, Hastings, Janofsky & Walker
LLP ("Paul Hastings"), is the Chairman of the Board of Directors of the
Company and a significant stockholder. Paul Hastings regularly provides legal
services to the Company, including in connection with the Offering, the New
Credit Facility and the Acquisitions. In the year ended December 31, 1997,
Paul Hastings was paid approximately $1,100,000 by the Company for legal
services.
CONTRIBUTION OF SHAREHOLDER LOANS
Prior to July 31, 1997, the Company was obligated to Messrs. Bergstein,
Thomas, Haberman and Johnson ("Founders") pursuant to promissory notes (the
"Founders' Notes") in the principal amounts of approximately $373,053,
$227,679, $233,158 and $89,610, respectively. In connection with the
Recapitalization, the Company paid to each of the Founders all accrued and
unpaid interest on their respective Founders' Note and each Founder
contributed his respective Founders' Note to Partners, L.P. in exchange for an
increased partnership interest in Partners LP. Partners LP subsequently
contributed the Founders Notes to the Company and the Founders Notes were
cancelled.
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STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
The Company and its stockholders entered into a Stockholders Agreement dated
as of July 31, 1997 (the "Stockholders Agreement") which contains certain
provisions, including but limited to: (i) the designation of members to the
Board of Directors of the Company (including, initially, two members to be
designated by Carousel, one member by Kelso and four members by Partners
L.P.), (ii) certain restrictions on transfers of shares by the stockholders of
the Company, (iii) the requirement that stockholders take certain actions upon
the approval by a majority of the stockholders in connection with an initial
public offering or a sale of the Company, (iv) the requirement of the Company
to sell shares to the stockholders under certain circumstances upon
authorization of an issuance or sale of additional shares, (v) certain of the
participation rights of certain stockholders in connection with a sale of
shares by other stockholders, and (vi) the right of the Company to purchase
all (but not less than all) of the shares of a stockholder in the event of
resignation or termination of employment or death or disability. The
Stockholders Agreement also provides that the Company must obtain consent from
the Equity Investors in order for the Company to incur debt in excess of $5
million. In addition, the Board shall increase to nine members with the two
additional members to be designated for nomination and election by Kelso.
The Company and its stockholders entered into a Registration Rights
Agreement dated as of July 31, 1997 (the "Registration Rights Agreement")
pursuant to which the stockholders have the right in certain circumstances
and, subject to certain conditions, to require the Company to register shares
of Common Stock held by them under the Securities Act. Under the Registration
Rights Agreement, except in limited circumstances, the Company is obligated to
pay all expenses in connection with such registration.
PURCHASE OF COMMON STOCK BY MANAGEMENT
In conjunction with the New Credit Facility, 1,570 shares of the Company's
common stock were purchased by certain members of management for $537,741.
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DESCRIPTION OF NEW CREDIT FACILITY
The Summary of the New Credit Facility set forth below does not purport to
be complete and is qualified in its entirety by reference to all the
provisions of the definitive Credit Agreement governing the New Credit
Facility, a copy of which Credit Agreement will be available upon request from
the Company.
GENERAL
The Company (the "Borrower") has entered into a credit facility (the "New
Credit Facility") with various lenders, Bankers Trust Company, as
Administrative Agent, and NationsBank of Texas, N.A., as Syndication Agent.
The New Credit Facility consists of term loan facilities (the "Term Loan
Facilities") in an aggregate principal amount of $230.0 million, a revolving
credit facility (the "Revolving Credit Facility") in an aggregate principal
amount of up to $85.0 million and an uncommitted acquisition loan facility in
an aggregate principal amount of up to $165.0 million (the "Acquisition
Facility", together with the Term Loan Facilities and the Revolving Credit
Facility (the "Facilities")). The following is a summary description of the
principal terms of the New Credit Facility and is subject to, and qualified in
its entirety by reference to, the definitive credit agreement.
All obligations of the Company under the New Credit Facility are
unconditionally and irrevocably guaranteed jointly and severally by four of
the intermediary subsidiaries of the Company; STE, MJD Holdings Corp., MJD
Services Corp. and MJD Ventures, Inc. ("Loan Guarantors"). Indebtedness under
the New Credit Facility is secured by a first priority perfected security
interest in all of the capital stock of the Company's subsidiaries (subject to
certain exceptions) and in promissory notes evidencing all intercompany
advances made by the Company and the Loan Guarantors.
TERM LOAN FACILITIES
The Term Loan Facilities consist of two tranches of term loans in an
aggregate principal amount of $230.0 million. The term loans under the tranche
B term loan facility ("B Term Loans") are in an aggregate principal amount of
$155.0 million and the term loans under the tranche C term loan facility ("C
Term Loans") are in an aggregate principal amount of $75.0 million. The
tranche C term loan facility is divided into approximately a $51.5 million
subfacility, funded entirely by CoBank, ACB (the "CoBank C Term Subfacility"),
and approximately a $23.5 million subfacility, funded by a syndicate of other
lenders (the "Other C Term Subfacility"). The B Term Loans will mature on
March 31, 2006 and the C Term Loans will mature on March 31, 2007.
Installments of the B Term Loans are due in equal quarterly amounts totaling
per annum in each of years one through six of $1.55 million, approximately
$49.1 million in year seven and approximately $96.6 million in year eight.
Installments of the CoBank C Term Subfacility are due in varying quarterly
amounts totaling approximately $1.2 million to $2.3 million per annum in each
of years one through six and in equal quarterly amounts totaling $19.9 million
per annum in each of years eight and nine. Installments of the Other C Term
Subfacility are due in equal quarterly amounts totaling approximately $0.2
million per annum in years one through seven and approximately $10.9 million
per annum in years eight and nine.
REVOLVING CREDIT FACILITY
The Revolving Credit Facility is in an aggregate principal amount of $85.0
million. The Company is entitled to draw amounts under the Revolving Credit
Facility for ongoing working capital, capital expenditure requirements and
general corporate purposes (including to finance acquisitions and permitted
acquisitions). The Revolving Credit Facility will be reduced quarterly,
commencing on the date 39 months after the Closing Date in equal quarterly
amounts until maturity on September 30, 2004.
ACQUISITION FACILITY
The Acquisition Facility consists of an uncommitted revolving credit
facility in an aggregate principal amount of up to $165.0 million. The Company
will be entitled to draw amounts under the Acquisition Facility to
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finance capital expenditure requirements and permitted acquisitions and/or to
repay revolving loans under the Revolving Credit Facility to the extent the
proceeds of such revolving loans had been used to finance capital expenditure
requirements and/or permitted acquisitions. Although the Acquisition Facility
was uncommitted at the closing of the New Credit Facility (the "Closing"), the
Company intends to obtain commitments under the Acquisition Facility as may be
required to achieve its acquisition objectives. The Acquisition Facility will
be reduced quarterly, commencing on the date 48 months after the Closing Date
in equal quarterly amounts until maturity on September 30, 2004.
USE OF PROCEEDS
The use of proceeds from the Term Facilities is limited to the following
"Specified Purposes": (i) to finance acquisitions, (ii) to refinance the
existing indebtedness of the Borrower and its subsidiaries, (iii) to
repurchase $130,164 face amount of outstanding shares of preferred stock of
the Company for an aggregate price equal to such face amount plus accrued
dividends, (iv) retire certain existing warrants and (v) to finance
transaction fees and expenses.
AVAILABILITY
The availability under the New Credit Facility is subject to various
conditions precedent typical of bank facilities to this type. The full amount
of the C Term Loans were drawn in a single drawing at the Closing. B Term
Loans may be drawn pursuant to one or more drawings on and after the Closing
Date and prior to nine months from Closing. In addition, upon repayment of B
Term Loans with the Offering proceeds, certain Lenders under the tranche B
term loan facility have committed to reinstate $90.0 million in tranche B term
commitments for a period of up to 9 months from the Closing Date. Loans under
the Revolving Credit Facility and the Acquisition Facility (to the extent
commitments become available) may be borrowed, repaid and reborrowed after
Closing.
INTEREST RATE
Some or all of the C Term Loans under the CoBank C Term Subfacility shall
bear interest at fixed rates as agreed upon. Otherwise, Base Rate loans and
Eurodollar loans are available as follows:
Interest will accrue quarterly on the loans with reference to the base rate
(the "Base Rate") plus the applicable interest margin. In addition, the
Company may elect that all or a portion of the loans bear interest at the
eurodollar rate (the "Eurodollar Rate") plus the applicable interest margin.
The Base Rate is defined as the higher of the Federal Funds Rate, as published
by the Federal Reserve Bank of New York, plus 1/2 of 1%, or the prime rate of
the Administrative Agent, as announced from time to time. The Eurodollar Rate
is defined as, for interest periods of one, two, three or six months or (if
and when available to each of the Lenders under the respective Facility), nine
or twelve months (as selected by the Borrower), the offered quotation to first
class banks in the interbank eurodollar market by the Administrative Agent for
dollar deposits of amounts in same day funds divided by a percentage equal to
100% minus the then stated maximum rate of all reserved requirements
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency liabilities as defined in Regulation D. The applicable interest
margin for loans under the Revolving Credit Facility and the Acquisition
Facility will be 1.50% for Base Rate loans and 2.50% for Eurodollar Rate
loans. The applicable interest margin for Tranche B Term Loans will be 1.75%
for Base Rate Loans and 2.75% for Eurodollar Loans. The applicable interest
margin for C Term Loans under the Other C Term Subfacility will be 2.00% for
Base Rate loans and 3.00% for Eurodollar Rate loans. The interest margins for
the loans under the New Credit Facility as provided above will be subject to
reduction based on the achievement of specified leverage ratios, so long as no
default or event of default exists under the New Credit Facility.
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COVENANTS
The New Credit Facility contains certain customary covenants and other
requirements of the Company and its subsidiaries. The affirmative covenants
provide for, among other things, mandatory reporting by the Company of
financial and other information to the lenders and notice by the Company to
the lenders upon the occurrence of certain events. The affirmative covenants
also include customary covenants requiring the Company to operate its business
in an orderly manner and consistent with past practice and requiring
maintenance of interest rate protection.
The New Credit Facility also contains certain customary negative covenants
and restrictions on action by the Company and its subsidiaries, including,
without limitation, restrictions on indebtedness, liens, guarantee
obligations, mergers, asset dispositions, investments, loans, advances,
acquisitions, dividends and other restricted junior payments, transactions
with affiliates, changes in business conducted and prepayments and amendments
of subordinated indebtedness. The New Credit Facility also requires the
Company to meet certain customary financial covenants.
MANDATORY PREPAYMENT/REDUCTIONS
Mandatory prepayment or reduction of Term Loan Facilities and, once all Term
Loans have been repaid and no unutilized Term Facilities remain, Revolving
Credit Facility and Acquisition Facility reductions (pro rata among them),
will result from the net proceeds of equity and permitted subordinated debt
issuances, including the Offering, until such time as the Senior Leverage
Ratio (as defined) is reduced to 4.0x or below, provided that proceeds of
permitted subordinated debt issuances consummated prior to the first
anniversary of the Closing that otherwise would be applied as provided in this
paragraph will first be applied to repay outstanding Revolving Loans and
thereafter to the B Term Loans.
Net cash proceeds from asset sales shall be applied as mandatory prepayments
of principal on outstanding loans unless such proceeds are used by the Company
to finance acquisitions permitted under the New Credit Facility within 180
days of the Company's receipt of such proceeds.
Change of control transactions trigger a mandatory prepayment.
OPTIONAL PREPAYMENT
Voluntary prepayments of loans, including interim prepayments ("Interim
Prepayments") of Revolving Loans with proceeds of asset sales that are not
used to prepay Term Loans in anticipation of being subsequently applied to
fund a Permitted Acquisition or Acquisitions within 180 days of the asset sale
may be made at any time without premium or penalty, provided that voluntary
prepayments of Eurodollar Loans made on a date other than the last day of an
interest period applicable thereto shall be subject to customary breakage
costs. Voluntary prepayments of Terms Loans shall be made pro rata between the
Term Facilities and applied to reduce future scheduled amortization payments
(z) for the 12 month period after any such prepayment, in direct order of
maturity and (y) thereafter, on a pro rata basis.
EVENTS OF DEFAULT
The New Credit Facility specifies certain customary events of default
including, without limitation, nonpayment of principal, non-payment of
interest or fees (with a customary grace period), violation of covenants,
inaccuracy of representations and warranties in any material respect, cross-
default to certain other indebtedness, bankruptcy and insolvency events,
material judgments, violations of the Employees Retirement Income Security Act
of 1974, as amended, failure to maintain security interests, invalidity or
asserted invalidity of credit documents, including guarantees and failure of
the New Credit Facility and guarantees thereof to be senior in right of
payment.
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DESCRIPTION OF NOTES
The Fixed Rate Notes and the Floating Rate Notes will be issued together as
a single series under a single indenture (the "Indenture"), to be dated as of
May 5, 1998, between the Company and United States Trust Company of New York,
as trustee (the "Trustee"). A copy of the Indenture may be obtained by
contacting the Office of the Secretary at the principal executive offices of
the Company, 521 East Morehead Street, Suite 250, Charlotte, North Carolina
28202. The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject, and are qualified in their entirety by
reference, to the Trust Indenture Act of 1939 (the "Trust Indenture Act") and
to all the provisions of the Notes and the Indenture, including the
definitions of certain terms. For purposes of this Section, references to the
"Company" shall mean MJD Communications, Inc., excluding its subsidiaries.
Capitalized terms used in this Section and not otherwise defined below have
the meanings assigned to them in the Indenture.
The Indenture provides for the issuance of up to $200.0 million of Offered
Notes, of which $125.0 million will be Fixed Rate Notes (the "Offered Fixed
Rate Notes") and $75.0 million will be Floating Rate Notes (the "Offered
Floating Rate Notes"). The Indenture also provides for the issuance of up to
$100.0 million, in the aggregate, of additional Floating Rate Notes and Fixed
Rate Notes (as part of the same or an additional series under the Indenture).
Any such additional Notes will be identical to the Offered Floating Rate Notes
or the Offered Fixed Rate Notes, as the case may be, other than with respect
to issue price and issuance date.
Except as otherwise set forth below, the terms of the Fixed Rate Notes and
the Floating Rate Notes will be identical. The Fixed Rate Notes and the
Floating Rate Notes will vote together as a single class on all matters.
GENERAL
The Notes will mature on May 1, 2008, and will be limited to an aggregate
principal amount of $300.0 million. The Offered Notes will be issued in an
aggregate principal amount of $200.0 million. The Offered Notes will bear
interest at the rates set forth below from May 5, 1998, or from the most
recent date to which interest has been paid, payable semiannually on May 1 and
November 1 of each year, beginning on November 1, 1998, to the persons who are
registered holders of the Offered Notes at the close of business on the
preceding April 15 or October 15, as the case may be. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, and premium, if any, and interest on, the Notes will be
payable in immediately available funds, and the Notes will be exchangeable and
transferable, at an office or agency of the Company, one of which will be
maintained for such purpose in The City of New York (which initially will be
the corporate trust office of the Trustee); provided, however, that payment of
interest may be made at the option of the Company by check mailed to the
Person entitled thereto as shown on the Security Register. The Notes will be
issued only in fully registered form without coupons, in denominations of
$1,000 or any integral multiple thereof. No service charge will be made for
any registration of transfer or exchange of Notes, except for any tax or other
governmental charge that may be imposed.
INTEREST
The interest rate on the Offered Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating
to an exchange offer or a resale shelf registration statement for the Offered
Notes, if such registration statement is not declared effective on a timely
basis or if certain other conditions are not satisfied, all as further
described under "Exchange Offer; Registration Rights".
FIXED RATE NOTES. Interest on the Fixed Rate Notes will accrue at the rate
of 9 1/2% per annum.
FLOATING RATE NOTES. The Floating Rate Notes will bear interest at a rate
per annum, reset semiannually, equal to LIBOR plus 418.75 basis points, as
determined by the calculation agent (the "Calculation Agent"), which shall
initially be the Trustee.
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"LIBOR", with respect to an Interest Period, means the rate (expressed as a
percentage per annum) for deposits in United States dollars for a six-month
period beginning on the second London Banking Day after the Determination Date
that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the
Determination Date. If Telerate Page 3750 does not include such a rate or is
unavailable on a Determination Date, LIBOR for the Interest Period shall be
the arithmetic mean of the rates (expressed as a percentage per annum) for
deposits in a Representative Amount in United States dollars for a six-month
period beginning on the second London Banking Day after the Determination Date
that appears on Reuters Screen LIBO Page as of 11:00 a.m., London time, on the
Determination Date. If Reuters Screen LIBO Page does not include two or more
rates or is unavailable on a Determination Date, the Calculation Agent shall
request the principal London office of each of four major banks in the London
interbank market, as selected by the Calculation Agent, to provide such bank's
offered quotation (expressed as a percentage per annum), as of approximately
11:00 a.m., London time, on such Determination Date, to prime banks in the
London interbank market for deposits in a Representative Amount in United
States dollars for a six-month period beginning on the second London Banking
Day after the Determination Date. If at least two such offered quotations are
so provided, LIBOR for the Interest Period shall be the arithmetic mean of
such quotations. If fewer than two such quotations are so provided, the
Calculation Agent shall request each of three major banks in New York City, as
selected by the Calculation Agent, to provide such bank's rate (expressed as a
percentage per annum), as of approximately 11:00 a.m., New York City time, on
such Determination Date, for loans in a Representative Amount in United States
dollars to leading European banks for a six-month period beginning on the
second London Banking Day after the Determination Date. If at least two such
rates are so provided, LIBOR for the Interest Period will be the arithmetic
mean of such rates. If fewer than two such rates are so provided, then LIBOR
for the Interest Period will be LIBOR in effect with respect to the
immediately preceding Interest Period.
"Determination Date," with respect to an Interest Period, means the second
London Banking Day preceding the first day of the Interest Period.
"Interest Period" means the period commencing on and including an interest
payment date and ending on and including the day immediately preceding the
next succeeding interest payment date, with the exception that the first
Interest Period shall commence on and include May 5, 1998.
"London Banking Day" means any day in which dealings in United States
dollars are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
"Representative Amount" means a principal amount of not less than
U.S.$1,000,000 for a single transaction in the relevant market at the relevant
time.
"Telerate Page 3750" means the display designated as "Page 3750" on the Dow
Jones Telerate Service (or such other page as may replace Page 3750 on that
service).
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
The Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service).
The amount of interest for each day of a 30-day month that the Floating Rate
Notes are outstanding (the "Daily Interest Amount") will be calculated by
dividing the interest rate in effect for such day by 360 and multiplying the
result by the principal amount of the Floating Rate Notes. The amount of
interest to be paid on the Floating Rate Notes for each Interest Period will
be calculated by adding the Daily Interest Amounts for each day in the
Interest Period.
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (e.g.,
9.876545% being rounded to 9.87655%), and all dollar amounts used in or
resulting from such calculations will be rounded to the nearest cent (with
one-half cent being rounded upwards).
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The interest rate on the Floating Rate Notes will in no event be higher than
the maximum rate permitted by New York law as the same may be modified by
United States law of general application. Under current New York law, the
maximum rate of interest is 25.0% per annum on a simple interest basis. This
limit may not apply to Floating Rate Notes in which a holder has invested $2.5
million or more.
The Calculation Agent will, upon the request of the holder of any Floating
Rate Note, provide the interest rate then in effect with respect to the
Floating Rate Notes. All calculations made by the Calculation Agent in the
absence of manifest error will be conclusive for all purposes and binding on
the Company and the holders of the Floating Rate Notes.
SUBORDINATION
The Notes will be senior subordinated, unsecured obligations of the Company.
The payment of the principal of, and premium, if any, and interest on, the
Notes, will be subordinated in right of payment to the payment when due of all
Senior Debt of the Company. The Fixed Rate Notes and the Floating Rate Notes
will rank pari passu in right of payment with each other, and with all future
Senior Subordinated Debt, and senior to all future Subordinated Obligations of
the Company. As of March 31, 1998, after giving pro forma effect to the
Completed Transactions and the Pending Acquisition, the Company would have had
approximately $147.8 million of Senior Debt.
In addition, all existing and future liabilities of the Company's
Subsidiaries, including the claims of trade creditors and preferred
stockholders, if any, will be effectively senior to the Notes. The total
balance sheet liabilities of the Company's Subsidiaries, after giving effect
to the Completed Transactions and the Pending Acquisition, as of March 31,
1998, would have been approximately $217.5 million (including guarantees of
$147.8 million of Senior Debt of the Company and excluding unused
commitments). The Company's Subsidiaries have other liabilities, including
contingent liabilities, that may be significant.
Although the Indenture contains limitations on the amount of additional Debt
that the Company and the Restricted Subsidiaries may Incur, the amounts of
such Debt could be substantial and all such Debt may be Senior Debt or Debt of
Subsidiaries (which will be effectively senior in right of payment to the
Notes). In addition, the definition of "Senior Debt" includes a provision that
in certain circumstances subordinates the Notes to the claims of lenders who
extend credit in reliance on the Company's calculation of debt capacity under
the covenant described under "--Certain Covenants--Limitation on Debt," even
if such interpretation is incorrect or is not made in good faith. See "--
Certain Covenants--Limitation on Debt" and "--Certain Definitions."
The Notes are obligations exclusively of the Company. Since all the
operations of the Company are conducted through Subsidiaries, the Company's
ability to service its debt, including the Notes, is dependent upon the
earnings of its Subsidiaries and the distribution of those earnings, or upon
loans or other payments of funds, by those Subsidiaries to the Company. The
payment of dividends and the making of loans and advances to the Company by
its Subsidiaries are subject to various restrictions. Existing Debt of certain
of the Subsidiaries contains provisions that may under certain circumstances
prohibit the payment of dividends or the making of other payments or advances
to the Company. In addition, the ability of Subsidiaries of the Company to
make such payments or advances to the Company may be limited by the laws of
the relevant states in which such Subsidiaries are organized or located,
including, in some instances, by minimum capitalization requirements imposed
by state regulatory bodies that oversee the telecommunications industry in
such states. In certain circumstances, the prior or subsequent approval of
such payments or advances by such Subsidiaries to the Company is required from
such regulatory bodies or other governmental entities.
The Notes also will be effectively subordinated to any secured debt of the
Company to the extent of the value of the assets securing such debt. As of
March 31, 1998, after giving pro forma effect to the Completed Transactions
and the Pending Acquisition, there would have been no outstanding secured debt
of the Company that is not Senior Debt.
The Company may not pay principal of, or premium, if any, or interest on,
the Notes, or make any deposit pursuant to the provisions described under "--
Defeasance," and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes"), if (a) any principal, premium or interest in
respect of any Senior Debt is not paid within any applicable grace period
(including at maturity) or (b) any other default on Senior Debt
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occurs and the maturity of such Senior Debt is accelerated in accordance with
its terms unless, in either case, (i) the default has been cured or waived and
any such acceleration has been rescinded or (ii) such Senior Debt has been
paid in full in cash; provided, however, that the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of such issue of Senior
Debt. During the continuance of any default (other than a default described in
clause (a) or (b) of the preceding sentence) with respect to any Designated
Senior Debt pursuant to which the maturity thereof may be accelerated
immediately without further notice (except any notice required to effect the
acceleration) or the expiration of any applicable grace period, the Company
may not pay the Notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the Company and the Trustee of written notice of such
default from the Representative of the holders of such Designated Senior Debt
specifying an election to effect a Payment Blockage Period (a "Payment
Blockage Notice") and ending 179 days thereafter (unless such Payment Blockage
Period is earlier terminated (a) by written notice to the Trustee and the
Company from the Representative that gave such Payment Blockage Notice, (b)
because such default is no longer continuing or (c) because such Designated
Senior Debt has been repaid in full in cash). Unless the holders of such
Designated Senior Debt or the Representative of such holders have accelerated
the maturity of such Designated Senior Debt and not rescinded such
acceleration, the Company may (unless otherwise prohibited as described in the
first sentence of this paragraph) resume payments on the Notes after the end
of such Payment Blockage Period. Not more than one Payment Blockage Notice
with respect to all issues of Designated Senior Debt may be given in any
consecutive 360-day period, irrespective of the number of defaults with
respect to one or more issues of Designated Senior Debt during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or winding up of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its Property, the holders of Senior Debt will be
entitled to receive payment in full in cash before the holders of the Notes
are entitled to receive any payment of principal of or interest on the Notes,
except that holders of Notes may receive and retain shares of stock and any
debt securities that are subordinated to Senior Debt to at least the same
extent as the Notes. Until the Senior Debt is paid in full in cash, any
distribution to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture will be made to holders of the
Senior Debt. If a payment or distribution is made to holders of Notes that,
due to the subordination provisions, should not have been made to them, such
holders are required to hold it in trust for the holders of Senior Debt and
pay it over to them as their interests may appear.
If payment of the Notes is accelerated when any Designated Senior Debt is
outstanding, the Company may not pay the Notes until three Business Days after
the Representatives of all issues of Designated Senior Debt receive notice of
such acceleration and, thereafter, may pay the Notes only if the Indenture
otherwise permits payment at that time.
By reason of the subordination provisions contained in the Indenture, in the
event of bankruptcy or similar proceedings relating to the Company, holders of
Senior Debt and other creditors (including trade creditors) of the Company may
recover more ratably, even if the Notes are pari passu with their claims, than
the holders of the Notes. In such event, there may be insufficient assets or
no assets remaining to pay the principal of or interest on the Notes.
Payment from the money or the proceeds of U.S. Government Obligations held
in any defeasance trust pursuant to the provisions described under "--
Defeasance" will not be subject to the subordination provisions described
above.
See "Risk Factors--Subordination; Holding Company Structure," "--Substantial
Leverage; Ability to Service Debt" and "Description of New Credit Facility".
OPTIONAL REDEMPTION
Except as set forth below, the Fixed Rate Notes will not be redeemable at
the option of the Company prior to May 1, 2003. Thereafter, the Fixed Rate
Notes will be redeemable, in whole or in part, at any time and
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from time to time, at the option of the Company upon not less than 30 nor more
than 60 days' prior notice, at the following redemption prices (expressed as
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on May 1 of the years set forth
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003.......................................................... 104.750%
2004.......................................................... 103.167%
2005.......................................................... 101.583%
2006 and thereafter........................................... 100.000%
</TABLE>
The Floating Rate Notes will be redeemable, in whole or in part, at any time
and from time to time, at the option of the Company upon not less than 30 nor
more than 60 days' prior notice, at the following redemption prices (expressed
as percentages of principal amount), plus accrued and unpaid interest, if any,
to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on May 1 of the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1998.......................................................... 105.000%
1999.......................................................... 104.000%
2000.......................................................... 103.000%
2001.......................................................... 102.000%
2002.......................................................... 101.000%
2003 and thereafter........................................... 100.000%
</TABLE>
At any time and from time to time, prior to May 1, 2001, the Company may
redeem up to a maximum of 35.0% of the aggregate principal amount of the Fixed
Rate Notes theretofore issued under the Indenture (including any Fixed Rate
Notes issued after completion of the Offering) with the proceeds of an Equity
Sale, at a redemption price equal to 109.5% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided,
however, that after giving effect to any such redemption, at least 65.0% of
the original aggregate principal amount of the Offered Fixed Rate Notes
remains outstanding. Any such redemption shall be made within 75 days of such
Equity Sale upon not less than 30 nor more than 60 days' prior notice.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes shall have
the right to require the Company to repurchase all or any part of such
holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price (the "Change of Control Purchase Price") equal to
101.0% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the purchase date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
Within 30 days following any Change of Control, and within one day following
the Cut-off Date, the Company shall (a) cause a notice of the Change of
Control Offer to be sent at least once to the Dow Jones News Service or
similar business news service in the United States and (b) send, by first-
class mail, with a copy to the
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Trustee, to each holder of Notes, at such holder's address appearing in the
Security Register, a notice stating: (i) that a Change of Control Offer is
being made pursuant to the covenant entitled "Repurchase at the Option of
Holders Upon a Change of Control" and that all Notes timely tendered will be
accepted for payment; (ii) the Change of Control Purchase Price and the
purchase date, which shall be, subject to any contrary requirements of
applicable law, a business day no earlier than 30 days nor later than 60 days
from the date such notice is mailed; (iii) the circumstances and relevant
facts regarding the Change of Control (including information with respect to
pro forma historical income, cash flow and capitalization after giving effect
to the Change of Control); and (iv) the procedures that holders of Notes must
follow in order to tender their Notes (or portions thereof) for payment, and
the procedures that holders of Notes must follow in order to withdraw an
election to tender Notes (or portions thereof) for payment.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the covenant described hereunder, the Company
will comply with the applicable securities laws and regulations and will not
be deemed to have breached its obligations under the covenant described
hereunder by virtue of such compliance.
The Change of Control repurchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to certain
covenants described below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of debt outstanding at such time
or otherwise affect the Company's capital structure or credit ratings.
The definition of Change of Control includes a phrase relating to the sale,
transfer, assignment, lease, conveyance or other disposition of "all or
substantially all" the Company's assets. Although there is a developing body
of case law interpreting the phrase "substantially all", there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a holder of Notes to require the Company to repurchase such Notes
as a result of a sale, transfer, assignment, lease, conveyance or other
disposition of less than all the assets of the Company may be uncertain.
The New Credit Facility prohibits the Company from voluntarily purchasing
any Notes prior to their stated maturity, and also provides that the
occurrence of any of the events that would constitute a Change of Control
would constitute a change of control under the New Credit Facility, which
would result in all debt thereunder becoming due and payable. Other future
debt of the Company may contain prohibitions of any events which would
constitute a Change of Control or require such debt to be repurchased upon a
Change of Control. To the extent other debt of the Company is subject to
similar repurchase obligations in the event of a Change of Control and such
debt ranks senior in right of payment to the Notes, all available funds will
first be expended for the repurchase of such debt. Moreover, the exercise by
holders of Notes of their right to require the Company to repurchase such
Notes following a Change of Control could cause a default under existing or
future debt of the Company, even if the Change of Control itself does not, due
to the financial effect of such repurchase on the Company. Furthermore, the
Company's ability to pay cash to holders of Notes upon a repurchase following
a Change of Control may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases. The Company's failure to
purchase Notes in connection with a Change of Control would result in a
default under the Indenture which would, in turn, constitute a default under
existing (and may constitute a default under future) debt of the Company. If
such debt constitutes Designated Senior Debt, the subordination provisions in
the Indenture would likely restrict payment to holders of Notes. The
provisions under the Indenture relative to the Company's obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified
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(at any time prior to the occurrence of such Change of Control) with the
written consent of the holders of a majority in principal amount of each of
the Fixed Rate Notes or the Floating Rate Notes, as the case may be. See "--
Amendments and Waivers."
CERTAIN COVENANTS
LIMITATION ON DEBT. The Company shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless,
after giving effect to the application of the proceeds thereof, no Default or
Event of Default would occur as a consequence of such Incurrence or be
continuing following such Incurrence and either (a) after giving effect to the
Incurrence of such Debt and the receipt and application of the proceeds
thereof, the Leverage Ratio of the Company and the Restricted Subsidiaries (on
a consolidated basis) would not exceed 7.0 to 1.0 or (b) such Debt is
Permitted Debt.
The term "Permitted Debt" is defined to include the following:
(a) Debt of the Company evidenced by the Offered Notes;
(b) Debt under the Credit Facility, provided that the aggregate principal
amount of all such Debt under the Credit Facility at any one time
outstanding shall not exceed $315.0 million, which amount shall be
permanently reduced by the amount of Net Available Cash used to Repay Debt
under the Credit Facility, and not subsequently reinvested in Additional
Assets or used to purchase Notes or Repay other Debt, pursuant to the
covenant described under "--Limitation on Asset Sales";
(c) Debt of the Company or a Restricted Subsidiary in respect of Capital
Lease Obligations and Purchase Money Debt, provided that (i) the aggregate
principal amount of such Debt does not exceed the Fair Market Value (on the
date of the Incurrence thereof) of the Property acquired, constructed or
leased and (ii) the aggregate principal amount of all Debt Incurred and
then outstanding pursuant to this clause (c) (together with all Permitted
Refinancing Debt Incurred in respect of Debt previously Incurred pursuant
to this clause (c)) does not exceed $30.0 million;
(d) Debt of the Company owing to and held by any Restricted Subsidiary
and Debt of a Restricted Subsidiary owing to and held by the Company or any
Restricted Subsidiary; provided, however, that any subsequent issue or
transfer of Capital Stock or other event that results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Debt (except to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Debt by the issuer thereof;
(e) Debt under Interest Rate Agreements entered into by the Company or a
Restricted Subsidiary for the purpose of limiting interest rate risk in the
ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of this covenant;
(f) Debt in connection with one or more standby letters of credit or
performance bonds issued by the Company or a Restricted Subsidiary in the
ordinary course of business or pursuant to self-insurance obligations and
not in connection with the borrowing of money or the obtaining of advances
or credit;
(g) Debt outstanding on the Issue Date not otherwise described in clauses
(a) through (f) above;
(h) Debt in an aggregate principal amount outstanding at any one time not
to exceed $10.0 million;
(i) if (x) the acquisition of Chouteau is consummated, up to $7.0 million
of Debt Incurred by the Company in connection with such consummation and/or
(y) the acquisition of Utilities is consummated, up to $12.51 million of
Debt of Utilities Incurred in connection with such consummation, less the
aggregate amount of all repayments of principal made thereon; and
(j) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the first paragraph of this covenant and clauses
(a), (c), (g) and (i) above.
The definition of "Senior Debt" includes a provision that in certain
circumstances subordinates the Notes to the claims of lenders who extend
credit in reliance on the Company's calculation of debt capacity under this
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covenant, even if such interpretation is incorrect or is not made in good
faith. If the claims of such other lenders in fact were Incurred by the
Company in violation of this covenant, the holders of the Notes could declare
an Event of Default and exercise their remedies against the Company under the
Indenture, but the Noteholders would not have any claims against such other
lenders (so long as such other lenders had themselves acted in good faith) and
the claims of the Noteholders would be subordinated to the prior payment in
full of such other lenders. See "--Certain Definitions--Senior Debt."
Notwithstanding anything to the contrary contained in this covenant, (a) the
Company shall not Incur any Debt pursuant to this covenant if the proceeds
thereof are used, directly or indirectly, to Refinance (i) any Subordinated
Obligations unless such Debt shall be subordinated to the Notes to at least
the same extent as such Subordinated Obligations or (ii) any Senior
Subordinated Debt unless such Debt shall be Senior Subordinated Debt or shall
be subordinated to the Notes, and (b) the Company shall not permit any
Restricted Subsidiary to Incur any Debt pursuant to this covenant if the
proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations or Senior Subordinated Debt of the Company.
For purposes of determining compliance with the foregoing covenant, (i) in
the event that an item of Debt (including Debt issued by the Company to the
lenders that are party to the Credit Facility) meets the criteria of more than
one of the types of Debt described above, the Company, in its sole discretion,
will classify such item of Debt and only be required to include the amount and
type of such Debt in one of the above clauses and (ii) an item of Debt
(including Debt issued by the Company to the lenders that are party to the
Credit Facility) may be divided and classified in more than one of the types
of Debt described above.
LIMITATION ON RESTRICTED PAYMENTS. The Company shall not make, and shall not
permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving effect to, such
proposed Restricted Payment,
(a) a Default or Event of Default shall have occurred and be continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described
under "--Limitation on Debt" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(i) 50.0% of the aggregate amount of Consolidated Net Income accrued
during the period (treated as one accounting period) from the beginning
of the fiscal quarter during which the Issue Date occurs to the end of
the most recent fiscal quarter ending at least 45 days prior to the
date of such Restricted Payment (or if the aggregate amount of
Consolidated Net Income for such period shall be a deficit, minus
100.0% of such deficit),
(ii) Capital Stock Sale Proceeds, excluding Capital Stock Sale
Proceeds from the sale of additional Capital Stock to the Permitted
Holders pursuant to contractual obligations in effect on the Issue
Date,
(iii) the sum of (A) the aggregate net cash proceeds received by the
Company or any Restricted Subsidiary from the issuance or sale after
the Issue Date of convertible or exchangeable Debt that has been
converted into or exchanged for Capital Stock (other than Disqualified
Stock) of the Company and (B) the aggregate amount by which Debt (other
than Subordinated Obligations) of the Company or any Restricted
Subsidiary is reduced on the Company's consolidated balance sheet on or
after the Issue Date upon the conversion or exchange of any Debt issued
or sold on or prior to the Issue Date that is convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the
Company (excluding, in the case of clause (A) or (B), (x) any such Debt
issued or sold to the Company or a Subsidiary of the Company or an
employee stock ownership plan or trust established by the Company or
any such Subsidiary for the benefit of their employees and (y) the
aggregate amount of any cash or other Property distributed by the
Company or any Restricted Subsidiary upon any such conversion or
exchange),
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(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or advances or
other transfers of Property, in each case to the Company or any
Restricted Subsidiary from such Person, and (B) the portion
(proportionate to the Company's equity interest in an Unrestricted
Subsidiary) of the Fair Market Value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Person, the amount
of Investments previously made (and treated as a Restricted Payment) by
the Company or any Restricted Subsidiary in such Person, and
(v) $20.0 million.
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the declaration
thereof if, on said declaration date, such dividends could have been paid
in compliance with the Indenture; provided, however, that at the time of
such payment of such dividend, no other Default or Event of Default shall
have occurred and be continuing (or result therefrom); provided further,
however, that such dividend shall be included in the calculation of the
amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire for
value Capital Stock of the Company or Subordinated Obligations in exchange
for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or trust established by the Company or any such
Subsidiary for the benefit of their employees); provided, however, that (i)
such purchase, repurchase, redemption, legal defeasance, acquisition or
retirement shall be excluded in the calculation of the amount of Restricted
Payments and (ii) the Capital Stock Sale Proceeds from such exchange or
sale shall be excluded from the calculation pursuant to clause (c)(ii)
above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire for
value any Subordinated Obligations in exchange for, or out of the proceeds
of the substantially concurrent sale of, Permitted Refinancing Debt;
provided, however, that such purchase, repurchase, redemption, legal
defeasance, acquisition or retirement shall be excluded in the calculation
of the amount of Restricted Payments;
(d) repurchase shares of, or options to purchase shares of, common stock
of the Company or any of its Subsidiaries from current or former officers,
directors or employees of the Company or any of its Subsidiaries (or
permitted transferees of such current or former officers, directors or
employees), pursuant to the terms of agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of
Directors under which such individuals purchase or sell, or are granted the
option to purchase or sell, shares of such common stock; provided, however,
that (i) the aggregate amount of such repurchases shall not exceed $1.0
million in any fiscal year, (ii) such repurchases shall be excluded in the
calculation of the amount of Restricted Payments and (iii) at the time of
any such repurchase, no other Default or Event of Default shall have
occurred and be continuing (or result therefrom);
(e) purchase up to (i) 12,500 shares of ST Enterprises, Ltd. and (ii)
7.69 shares of Sidney Telephone Company (in each case as adjusted for stock
splits and other similar events), outstanding on the Issue Date; provided,
however, that such purchases or redemptions shall not be made from
Affiliates of the Company (other than Persons who are Affiliates solely by
virtue of their ownership of such shares) and shall be included in the
calculation of the amount of Restricted Payments; provided further,
however, that at the time of any such purchase or redemption, no other
Default or Event of Default shall have occurred and be continuing (or
result therefrom);
(f) pay the fees and expenses described in clause (e) in the second
paragraph of the covenant described under "--Certain Covenants--Limitation
on Transactions with Affiliates", provided, however, that any such fees or
expenses paid in excess of $1.0 million per fiscal year shall be included
in the calculation of the amount of Restricted Payments; and
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(g) following the first Public Equity Offering that results in a Public
Market, pay dividends on the common stock of the Company of up to 6.0% per
annum of the cash proceeds (net of underwriters' fees, discounts or
commissions) of such first Public Equity Offering; provided, however, that
(i) such dividends shall be (x) paid pro rata to the holders of all classes
of common stock of the Company and (y) included in the calculation of the
amount of Restricted Payments and (ii) at the time of payment of any such
dividend, no other Default or Event of Default shall have occurred and be
continuing (or result therefrom).
LIMITATION ON LIENS. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist,
any Lien (other than Permitted Liens or Liens securing Senior Debt) upon any
of its Property (including Capital Stock of a Restricted Subsidiary), whether
owned at the Issue Date or thereafter acquired, or any interest therein or any
income or profits therefrom, unless (a) if such Lien secures Senior
Subordinated Debt, the Notes are secured on an equal and ratable basis with
such Debt and (b) if such Lien secures Subordinated Obligations, such Lien
shall be subordinated to a Lien securing the Notes in the same Property as
that securing such Subordinated Obligations to the same extent as such
Subordinated Obligations are subordinated to the Notes.
LIMITATION ON ISSUANCE OR SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES.
The Company shall not (a) sell, pledge, hypothecate or otherwise dispose of
any shares of Capital Stock of a Restricted Subsidiary or (b) permit any
Restricted Subsidiary to, directly or indirectly, issue or sell or otherwise
dispose of any shares of its Capital Stock, other than (i) directors'
qualifying shares, (ii) to the Company or a Wholly Owned Subsidiary, or (iii)
if, immediately after giving effect to such disposition, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary; provided,
however, that, in the case of this clause (iii), such issuance, sale or
disposition is effected in compliance with the covenant described under "--
Limitation on Asset Sales".
LIMITATION ON ASSET SALES. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
unless (a) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
Property subject to such Asset Sale; (b) at least 75.0% of the consideration
paid to the Company or such Restricted Subsidiary in connection with such
Asset Sale is in the form of cash or cash equivalents or the assumption by the
purchaser of liabilities of the Company or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the Notes) as a
result of which the Company and the Restricted Subsidiaries are no longer
obligated with respect to such liabilities; and (c) the Company delivers an
Officers' Certificate to the Trustee certifying that such Asset Sale complies
with the foregoing clauses (a) and (b).
The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Company or a Restricted Subsidiary, to the extent the Company
or such Restricted Subsidiary elects (or is required by the terms of any
Debt): (a) to Repay Senior Debt of the Company or Debt of any Restricted
Subsidiary (excluding any Debt owed to the Company or an Affiliate of the
Company); or (b) subject to the covenant described under "--Limitation on
Restricted Payments", to reinvest in Additional Assets (including by means of
an Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary).
Pending such application, and subject in all respects to the procedures set
forth below, the Company may, to the extent such use would not constitute a
Repayment, use such Net Available Cash to temporarily reduce Debt.
Any Net Available Cash from an Asset Sale not applied in accordance with the
preceding paragraph within 270 days from the date of the receipt of such Net
Available Cash or that is not (to the extent not used to temporarily reduce
Debt without reducing related loan commitments) segregated from the general
funds of the Company for investment in identified Additional Assets in respect
of a project that shall have been commenced, and for which binding contractual
commitments have been entered into, prior to the end of such 270-day period
and that shall not have been completed or abandoned shall constitute "Excess
Proceeds"; provided, however, that the amount of any Net Available Cash that
ceases to be so segregated as contemplated above and any Net Available Cash
that is segregated in respect of a project that is abandoned or completed
shall also constitute "Excess Proceeds" at the time any such Net Available
Cash ceases to be so segregated or at the time the relevant
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<PAGE>
project is so abandoned or completed, as applicable. When the aggregate amount
of Excess Proceeds exceeds $5.0 million (taking into account income earned on
such Excess Proceeds, if any), the Company will be required to make an offer
to purchase (the "Prepayment Offer") the Notes which offer shall be in the
amount of the Allocable Excess Proceeds, on a pro rata basis according to
principal amount, at a purchase price equal to 100.0% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date), in accordance
with the procedures (including prorating in the event of oversubscription) set
forth in the Indenture. To the extent that any portion of the amount of Net
Available Cash remains after compliance with the preceding sentence and
provided that all holders of Notes have been given the opportunity to tender
their Notes for purchase in accordance with the Indenture, the Company or such
Restricted Subsidiary may use such remaining amount for any purpose permitted
by the Indenture and the amount of Excess Proceeds will be reset to zero. The
term "Allocable Excess Proceeds" will mean the product of (a) the Excess
Proceeds and (b) a fraction, the numerator of which is the aggregate principal
amount of the Notes outstanding on the date of the Prepayment Offer and the
denominator of which is the sum of the aggregate principal amount of the Notes
outstanding on the date of the Prepayment Offer and the aggregate principal
amount of other Debt of the Company outstanding on the date of the Prepayment
Offer that is pari passu in right of payment with the Notes and subject to
terms and conditions in respect of Asset Sales similar in all material
respects to the covenant described hereunder and requiring the Company to make
an offer to purchase such Debt at substantially the same time as the
Prepayment Offer.
Within five business days after the Company is obligated to make a
Prepayment Offer as described in the preceding paragraph, the Company shall
send a written notice, by first-class mail, to the holders of Notes,
accompanied by such information regarding the Company and its Subsidiaries as
the Company in good faith believes will enable such holders to make an
informed decision with respect to such Prepayment Offer. Such notice shall
state, among other things, the purchase price and the purchase date, which
shall be, subject to any contrary requirements of applicable law, a business
day no earlier than 30 days nor later than 60 days from the date such notice
is mailed.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist any
consensual restriction on the right of any Restricted Subsidiary to (a) pay
dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock, or pay any Debt or other obligation owed, to the
Company or any other Restricted Subsidiary, (b) make any loans or advances to
the Company or any other Restricted Subsidiary or (c) transfer any of its
Property to the Company or any other Restricted Subsidiary. The foregoing
limitations will not apply (i) with respect to clauses (a), (b) and (c), to
restrictions (A) arising under agreements that were in effect on the Issue
Date, (B) relating to Debt of a Restricted Subsidiary and existing at the time
it became a Restricted Subsidiary if such restriction was not created in
connection with or in anticipation of the transaction or series of
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company or another Restricted Subsidiary, or
(C) that result from the Refinancing of Debt Incurred pursuant to an agreement
referred to in clause (i)(A) or (B) above or in clause (ii)(A) or (B) below,
provided such restriction is no more restrictive than those under the
agreement evidencing the Debt so Refinanced, and (ii) with respect to clause
(c) only, to restrictions (A) relating to Debt that is permitted to be
Incurred and secured without also securing the Notes pursuant to the covenants
described under "--Limitation on Debt" and "--Limitation on Liens" that limit
the right of the debtor to dispose of the Property securing such Debt, (B)
encumbering Property at the time such Property was acquired by the Company
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or any Restricted Subsidiary, so long as such restriction relates solely to
the Property so acquired and was not created in connection with or in
anticipation of such acquisition, (C) resulting from customary provisions
restricting subletting or assignment of leases or customary provisions in
other agreements that restrict assignment of such agreements or rights
thereunder or (D) customary restrictions contained in asset sale agreements
limiting the transfer of such Property pending the closing of such sale.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with,
or for the benefit of, any Affiliate of the Company (an "Affiliate
Transaction"), unless (a) the terms of such Affiliate Transaction are (i) set
forth in writing, (ii) in the best interest of the Company or such Restricted
Subsidiary, as the case may be, and (iii) no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained in a comparable arm's-length transaction with a Person that is not an
Affiliate of the Company, (b) if such Affiliate Transaction involves aggregate
payments or value in excess of $1.0 million, two Officers of the Company
approve such Affiliate Transaction, and in the good faith judgment of such
Officers, believe that such Affiliate Transaction complies with clauses (a)
(ii) and (iii) of this paragraph as evidenced by an Officers' Certificate
promptly delivered to the Trustee, (c) if such Affiliate Transaction involves
aggregate payments or value in excess of $5.0 million, the Board of Directors
(including a majority of the disinterested members of the Board of Directors)
approves such Affiliate Transaction, and in its good faith judgment, believes
that such Affiliate Transaction complies with clauses (a) (ii) and (iii) of
this paragraph as evidenced by a Board Resolution promptly delivered to the
Trustee and (d) if such Affiliate Transaction involves aggregate payments or
value in excess of $10.0 million, the Company obtains a written opinion from
an Independent Appraiser to the effect that the consideration to be paid or
received in connection with such Affiliate Transaction is fair, from a
financial point of view, to the Company or such Restricted Subsidiary, as the
case may be.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(a) any transaction or series of transactions between the Company and one
or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries, provided that no more than 5.0% of the total voting power of
the Voting Stock (on a fully diluted basis) of any such Restricted
Subsidiary is owned by an Affiliate of the Company (other than a Restricted
Subsidiary);
(b) any Restricted Payment permitted to be made pursuant to the covenant
described under "--Limitation on Restricted Payments";
(c) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as such payments are pursuant to a policy (i) established by the Board of
Directors in good faith and (ii) evidenced by a resolution of the Board of
Directors that establishes standards to ensure that the terms of such
compensation and the services theretofore or thereafter to be performed for
such compensation will be fair consideration therefor;
(d) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be, provided that such loans and
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(e) the payment, in compliance with clause (a) of the first paragraph of
this covenant, of fees and expenses to the Equity Investors during any
fiscal year not in excess of 1.0% of EBITDA for such year, provided that no
Default or Event of Default exists at the time of such payment;
(f) the payment of customary legal fees and expenses to Paul, Hastings,
Janofsky & Walker LLP; or
(g) any transaction or series of transactions, in the ordinary course of
business for a Person engaged in the CLEC business, with a CLEC Subsidiary,
provided that any such transaction is undertaken pursuant to
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a policy adopted by the Board of Directors, which policy shall be evidenced
by a Board Resolution delivered to the Trustee, that establishes adequate
procedures to insure that any such transaction is effected in accordance
with clauses (a)(ii) and (a)(iii) of the first paragraph of this covenant.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale and
Leaseback Transaction with respect to any Property unless (a) the Company or
such Restricted Subsidiary would be entitled to (i) Incur Debt in an amount
equal to the Attributable Debt with respect to such Sale and Leaseback
Transaction pursuant to the covenant described under "--Limitation on Debt"
and (ii) create a Lien on such Property securing such Attributable Debt
without also securing the Notes pursuant to the covenant described under "--
Limitation on Liens" and (b) such Sale and Leaseback Transaction is effected
in compliance with the covenant described under "--Limitation on Asset Sales".
LIMITATION ON LAYERED DEBT. The Company shall not Incur, directly or
indirectly, any Debt that is subordinate or junior in right of payment to any
Senior Debt unless such Debt is Senior Subordinated Debt or is expressly
subordinated in right of payment to Senior Subordinated Debt.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Board of
Directors may designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if (a) the Subsidiary to be so designated does not own any Capital
Stock or Debt of, or own or hold any Lien on any Property of, the Company or
any other Restricted Subsidiary, (b) the Subsidiary to be so designated is not
obligated under any Debt, Lien or other obligation that, if in default, would
result (with the passage of time or notice or otherwise) in a default on any
Debt of the Company or of any Restricted Subsidiary and (c) either (i) the
Subsidiary to be so designated has total assets of $1,000 or less or (ii) such
designation is effective immediately upon such entity becoming a Subsidiary of
the Company. Unless so designated as an Unrestricted Subsidiary, any Person
that becomes a Subsidiary of the Company will be classified as a Restricted
Subsidiary; provided, however, that such Subsidiary shall not be designated a
Restricted Subsidiary and shall be automatically classified as an Unrestricted
Subsidiary if either of the requirements set forth in clauses (x) and (y) of
the immediately following paragraph will not be satisfied after giving pro
forma effect to such classification. Except as provided in the first sentence
of this paragraph, no Restricted Subsidiary may be redesignated as an
Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described under
"--Limitation on Debt" and (y) no Default or Event of Default shall have
occurred and be continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate (a)
certifying that such designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of such designation or
redesignation, such filing with the Trustee to occur within 45 days after the
end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
LIMITATION ON COMPANY'S BUSINESS. The Company shall not, and shall not
permit any Restricted Subsidiary, to, directly or indirectly, engage in any
business other than the Telecommunications Business.
MERGER, CONSOLIDATION AND SALE OF PROPERTY
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Subsidiary into the
Company) or sell, transfer, assign, lease, convey or otherwise dispose of all
or substantially all its Property in any one transaction or series of
transactions unless: (a) the Company shall be the surviving Person (the
"Surviving Person") or the Surviving Person (if other than the
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Company) formed by such merger, consolidation or amalgamation or to which such
sale, transfer, assignment, lease, conveyance or disposition is made shall be
a corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia; (b) the Surviving
Person (if other than the Company) expressly assumes, by supplemental
indenture in form satisfactory to the Trustee, executed and delivered to the
Trustee by such Surviving Person, the due and punctual payment of the
principal of, and premium, if any, and interest on, all the Notes, according
to their tenor, and the due and punctual performance and observance of all the
covenants and conditions of the Indenture to be performed by the Company; (c)
in the case of a sale, transfer, assignment, lease, conveyance or other
disposition of all or substantially all the Property of the Company, such
Property shall have been transferred as an entirety or virtually as an
entirety to one Person; (d) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (and treating, for
purposes of this clause (d) and clauses (e) and (f) below, any Debt that
becomes, or is anticipated to become, an obligation of the Surviving Person or
any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such
Restricted Subsidiary at the time of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing; (e) immediately after giving effect to such transaction or series
of transactions on a pro forma basis, the Company or the Surviving Person, as
the case may be, would be able to Incur at least $1.00 of additional Debt
under clause (a) of the first paragraph of the covenant described under "--
Certain Covenants--Limitation on Debt"; (f) immediately after giving effect to
such transaction or series of transactions on a pro forma basis, the Surviving
Person shall have a Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction or series of transactions; and (g) the Company shall deliver, or
cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of
Counsel, each stating that such transaction and the supplemental indenture, if
any, in respect thereto comply with this covenant and that all conditions
precedent herein provided for relating to such transaction have been
satisfied.
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a sale, transfer, assignment, lease,
conveyance or other disposition shall not be released from its obligations
under the Indenture and the Notes (except the predecessor company shall be so
released in the case of the sale, transfer assignment, conveyance or other
disposition, but not the lease, of the assets as an entirety or virtually as
an entirety).
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
file with the Commission and provide the Trustee and holders of Notes with
such annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a
U.S. corporation subject to such Sections, such information, documents and
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections; provided,
however, that the Company shall not be so obligated to file such information,
documents and reports with the Commission if the Commission does not permit
such filings.
EVENTS OF DEFAULT
Events of Default in respect of the Notes as set forth in the Indenture
include: (a) failure to make the payment of any interest on the Notes when the
same becomes due and payable, and such failure continues for a period of 30
days; (b) failure to make the payment of any principal of, or premium, if any,
on, any of the Notes when the same becomes due and payable at its Stated
Maturity, upon acceleration, redemption, optional redemption, required
repurchase or otherwise; (c) failure to comply with the covenant described
under "--Merger, Consolidation and Sale of Property"; (d) failure to comply
with any other covenant or agreement in the Notes or in the Indenture (other
than a failure that is the subject of the foregoing clause (a), (b) or (c))
and such failure continues for 30 days after written notice is given to the
Company as provided below; (e) a default under
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any Debt by the Company or any Restricted Subsidiary that results in
acceleration of the maturity of such Debt, or failure to pay any such Debt at
maturity, in an aggregate amount greater than $5.0 million or its foreign
currency equivalent at the time (the "cross acceleration provisions"); (f) any
judgment or judgments for the payment of money in an aggregate amount in
excess of $5.0 million (or its foreign currency equivalent at the time) shall
be rendered against the Company or any Restricted Subsidiary and shall not be
waived, satisfied or discharged for any period of 60 consecutive days during
which a stay of enforcement shall not be in effect (the "judgment default
provisions"); and (g) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary (the "bankruptcy
provisions").
A Default under clause (d) is not an Event of Default until the Trustee or
the holders of not less than 25.0% in aggregate principal amount of the Notes
then outstanding notify the Company of the Default and the Company does not
cure such Default within the time specified after receipt of such notice. Such
notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event that with the giving of notice and the lapse of time would become an
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto.
The Indenture provides that if an Event of Default with respect to the Notes
(other than an Event of Default resulting from certain events involving
bankruptcy, insolvency or reorganization with respect to the Company) shall
have occurred and be continuing, the Trustee or the registered holders of not
less than 25.0% in aggregate principal amount of the Notes then outstanding
may declare to be immediately due and payable the principal amount of all the
Notes then outstanding, plus accrued but unpaid interest to the date of
acceleration. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Company shall
occur, such amount with respect to all the Notes shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Notes. After any such acceleration, but before a judgment
or decree based on acceleration is obtained by the Trustee, the registered
holders of a majority in aggregate principal amount of the Notes then
outstanding may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of
accelerated principal, premium or interest, have been cured or waived as
provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes, unless such holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the holders of a majority in aggregate principal amount of the Notes then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the
Notes.
No holder of Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or trustee, or
for any remedy thereunder, unless (a) such holder has previously given to the
Trustee written notice of a continuing Event of Default, (b) the registered
holders of at least 25.0% in aggregate principal amount of the Notes then
outstanding have made written request and offered reasonable indemnity to the
Trustee to institute such proceeding as trustee and (c) the Trustee shall not
have received from the registered holders of a majority in aggregate principal
amount of the Notes then outstanding a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of any
Note for enforcement of payment of the principal of, and premium, if any, or
interest on, such Note on or after the respective due dates expressed in such
Note.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the registered holders of a majority in aggregate principal amount of the
Notes then outstanding (including consents obtained in connection
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with a tender offer or exchange offer for the Notes) and any past default or
compliance with any provisions may also be waived (except a default in the
payment of principal, premium or interest and certain covenants and provisions
of the Indenture that cannot be amended without the consent of each holder of
an outstanding Note) with the consent of the registered holders of at least a
majority in aggregate principal amount of the Notes then outstanding. However,
without the consent of each holder of an outstanding Note, no amendment may,
among other things, (a) reduce the amount of Notes whose holders must consent
to an amendment or waiver, (b) reduce the rate of or extend the time for
payment of interest on any Note, (c) reduce the principal of or extend the
Stated Maturity of any Note, (d) make any Note payable in money other than
that stated in the Note, (e) impair the right of any holder of the Notes to
receive payment of principal of and interest on such holder's Notes on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's Notes, (f) release any security
interest that may have been granted in favor of the holders of the Notes, (g)
reduce the premium payable upon the redemption of any Note nor change the time
at which any Note may be redeemed, as described under "--Optional Redemption,"
(h) reduce the premium payable upon a Change of Control or, at any time after
a Change of Control has occurred, change the time at which the Change of
Control Offer relating thereto must be made or at which the Notes must be
repurchased pursuant to such Change of Control Offer, (i) at any time after
the Company is obligated to make a Prepayment Offer with the Excess Proceeds
from Asset Sales, change the time at which such Prepayment Offer must be made
or at which the Notes must be repurchased pursuant thereto, (j) at any time
after the earlier of the Cut-off Date and the termination of the acquisition
of Ellensburg, change the time at which the Ellensburg Put Option Offer must
be made or at which the Notes must be repurchased pursuant thereto or (k) make
any change to the subordination provisions of the Indenture that would
adversely affect the holders of the Notes.
Without the consent of any holder of the Notes, the Company and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add Guarantees with respect
to the Notes, to secure the Notes, to add to the covenants of the Company for
the benefit of the holders of the Notes or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder of the Notes, to make any change to the subordination
provisions of the Indenture that would limit or terminate the benefits
available to any holder of Senior Debt under such provisions or to comply with
any requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act.
No amendment may be made to the subordination provisions of the Indenture
that adversely affects the rights of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or their Representative)
consent to such change. The consent of the holders of the Notes is not
necessary under the Indenture to approve the particular form of any proposed
amendment. It is sufficient if such consent approves the substance of the
proposed amendment. After an amendment under the Indenture becomes effective,
the Company is required to mail to each registered holder of the Notes at such
holder's address appearing in the Security Register a notice briefly
describing such amendment. However, the failure to give such notice to all
holders of the Notes, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the
covenants described under "--Repurchase at the Option of Holders Upon a Change
of Control or Failure to Consummate the Ellensburg Acquisition" and "--Certain
Covenants," the operation of the cross acceleration provisions, the judgment
default provisions and the bankruptcy provisions with respect to Significant
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Subsidiaries, described under "--Events of Default" above and the limitations
contained in clauses (e) and (f) under the first paragraph of "--Merger,
Consolidation and Sale of Property" above ("covenant defeasance"). The Company
may exercise its legal defeasance option notwithstanding its prior exercise of
its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the Notes
may not be accelerated because of an Event of Default with respect thereto. If
the Company exercises its covenant defeasance option, payment of the Notes may
not be accelerated because of an Event of Default specified in clause (d)
(with respect to the covenants described under "--Certain Covenants"), (e),
(f) or (g) (with respect only to Significant Subsidiaries) under "--Events of
Default" above or because of the failure of the Company to comply with clauses
(e) and (f) under the first paragraph of "--Merger, Consolidation and Sale of
Property" above.
The legal defeasance option or the covenant defeasance option may be
exercised only if: (a) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the payment of principal of
and interest on the Notes to maturity or redemption, as the case may be; (b)
the Company delivers to the Trustee a certificate from a nationally recognized
firm of independent certified public accountants expressing their opinion that
the payments of principal and interest when due and without reinvestment on
the deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Notes to maturity
or redemption, as the case may be; (c) 123 days pass after the deposit is made
and during the 123-day period no Default described in clause (g) under "--
Events of Default" occurs with respect to the Company or any other Person
making such deposit which is continuing at the end of the period; (d) no
Default or Event of Default has occurred and is continuing on the date of such
deposit and after giving effect thereto; (e) such deposit does not constitute
a default under any other agreement or instrument binding on the Company; (f)
the Company delivers to the Trustee an Opinion of Counsel to the effect that
the trust resulting from the deposit does not constitute, or is qualified as,
a regulated investment company under the Investment Company Act of 1940; (g)
in the case of the legal defeasance option, the Company delivers to the
Trustee an Opinion of Counsel stating that (i) the Company has received from
the Internal Revenue Service a ruling, or (ii) since the date of the Indenture
there has been a change in the applicable Federal income tax law, to the
effect, in either case, that, and based thereon such Opinion of Counsel shall
confirm that, the holders of the Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and at
the same time as would have been the case if such defeasance had not occurred;
(h) in the case of the covenant defeasance option, the Company delivers to the
Trustee an Opinion of Counsel to the effect that the holders of the Notes will
not recognize income, gain or loss for Federal income tax purposes as a result
of such covenant defeasance and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred; and (i) the Company
delivers to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent to the defeasance and discharge of
the Notes have been complied with as required by the Indenture.
GOVERNING LAW
The Indenture and the Notes are governed by the internal laws of the State
of New York without reference to principles of conflicts of law.
THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such of the rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Telecommunications Business; or (b) Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary from any
Person other than an Affiliate of the Company; provided, however, that, in the
case of clause (b), such Restricted Subsidiary is primarily engaged in a
Telecommunications Business.
"Affiliate" of any specified Person means (a) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (b) any other Person who is a director
or officer of (i) such specified Person, (ii) any Subsidiary of such specified
Person or (iii) any Person described in clause (a) above. For the purposes of
this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the covenant described under "--
Certain Covenants--Limitation on Transactions with Affiliates," "--Limitation
on Asset Sales" and the definition of "Additional Assets" only, "Affiliate"
shall also mean any beneficial owner of shares representing 10.0% or more of
the total voting power of the Voting Stock (on a fully diluted basis) of the
Company or of rights or warrants to purchase such Voting Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Sale" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means
of a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (a) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares) or
(b) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
(other than, in the case of clauses (a) and (b) above, (i) any disposition by
a Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) for purposes of the covenant
described under "--Certain Covenants--Limitation on Asset Sales" only, (x) any
disposition that constitutes a Permitted Investment or Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments" and (y) contemporaneous exchanges by the Company or any
Restricted Subsidiary of Telecommunications Assets for other
Telecommunications Assets in the ordinary course of business; provided that
the applicable Telecommunications Assets received by the Company or such
Restricted Subsidiary have at least substantially equal Fair Market Value to
the Company or such Restricted Subsidiary (as evidenced by a Resolution of the
Board of Directors of the Company) and (iii) any disposition effected in
compliance with the first paragraph of the covenant described under "--Merger,
Consolidation and Sale of Property").
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at
any date of determination, (a) if such Sale and Leaseback Transaction is a
Capital Lease Obligation, the amount of Debt represented thereby according to
the definition of "Capital Lease Obligation" and (b) in all other instances,
the greater of (i) the Fair Market Value of the Property subject to such Sale
and Leaseback Transaction and (ii) the present value (discounted at the
interest rate borne by the Fixed Rate Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Leaseback Transaction (including any period
for which such lease has been extended).
"Average Life" means, as of any date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of the
product of the numbers of years (rounded to the nearest one-
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twelfth of one year) from the date of determination to the dates of each
successive scheduled principal payment of such Debt or redemption or similar
payment with respect to such Preferred Stock multiplied by the amount of such
payment by (b) the sum of all such payments.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or
any other amount due under such lease prior to the first date upon which such
lease may be terminated by the lessee without payment of a penalty. For
purposes of "--Certain Covenants--Limitation on Liens," a Capital Lease
Obligation shall be deemed secured by a Lien on the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of any class of corporate stock or
partnership interests or any other participations, rights, warrants, options
or other interests in the nature of an equity interest in such Person,
including Preferred Stock, but excluding any debt security convertible or
exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds received by
the Company from the issuance or sale (other than to a Subsidiary of the
Company or an employee stock ownership plan or trust established by the
Company or any such Subsidiary for the benefit of their employees) by the
Company of its Capital Stock (other than Disqualified Stock) after the Issue
Date, net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other
fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Change of Control" means the occurrence of any of the following events:
(a) prior to the first Public Equity Offering that results in a Public
Market, the Permitted Holders cease to be the "beneficial owners" (as
defined in Rule 13d-3 under the Exchange Act, except that a Person will be
deemed to have "beneficial ownership" of all shares that any such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of a majority of
the total voting power of the Voting Stock of the Company, whether as a
result of the issuance of securities of the Company, any merger,
consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities by the Permitted Holders or otherwise (for
purposes of this clause (a), the Permitted Holders will be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation so long as the Permitted Holders beneficially own,
directly or indirectly, in the aggregate a majority of the total voting
power of the Voting Stock of such parent corporation); or
(b) on or after the first Public Equity Offering that results in a Public
Market, if any "Person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act or any successor provisions to either
of the foregoing), including any group acting for the purpose of acquiring,
holding, voting or disposing of securities within the meaning of Rule 13d-
5(b)(1) under the Exchange Act, other than any one or more of the Permitted
Holders, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of 35.0% or more of the total voting power
of the Voting Stock of the Company; provided, however, that the Permitted
Holders are the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, in the aggregate of a lesser percentage of
the total voting power of the Voting Stock of the Company than such other
Person or group (for purposes of this clause (b), such Person or group
shall be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as such Person or group beneficially owns, directly
or indirectly, in the aggregate a majority of the total voting power of the
Voting Stock of such parent corporation); or
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(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same
proportions as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment or whose nomination for
election by the shareholders of the Company (i) was approved by a vote of a
majority of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved or (ii) was pursuant to agreements among
shareholders in effect on the Issue Date) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"CLEC Subsidiary" means (i) an Unrestricted Subsidiary engaged primarily in
providing telecommunications services as a competitive local exchange carrier
in areas within the United States where neither the Company nor any of its
other Subsidiaries provides such services as the incumbent local exchange
carrier and (ii) MJD TeleChoice Corp. to the extent it engages in no business
other than the business described in clause (i) and the ownership of Capital
Stock of Unrestricted Subsidiaries described in clause (i).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Price Protection Agreement" means, in respect of a Person, any
forward contract, commodity swap agreement, commodity option agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Consolidated Current Liabilities" means, as of any date of determination,
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), after eliminating (a) all
intercompany items between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries and (b) all current maturities of long-term
Debt.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries, without duplication,
(a) interest expense attributable to leases constituting part of a Sale and
Leaseback Transaction and to capital leases, (b) amortization of debt discount
and debt issuance cost, including commitment fees, (c) capitalized interest,
(d) non-cash interest expenses, (e) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Stock Dividends, (h) Preferred Stock
Dividends, (i) interest Incurred in connection with Investments in
discontinued operations, (j) interest accruing on any Debt of any other Person
to the extent such Debt is Guaranteed by the Company or any Restricted
Subsidiary and (k) the lesser of (i) cash contributions to any employee stock
ownership plan or similar trust and (ii) the interest or fees paid by such
plan or trust to any Person (other than the Company) in connection with Debt
Incurred by such plan or trust.
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"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income (a) any net income
(loss) of any Person (other than the Company) if such Person is not a
Restricted Subsidiary, except that (i) subject to the exclusion contained in
clause (d) below, there shall be included in such Consolidated Net Income up
to the aggregate amount of cash distributed by such Person during such period
to the Company or a Restricted Subsidiary as a dividend or other distribution,
whether or not reflected on the Company's income statement (subject, in the
case of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below and excluding any such cash
dividends or other distributions made by Financing Cooperatives that are
reinvested in such Financing Cooperatives) and (ii) the Company's equity in a
net loss of any such Person other than an Unrestricted Subsidiary for such
period shall be included in determining such Consolidated Net Income, (b) for
purposes of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments" only, any net income (loss) of any Person acquired by the
Company or any of its consolidated Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (c) any net
income (but not loss) of any Restricted Subsidiary, if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions, directly or indirectly, to the
Company, except that, subject to the exclusion contained in clause (d) below,
the Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a dividend or other
distribution, plus the amount of income accrued during such period in excess
of such distributed cash to the extent such excess income could be distributed
on the date of determination (subject, in the case of a dividend or other
distribution to another Restricted Subsidiary, to the limitation contained in
this clause), (d) any gain (but not loss) realized upon the sale or other
disposition of any Property of the Company or any of its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction) that
is not sold or otherwise disposed of in the ordinary course of business,
provided that, in the event of such a sale or other disposition of all or a
portion of the Capital Stock of a Financing Cooperative, any gain therefrom
shall be included in Consolidated Net Income in an amount not to exceed the
amount of dividends or other distributions from such Financing Cooperative
previously excluded from Consolidated Net Income pursuant to the parenthetical
in clause (a)(i) above, (e) any extraordinary gain or loss, (f) the cumulative
effect of a change in accounting principles and (g) any non-cash compensation
expense realized for grants of performance shares, stock options or other
stock awards to officers, directors and employees of the Company or any
Restricted Subsidiary. Notwithstanding the foregoing, for purposes of the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (c)(iv)
thereof.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the sum of the amounts that would appear on a consolidated balance sheet of
the Company and its consolidated Restricted Subsidiaries as the total assets
(less accumulated depreciation and amortization, allowances for doubtful
receivables, other applicable reserves and other properly deductible items) of
the Company and its Restricted Subsidiaries, after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of (without duplication): (a)
the excess of cost over fair market value of assets or businesses acquired;
(b) any revaluation or other write-up in book value of assets subsequent to
the last day of the fiscal quarter of the Company immediately preceding the
Issue Date as a result of a change in the method of valuation in accordance
with GAAP; (c) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items; (d) minority interests in consolidated Subsidiaries held by
Persons other than the Company or any Restricted Subsidiary; (e) treasury
stock; (f) cash or securities set aside and held in a sinking or other
analogous fund established for the purpose of redemption or other retirement
of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and (g) Investments in and assets of
Unrestricted Subsidiaries.
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"Consolidated Net Worth" means the total of the amounts shown on the
consolidated balance sheet of the Company and its Restricted Subsidiaries as
of the end of the most recent fiscal quarter of the Company ending at least 45
days prior to the taking of any action for the purpose of which the
determination is being made, as (a) the par or stated value of all outstanding
Capital Stock of the Company plus (b) paid-in capital or capital surplus
relating to such Capital Stock plus (c) any retained earnings or earned
surplus less (i) any accumulated deficit and (ii) any amounts attributable to
Disqualified Stock.
"Credit Facility" means, the credit agreement, dated as of March 30, 1998,
among the Company, the lenders party thereto in their capacities as lenders
thereunder, NationsBank of Texas, N.A., as syndication agent and Bankers Trust
Company, as administrative agent, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended, restated,
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder, provided
that such increase in borrowings is permitted by clause (b) of the second
paragraph of the covenant described under "--Certain Covenants--Limitation on
Debt," or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the debt under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Currency Exchange Protection Agreement" means, in respect of a Person, any
foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through
(c) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement following
payment on the letter of credit); (e) the amount of all obligations of such
Person with respect to the Repayment of any Disqualified Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock (but excluding,
in each case, any accrued dividends); (f) all obligations of the type referred
to in clauses (a) through (e) of other Persons and all dividends of other
Persons for the payment of which, in either case, such Person is responsible
or liable, directly or indirectly, as obligor, guarantor or otherwise,
including by means of any Guarantee; (g) all obligations of the type referred
to in clauses (a) through (f) of other Persons secured by any Lien on any
Property of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of the
value of such Property or the amount of the obligation so secured; and (h) to
the extent not otherwise included in this definition, Hedging Obligations of
such Person. The amount of Debt of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date. The amount
of Debt represented by a Hedging Obligation shall be equal to (i) zero if such
Hedging Obligation has been Incurred pursuant to clause (e) of the second
paragraph of the covenant described under "--Certain Covenants--Limitation on
Debt" or (ii) the notional amount of such Hedging Obligation if not Incurred
pursuant to such clause.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Designated Senior Debt" means (a) any Senior Debt that has, at the time of
determination, an aggregate principal amount outstanding of at least $25.0
million (including the amount of all undrawn commitments and matured and
contingent reimbursement obligations pursuant to letters of credit thereunder)
that is specifically designated in the instrument evidencing such Senior Debt
and is designated in a notice delivered by the Company to the holders or a
Representative of the holders of such Senior Debt and in an Officers'
Certificate delivered to the Trustee as "Designated Senior Debt" of the
Company for purposes of the Indenture and (b) the Credit Facility.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at the option of
the holder thereof) or otherwise (a) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (b) is or may become
redeemable or repurchaseable at the option of the holder thereof, in whole or
in part, or (c) is convertible or exchangeable at the option of the holder
thereof for Debt or Disqualified Stock, on or prior to, in the case of clause
(a), (b) or (c), the first anniversary of the Stated Maturity of the Notes.
"Disqualified Stock Dividends" means all dividends with respect to
Disqualified Stock of the Company held by Persons other than a Wholly Owned
Subsidiary. The amount of any such dividend shall be equal to the quotient of
such dividend divided by the difference between one and the maximum statutory
federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the Company.
"EBITDA" means, for any period, an amount equal to, for the Company and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income
for such period, plus the following to the extent reducing Consolidated Net
Income for such period: (i) the provision for taxes based on income or profits
or utilized in computing net loss, (ii) Consolidated Interest Expense, (iii)
depreciation, (iv) amortization of intangibles and (v) any other non-cash
items (other than any such non-cash item to the extent that it represents an
accrual of or reserve for cash expenditures in any future period) minus (b)
all non-cash items increasing Consolidated Net Income for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Restricted Subsidiary
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income of such Restricted Subsidiary
was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
shareholders.
"Equity Investors" means Carousel Capital Partners, L.P., Kelso Investment
Associates V., L.P. and Kelso Equity Partners V, L.P.
"Equity Sale" means (i) a Public Equity Offering following which a Public
Market exists or (ii) a Strategic Equity Investment.
"Event of Default" has the meaning set forth under "--Events of Default".
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any Property, the price that
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined, except as otherwise provided, (a) if such Property has a Fair
Market Value equal to or less than $5.0 million, by any Officer of the Company
or (b) if such Property has a Fair Market Value in excess of $5.0 million, by
a majority of the Board of Directors and evidenced by a Board Resolution,
dated within 30 days of the relevant transaction, delivered to the Trustee.
"Financing Cooperative" means CoBank ACB and Rural Telephone Finance
Cooperative.
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"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such
other entity as approved by a significant segment of the accounting profession
and (d) in the rules and regulations of the Commission governing the inclusion
of financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in
any other manner the obligee against loss in respect thereof (in whole or in
part); provided, however, that the term "Guarantee" shall not include (i)
endorsements for collection or deposit in the ordinary course of business or
(ii) a contractual commitment by one Person to invest in another Person for so
long as such Investment is reasonably expected to constitute a Permitted
Investment under clause (c) of the definition of Permitted Investments. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection
Agreement, Commodity Price Protection Agreement or any other similar agreement
or arrangement.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
however, that a change in GAAP that results in an obligation of such Person
that exists at such time, and is not theretofore classified as Debt, becoming
Debt shall not be deemed an Incurrence of such Debt; provided further,
however, that solely for purposes of determining compliance with "--Certain
Covenants--Limitation on Debt", amortization of debt discount shall not be
deemed to be the Incurrence of Debt, provided that in the case of Debt sold at
a discount, the amount of such Debt Incurred shall at all times be the
accreted value of such Debt.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided that such
firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account
or use of others, or otherwise) to, or Incurrence of a Guarantee of any
obligation of, or purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities or evidence of Debt issued by, any other
Person. For purposes of the covenants described under "--Certain Covenants--
Limitation on Restricted Payments" and "--Designation of Restricted and
Unrestricted Subsidiaries" and the definitions of "Restricted Payment," and
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary;
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provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary of an amount (if
positive) equal to (a) the Company's "Investment" in such Subsidiary at the
time of such redesignation less (b) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of the
net assets of such Subsidiary at the time of such redesignation. In
determining the amount of any Investment made by transfer of any Property
other than cash, such Property shall be valued at its Fair Market Value at the
time of such Investment.
"Issue Date" means the date on which the Offered Notes are initially issued.
"Leverage Ratio" means the ratio of (a) the outstanding Debt of the Company
and the Restricted Subsidiaries on a consolidated basis to (b) the Pro Forma
EBITDA for the last four full fiscal quarters preceding the date on which such
calculation is made.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind
or nature whatsoever on or with respect to such Property (including any
Capital Lease Obligation, conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing or any
Sale and Leaseback Transaction).
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Debt or other obligations
relating to the Property that is the subject of such Asset Sale or received in
any other non-cash form), in each case net of (a) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP, as a consequence of such Asset Sale, (b) all
payments made on any Debt that is secured by any Property subject to such
Asset Sale, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such Property, or which must by its
terms, or in order to obtain a necessary consent to such Asset Sale, or by
applicable law, be repaid out of the proceeds from such Asset Sale, (c) all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale and
(d) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the Property
disposed in such Asset Sale and retained by the Company or any Restricted
Subsidiary after such Asset Sale.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Executive Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means Daniel G. Bergstein, JED Associates, Inc., Meyer
Haberman, Jack H. Thomas, Eugene B. Johnson, Walter E. Leach, Jr., John P.
Duda, Carousel Capital Partners, L.P., Kelso Investment Associates V, L.P. and
Kelso Equity Partners V, L.P. (or any successor entity of the Equity Investors
controlled by the current principals of the Equity Investors or any entity
controlled by, or under common control with, the Equity Investors) and their
respective estates, spouses, ancestors and lineal descendants, the legal
representatives of any of the foregoing and the trustees of any bona fide
trusts of which the foregoing are the sole beneficiaries
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or the grantors, or any Person of which the foregoing "beneficially owns" (as
defined in Rule 13d-3 under the Exchange Act), individually or collectively
with any of the foregoing, at least a majority of the total voting power of
the Voting Stock of such Person.
"Permitted Investment" means any Investment by the Company or a Restricted
Subsidiary in (a) any Restricted Subsidiary or any Person that will, upon the
making of such Investment, become a Restricted Subsidiary, provided that the
primary business of such Restricted Subsidiary is a Telecommunications
Business; (b) a CLEC Subsidiary in an aggregate amount, together with the
aggregate amount of all other such Investments made in CLEC Subsidiaries
pursuant to this clause (b), not to exceed $65.0 million; provided, however,
that (i) in the first year following the Issue Date, the aggregate amount of
such Investments made during such year shall not exceed $5.0 million and (ii)
in each of the second, third, fourth and fifth years following the Issue Date,
the aggregate amount of such Investments made during such year shall not
exceed $15.0 million (each such Investment a "Permitted CLEC Investment," and
each such amount set forth in clauses (i) and (ii) a "Permitted CLEC
Investment Amount"); provided further, however, that any excess Permitted CLEC
Investment Amount over the total Permitted CLEC Investments made in any given
year may be added to the Permitted CLEC Investment Amount for any subsequent
year; (c) any Person if as a result of such Investment such Person is merged
or consolidated with or into, or transfers or conveys all or substantially all
its Property to, the Company or a Restricted Subsidiary, provided that such
Person's primary business is a Telecommunications Business; (d) Temporary Cash
Investments; (e) receivables owing to the Company or a Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or such Restricted Subsidiary deems reasonable under the
circumstances; (f) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(g) loans and advances to employees made in the ordinary course of business
consistent with past practices of the Company or a Restricted Subsidiary, as
the case may be, provided that such loans and advances do not exceed $1.0
million at any one time outstanding; (h) stock, obligations or other
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or a Restricted Subsidiary or in
satisfaction of judgments; (i) Capital Stock of a Financing Cooperative made
through the reinvestment of dividends or other distributions received from
such Financing Cooperative; (j) any Person to the extent such Investment
represents the non-cash portion of the consideration received in connection
with an Asset Sale consummated in compliance with the covenant described under
"--Certain Covenants--Limitation on Asset Sales"; and (k) other Investments
made for Fair Market Value that do not exceed $5.0 million outstanding at any
one time in the aggregate.
"Permitted Liens" means:
(a) Liens to secure Debt permitted to be Incurred under clause (b) of the
second paragraph of the covenant described under "--Certain Covenants--
Limitation on Debt";
(b) Liens to secure Debt permitted to be Incurred under clause (c) of the
second paragraph of the covenant described under "--Certain Covenants--
Limitation on Debt", provided that any such Lien may not extend to any
Property of the Company or any Restricted Subsidiary, other than the
Property acquired, constructed or leased with the proceeds of such Debt and
any improvements or accessions to such Property;
(c) Liens for taxes, assessments or governmental charges or levies on the
Property of the Company or any Restricted Subsidiary if the same shall not
at the time be delinquent or thereafter can be paid without penalty, or are
being contested in good faith and by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision that shall be required in conformity with GAAP shall
have been made therefor;
(d) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens, on the Property of the Company or
any Restricted Subsidiary arising in the ordinary course of business and
securing payment of obligations that are not more than 60 days past due or
are being contested in good faith and by appropriate proceedings;
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(e) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of
a like nature and Incurred in a manner consistent with industry practice,
in each case which are not Incurred in connection with the borrowing of
money, the obtaining of advances or credit or the payment of the deferred
purchase price of
Property and which do not in the aggregate impair in any material respect
the use of Property in the operation of the business of the Company and the
Restricted Subsidiaries taken as a whole;
(f) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
other Property of the Company or any Restricted Subsidiary; provided
further, however, that such Liens shall not have been Incurred in
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(g) Liens on the Property of a Person at the time such Person becomes a
Restricted Subsidiary; provided, however, that any such Lien may not extend
to any other Property of the Company or any other Restricted Subsidiary
that is not a direct Subsidiary of such Person; provided further, however,
that any such Lien was not Incurred in anticipation of or in connection
with the transaction or series of transactions pursuant to which such
Person became a Restricted Subsidiary;
(h) pledges or deposits by the Company or any Restricted Subsidiary under
workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company, or deposits for the payment of
rent, in each case Incurred in the ordinary course of business;
(i) utility easements, building restrictions and such other encumbrances
or charges against real Property as are of a nature generally existing with
respect to properties of a similar character;
(j) Liens existing on the Issue Date not otherwise described in clauses
(a) through (i) above;
(k) Liens on the Property of the Company or any Restricted Subsidiary to
secure any Refinancing, in whole or in part, of any Debt secured by Liens
referred to in clause (b), (f), (g) or (j) above; provided, however, that
any such Lien shall be limited to all or part of the same Property that
secured the original Lien (together with improvements and accessions to
such Property) and the aggregate principal amount of Debt that is secured
by such Lien shall not be increased to an amount greater than the sum of
(i) the outstanding principal amount, or, if greater, the committed amount,
of the Debt secured by Liens described under clause (b), (f), (g) or (j)
above, as the case may be, at the time the original Lien became a Permitted
Lien under the Indenture and (ii) an amount necessary to pay any fees and
expenses, including premiums and defeasance costs, incurred by the Company
or such Restricted Subsidiary in connection with such Refinancing; and
(l) Liens not otherwise permitted by clauses (a) through (k) above
encumbering assets having an aggregate Fair Market Value not in excess of
5.0% of Consolidated Net Tangible Assets, as determined based on the
consolidated balance sheet of the Company as of the end of the most recent
fiscal quarter ending at least 45 days prior to the date any such Lien
shall be Incurred.
"Permitted Refinancing Debt" means any Debt that Refinances any other Debt,
including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance
costs, related to such Refinancing, (b) the Average Life of such Debt is equal
to or greater than the Average Life of the Debt being Refinanced, (c) the
Stated Maturity of such Debt is no earlier than the Stated Maturity of the
Debt being
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Refinanced and (d) the new Debt shall not be senior in right of payment to the
Debt that is being Refinanced; provided, however, that Permitted Refinancing
Debt shall not include (x) Debt of a Subsidiary that Refinances Debt of the
Company or (y) Debt of the Company or a Restricted Subsidiary that Refinances
Debt of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any limited
liability company), association, partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to the payment
of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
"Preferred Stock Dividends" means all dividends with respect to Preferred
Stock of Restricted Subsidiaries held by Persons other than the Company or a
Wholly Owned Subsidiary. The amount of any such dividend shall be equal to the
quotient of such dividend divided by the difference between one and the
maximum statutory federal income rate (expressed as a decimal number between 1
and 0) then applicable to the issuer of such Preferred Stock.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation
with the independent certified public accountants of the Company, as the case
may be.
"Pro Forma EBITDA" means, for any period, the EBITDA of the Company and its
consolidated Restricted Subsidiaries, after giving effect to the following: if
(a) since the beginning of such period, the Company or any Restricted
Subsidiary shall have made any Asset Sale, Investment (by merger or otherwise)
in any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of Property, (b) the transaction giving rise to
the need to calculate Pro Forma EBITDA is such an Asset Sale, Investment or
acquisition or (c) since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made such an Asset Sale, Investment or acquisition, EBITDA for such
period shall be calculated after giving pro forma effect to such Asset Sale,
Investment or acquisition as if such Asset Sale, Investment or acquisition
occurred on the first day of such period.
For purposes of this definition, notwithstanding the definition of "pro
forma," EBITDA shall be calculated on a pro forma basis after giving effect to
cost savings resulting from employee terminations, facilities consolidations
and closings, standardization of employee benefits and compensation practices,
consolidation of property, casualty and other insurance coverage and policies,
standardization of sales representation commissions and other contract rates,
and reductions in taxes other than income taxes (collectively, "Cost Savings
Measures"), which cost savings the Company reasonably believes in good faith
would have been achieved during the period for which such calculation is being
made as a result of acquisitions of Property (regardless of whether such Cost
Savings Measures could then be reflected in pro forma financial statements
under GAAP, Regulation S-X promulgated by the Commission or any other
regulation or policy of the Commission), provided that both (i) such cost
savings and Cost Savings Measures were identified and such cost savings were
quantified in an Officers' Certificate delivered to the Trustee at the time of
the consummation of an acquisition of Property and such Officers' Certificate
states that such officers believe in good faith that actions will be commenced
or initiated within 90 days of such acquisition of Property to effect such
Cost Savings Measures and (ii) with respect to each acquisition of Property
completed prior to the 90th day preceding such date of determination, actions
were commenced or initiated by the Company or any of its Restricted
Subsidiaries within 90 days of such
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acquisition of Property to effect the Cost Savings Measures identified in such
Officers' Certificate (regardless, however, of whether the corresponding cost
savings have been achieved).
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the Indenture,
the value of any Property shall be its Fair Market Value.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Public Market" means any time after (a) a Public Equity Offering has been
consummated and (b) at least 15.0% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Purchase Money Debt" means Debt (a) consisting of the deferred purchase
price of property, conditional sale obligations, obligations under any title
retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the Property being
financed, and (b) Incurred to finance the acquisition, construction or lease
by the Company or a Restricted Subsidiary of such Property, including
additions and improvements thereto; provided, however, that such Debt is
Incurred within 180 days after the acquisition, construction or lease of such
Property by the Company or such Restricted Subsidiary.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, repurchase, redeem, defease or retire, or to issue
other Debt, in exchange or replacement for, such Debt. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Repay" means, in respect of any Debt, to repay, prepay, repurchase, redeem,
legally defease or otherwise retire such Debt. "Repayment" and "Repaid" shall
have correlative meanings. For purposes of the covenant described under "--
Certain Covenants--Limitation on Asset Sales" and clause (b) of the covenant
described under "--Certain Covenants--Limitation on Debt", Debt shall be
considered to have been Repaid only to the extent the related loan commitment,
if any, shall have been permanently reduced in connection therewith, without
the right on the part of the Company or any of its Subsidiaries, pursuant to
an agreement in effect at the time of such Repayment, to cause such commitment
to be reinstated or replaced with a substantially similar commitment.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior Debt.
"Restricted Payment" means (a) any dividend or distribution (whether made in
cash, securities or other Property) declared or paid on or with respect to any
shares of Capital Stock of the Company or any Restricted Subsidiary (including
any payment in connection with any merger or consolidation with or into the
Company or any Restricted Subsidiary), except for any dividend or distribution
that is made solely to the Company or a Restricted Subsidiary (and, if such
Restricted Subsidiary is not a Wholly Owned Subsidiary, to the other
shareholders of such Restricted Subsidiary on a pro rata basis or on a basis
that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro
rata basis) or any dividend or distribution payable solely in shares of
Capital Stock (other than Disqualified Stock) of the Company; (b) the
purchase, repurchase, redemption, acquisition or retirement for value of any
Capital Stock of the Company or any Affiliate of the Company (other than from
the Company or a Restricted Subsidiary) or any securities exchangeable for or
convertible into any such Capital Stock, including the exercise of any option
to exchange any Capital Stock (other than for or into Capital Stock of the
Company that is not Disqualified Stock); (c) the purchase, repurchase,
redemption, acquisition or retirement for value, prior to the date for any
scheduled maturity, sinking fund or amortization or other installment payment,
of any Subordinated Obligation (other than the purchase, repurchase or other
acquisition of any Subordinated Obligation purchased in
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anticipation of satisfying a scheduled maturity, sinking fund or amortization
or other installment obligation, in each case due within one year of the date
of acquisition); (d) any Investment (other than Permitted Investments) in any
Person; or (e) the issuance, sale or other disposition of Capital Stock of any
Restricted Subsidiary to a Person other than the Company or another Restricted
Subsidiary if the result thereof is that such Restricted Subsidiary shall
cease to be a Restricted Subsidiary, in which event the amount of such
"Restricted Payment" shall be the Fair Market Value of the remaining interest,
if any, in such former Restricted Subsidiary held by the Company and the other
Restricted Subsidiaries.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless such
Subsidiary shall have been designated an Unrestricted Subsidiary as permitted
or required pursuant to the covenant described under
"--Certain Covenants--Designation of Restricted and Unrestricted Subsidiaries"
and (b) an Unrestricted Subsidiary that is redesignated as a Restricted
Subsidiary as permitted pursuant to such covenant.
"S&P" means Standard & Poor's Ratings Service or any successor to the rating
agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to Property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such Property to another Person and the Company or a Restricted
Subsidiary, within two years of such transfer, leases it from such Person.
"Securities Act" means the Securities Act of 1933.
"Senior Debt" means (a) all obligations consisting of the principal,
premium, if any, and accrued and unpaid interest (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization
relating to the Company whether or not post-filing interest is allowed in such
proceeding) in respect of (i) Debt of the Company for borrowed money
(including all monetary obligations of the Company under the Credit Facility)
and (ii) Debt of the Company evidenced by notes, debentures, bonds or other
similar instruments permitted under the Indenture for the payment of which the
Company is responsible or liable; (b) all Capital Lease Obligations of the
Company and all Attributable Debt in respect of Sale and Leaseback
Transactions entered into by the Company; (c) all obligations of the Company
(i) for the reimbursement of any obligor on any letter of credit, bankers'
acceptance or similar credit transaction, (ii) under Hedging Obligations or
(iii) issued or assumed as the deferred purchase price of Property and all
conditional sale obligations of the Company and all obligations under any
title retention agreement permitted under the Indenture; and (d) all
obligations of other Persons of the type referred to in clauses (a), (b) and
(c) for the payment of which the Company is responsible or liable as
Guarantor; provided, however, that Senior Debt shall not include (A) Debt of
the Company that is by its terms expressly subordinate or pari passu in right
of payment to the Notes, including any Senior Subordinated Debt or any
Subordinated Obligations; (B) any Debt Incurred in violation of the provisions
of the Indenture (but, as to any such obligation, no such violation shall be
deemed to exist for purposes of this clause (B) if the holders of such
obligation or their Representative and the Trustee shall have received an
Officers' Certificate of the Company to the effect that the Incurrence of such
Debt does not (or, in the case of revolving credit indebtedness (including
revolving credit indebtedness under the Acquisition Facility), that the
Incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of the
Indenture); (C) accounts payable or any other obligations of the Company to
trade creditors created or assumed by the Company in the ordinary course of
business in connection with the obtaining of materials or services (including
Guarantees thereof or instruments evidencing such liabilities); (D) any
liability for federal, state, local or other taxes owed or owing by the
Company; (E) any obligation of the Company to any Subsidiary; or (F) any
obligations with respect to any Capital Stock of the Company.
"Senior Subordinated Debt" means the Notes and any other subordinated Debt
of the Company that specifically provides that such Debt is to rank pari passu
with the Notes and is not subordinated by its terms to any other subordinated
Debt or other obligation of the Company which is not Senior Debt.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-
X promulgated by the Commission.
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"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Strategic Equity Investment" means an equity investment made by a Strategic
Investor in the Company in an aggregate amount of at least $25.0 million and
that results in such Strategic Investor becoming the owner of at least 15.0%
of the total issued and outstanding common stock of the Company.
"Strategic Investor" means a corporation, partnership or other entity
engaged in one or more Telecommunications Businesses that has, or 80.0% or
more of the Voting Stock of which is owned by a Person that has, an equity
market capitalization, at the time of its initial investment in the Company,
in excess of $2.0 billion.
"Subordinated Obligation" means any Debt of the Company (whether outstanding
on the Issue Date or thereafter Incurred) that is subordinate or junior in
right of payment to the Notes pursuant to a written agreement to that effect
(which shall include the subordination section of any document governing such
Debt).
"Subsidiary" means, in respect of any Person, any corporation, company
(including any limited liability company), association, partnership, joint
venture or other business entity of which a majority of the total voting power
of the Voting Stock is at the time owned or controlled, directly or
indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries
of such Person or (c) one or more Subsidiaries of such Person.
"Telecommunications Assets" means any Property, including licenses and
applications, bids and agreements to acquire licenses, or other authority to
provide telecommunications services, previously granted, or
to be granted, by the Federal Communications Commission, used or intended for
use primarily in connection with a Telecommunications Business.
"Telecommunications Business" means any business substantially all the
revenues of which are derived from (a) transmitting, or providing services
relating to the transmission of, voice, video or data through owned or leased
wireline or wireless facilities, (b) the sale or provision of phone cards,
"800" services, voice mail, switching, enhanced telecommunications services,
telephone directory or telephone number information services or
telecommunications network intelligence or (c) any business ancillary or
directly related to the businesses referred to in clause (a) or (b), provided
that the determination of what constitutes a Telecommunications Business shall
be made in good faith by the Board of Directors.
"Temporary Cash Investments" means any of the following: (a) Investments in
U.S. Government Obligations maturing within one year of such Investment; (b)
Investments in time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued by
a bank or trust company organized under the laws of the United States of
America or any state thereof having capital, surplus and undivided profits
aggregating in excess of $500.0 million and whose long-term debt is rated "A-
3" or "A-" or higher according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)); (c) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (a) entered into with a bank meeting the qualifications
described in clause (b) above; (d) Investments in commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America with a rating at the time as of which any
Investment therein is made of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P (or such similar equivalent rating by at least
one "nationally recognized statistical rating organization" (as defined in
Rule 436 under the Securities Act)); and (e) direct obligations (or
certificates representing an ownership interest in such obligations) of any
state of the United States of America (including any agency or instrumentality
thereof) for the payment of which the full faith and credit of such state
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is pledged and which are not callable or redeemable at the issuer's option,
provided that (i) the long-term debt of such state is rated "A-3" or "A-" or
higher according to Moody's or S&P (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined
in Rule 436 under the Securities Act)) and (ii) such obligations mature within
180 days of the date of acquisition thereof.
"Unrestricted Subsidiary" means (a) MJD TeleChoice Corp.; (b) any Subsidiary
of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company that is
designated after the Issue Date as an Unrestricted Subsidiary as permitted or
required pursuant to the covenant described under "--Certain Covenants--
Designation of Restricted and Unrestricted Subsidiaries" and not thereafter
redesignated as a Restricted Subsidiary as permitted pursuant thereto.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable or redeemable at the issuer's option.
"Voting Stock" of any Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
the Voting Stock of which (except directors' qualifying shares) is at such
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the Exchange Offer to a holder of Old Notes that is
an individual citizen or resident of the United States or a United States
corporation that purchased the Old Notes pursuant to their original issue (a
"U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code") existing and proposed Treasury regulations,
and judicial and administrative determinations, all of which are subject to
change at any time, possibly on a retroactive basis. The following relates
only to the Old Notes, and the Exchange Notes received therefor, that are held
as "capital assets" within the meaning of Section 1221 of the Code by U.S.
Holders. It does not discuss state, local, or foreign tax consequences, nor
does it discuss tax consequences to subsequent purchasers (persons who did not
purchase the Old Notes pursuant to their original issue), or to categories of
holders that are subject to special rules, such as foreign persons, tax-exempt
organizations, insurance companies, banks, and dealers in stocks and
securities. Tax consequences may vary depending on the particular status of an
investor. No rulings will be sought from the Internal Revenue Service (the
"IRS") with respect to the federal income tax consequences of the Exchange
Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE OLD NOTES
FOR EXCHANGE NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS
TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE OLD NOTES
FOR EXCHANGE NOTES.
THE EXCHANGE OFFER
The exchange of Exchange Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Old Notes because the terms of
the Exchange Notes are not materially different from the terms of the Old
Notes, and accordingly (i) such exchange should not constitute a taxable event
to a U.S. Holder, (ii) no gain or loss should be realized by a U.S. Holder
upon receipt of an Exchange Note, (iii) the holding period of the Exchange
Note should include the holding period of the Old Note exchanged therefor and
(iv) the adjusted tax basis of the Exchange Note should be the same as the
adjusted tax basis of the Old Notes exchanged therefor immediately before the
exchange.
STATED INTEREST
Stated interest of a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or
retirement of a Note in an amount equal to the difference between the amount
realized on the sale, exchange or retirement and the tax basis of the Note.
Gain or loss recognized on the sale, exchange or retirement of a Note
(excluding amount received in respect of accrued interest, which will be
taxable as ordinary interest income) generally will be capital gain or loss.
The maximum rate of tax on long term capital gains on most capital assets held
by an individual, trust or estate for more than 18 months is 20%, and for most
capital assets held for more than one year and up to 18 months is 28%.
BACKUP WITHHOLDING
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest
thereon or the gross proceeds from the disposition thereof. This
102
<PAGE>
withholding generally applies if the U.S. Holder fails to furnish his or her
social security number or other taxpayer identification number in the
specified manner and in certain other circumstances. Any amount withheld from
a payment to a U.S. Holder under the backup withholding rules is allowable as
a credit against such U.S. Holder's federal income tax liability provided that
the required information is furnished to the IRS. Corporations and certain
other entities described in the Code and Treasury regulations are exempt from
backup withholding if their exempt status is properly established.
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of Old Notes that were acquired for the
account of such broker-dealer as a result of market-making or other trading
activities (other than Old Notes acquired directly from the Company or any
affiliate of the Company) may exchange such Old Notes for Exchange Notes
pursuant to the Exchange Offer; provided, that each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old notes were acquired by such broker-dealer as a result of market-
making or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after consummation of the Exchange Offer, it
will make this Prospectus, as it may be amended or supplemented from time to
time, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1998, all dealers effecting transactions in
the Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other holder of Exchange Notes. Exchange Notes received
by broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after consummation of the Exchange Offer, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer and to the Company's performance of,
or compliance with, the Registration Agreement (other than commissions or
concessions of any brokers or dealers) and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the Exchange Notes offered hereby will be
passed upon on behalf of the Company by Paul, Hastings, Janofsky & Walker LLP,
New York, New York.
103
<PAGE>
EXPERTS
The consolidated balance sheets of MJD Communications, Inc. and its
subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1997 have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
report, and are incorporated herein in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated balance sheets of Taconic Telephone Corp. and its
subsidiaries as of December 31, 1996 and 1997 and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
years in the three year period ended December 31, 1997 have been audited by
KPMG Peat Marwick LLP, independent auditors, as stated in their report, and
are incorporated herein, in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated balance sheets of Ellensburg Telephone Company and its
subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997 have been audited by
Moss Adams LLP, independent auditors, as stated in their report, and are
incorporated herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated balance sheets of Utilities, Inc. and its subsidiaries as
of December 31, 1996 and 1997 and the related consolidated statements of
income and retained earnings, changes in stockholder's equity, and cash flows
for each of the years in the three year period ended December 31, 1997 have
been audited by Berry, Dunn, McNeil & Parker, independent auditors, as stated
in their report, and are incorporated herein, in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The consolidated balance sheets of Chautauqua & Erie Telephone Corporation
as of December 31, 1996, and the related consolidated statements of income and
retained earnings, and cash flows for the year then ended have been audited by
Ernst & Young LLP, independent auditors, as stated in their report, and are
incorporated herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The balance sheets of Big Sandy Telecommunications, Inc. as of December 31,
1995 and 1994 and the related statements of income, changes in stockholder's
equity, and cash flows for each of the years then ended have been audited by
Kiesling Associates, independent auditors, as stated in their report, and are
incorporated herein, in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
104
<PAGE>
GLOSSARY
CABS--Carrier Access Billing System.
CAP (competitive access provider)--A company that provides its customers
with an alternative to the local exchange company for local transport or
private line and special access telecommunications services.
CATV--Cable Television.
Central offices--The switching centers or central switching facilities of
the local exchange companies.
Centrex--Business local service that gives the customer control of user
features.
CLEC--Competitive Local Exchange Carrier.
CSA--Carrier Serving Areas.
DBS--Direct Broadcast Satellite.
Dedicated--Telecommunications lines reserved for use by particular
customers.
Dialing Parity--The ability of a competing local or toll service provider to
provide telecommunications services in such a manner that customers have the
ability to route automatically, without the use of any access code, their
telecommunications to the service provider of the customer's designation and
the ability of customers to dial the same number of digits on a competitor's
network as on the LEC's network.
Digital--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits of 0 and 1. Digital transmission and switching technologies
employ a sequence of these pulses to represent information as opposed to the
continuously viable analog signal. The precise digital numbers minimize
distortion in the case of audio transmission.
ILEC--Incumbent Local Exchange Carrier.
Interconnection--Interconnection of facilities between or among local
exchange carriers, including potential physical colocation of one carrier's
equipment in the other carrier's premises to facilitate such interconnection.
InterLATA--Telecommunications services originating in a LATA and terminating
outside of that LATA.
IntraLATA--Telecommunications services originating and terminating within
the same LATA.
ISDN--Integrated Services Digital Network--High speed high capacity voice
and data communications.
ISP--Internet Service Provider.
IXC--Inter-exchange (or long distance) carrier.
LATA (local access and transport area)--A geographic area composed of
contiguous local exchanges, usually but not always, within a single state.
Local exchange--A geographic area determined by the appropriate state
regulatory authority in which calls generally are transmitted without toll
charges to the calling or called party.
LEC (local exchange carrier)--A company providing local telephone services.
Long distance carriers (interexchange carriers)--Long distance carriers
provide services between local exchanges on an interstate or intrastate basis.
A long distance carrier may offer services over its own or another carrier's
facilities.
105
<PAGE>
MACC--Mid America Computer Corporation.
MSA--Metropolitan Statistical Area.
NECA--National Exchange Carrier Association.
NGDLC--Next Generation Digital Line Concentrators.
NTCA--National Telephone Cooperative Association.
OPASTCO--Organization for the Protection and Advancement of Small
Telecommunications Companies.
PCS (personal communication service)--A telephone service with respect to
which a telephone number or numbers are assigned to a person rather than to a
fixed location thereby allowing that person to receive and make calls from any
location within the area serviced by the personal communication service.
POP--The estimates of the 1995 population of a Metropolitan Statistics Area
for which the FCC licensed communications systems or a Rural Service Area for
which the FCC licensed communications systems, as derived from the 1995
population estimates prepared by Strategic Mapping, Inc.
RBOC--Regional Bell Operating Company.
RLEC--Rural Local Exchange Carrier.
RSA--Rural Statistical Area.
RFTC--Rural Telephone Finance Cooperative.
SS7--Signal System 7--Digital signaling network for high speed processing of
toll calls.
Switch--A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
Unbundled Access--Access to unbundled elements of a telecommunications
services provider's network, including network facilities, equipment,
features, functions and capabilities, at any technically feasible point within
such network.
USAC--Universal Service Administration Corporation--FCC appointed
administrator of universal service support funds.
USSF--Universal Service Support Fund.
USTA--United States Telephone Association.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES:
Independent Auditors' Report........................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997........... F-4
Consolidated Statements of Operations for the Years ended December 31,
1995, 1996 and 1997................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
ended December 31, 1995, 1996 and 1997................................ F-6
Consolidated Statements of Cash Flows for the Years ended December 31,
1995, 1996 and 1997................................................... F-7
Notes to Consolidated Financial Statements............................. F-8
Consolidated Balance Sheets as of December 31, 1997 and March 31,
1998.................................................................. F-22
Consolidated Statements of Operations for the three months ended March
31, 1997 and 1998 (Unaudited)......................................... F-23
Consolidated Statements of Cash Flows for the three months ended March
31, 1997 and 1998 (Unaudited)......................................... F-24
Notes to Consolidated Financial Statements............................. F-25
TACONIC TELEPHONE CORP. AND SUBSIDIARIES:
Independent Auditors' Report........................................... F-27
Consolidated Balance Sheets as of December 31, 1996 and 1997........... F-28
Consolidated Statements of Operations for the Years ended December 31,
1995, 1996 and 1997 and the three months ended March 31, 1997 and
1998.................................................................. F-29
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1995, 1996 and 1997...................................... F-30
Consolidated Statements of Cash Flows for the Years ended December 31,
1995, 1996 and 1997 and the three months ended March 31, 1997 and
1998.................................................................. F-31
Notes to Consolidated Financial Statements............................. F-32
ELLENSBURG TELEPHONE COMPANY:
Independent Auditor's Report........................................... F-42
Consolidated Balance Sheet as of December 31, 1996 and 1997 and March
31, 1998.............................................................. F-43
Consolidated Statement of Income for the Years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1997 and 1998...... F-44
Consolidated Statement of Shareholders' Equity for the Years ended
December 31, 1995, 1996 and 1997 and the three months ended March 31,
1998.................................................................. F-45
Consolidated Statement of Cash Flows for the Years ended December 31,
1995, 1996 and 1997 and the three months ended March 31, 1997 and
1998.................................................................. F-46
Notes to Consolidated Financial Statements............................. F-47
UTILITIES, INC. AND SUBSIDIARIES:
Independent Auditors' Report........................................... F-52
Consolidated Balance Sheets as of December 31, 1997 and 1996 and March
31, 1998.............................................................. F-53
Liabilities and Stockholders' Equity................................... F-54
Consolidated Statements of Income for the Years Ended December 31,
1997, 1996 and 1995 and Three-Month Periods ended March 31, 1998 and
1997.................................................................. F-55
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 and Three-Month Period
ended March 31, 1998.................................................. F-56
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995 and Three-Month Periods ended March 31, 1998 and
1997.................................................................. F-57
Notes to Consolidated Financial Statements............................. F-58
CHAUTAUQUA & ERIE TELEPHONE CORPORATION:
Report of Independent Auditors......................................... F-70
Consolidated Balance Sheet as of December 31, 1996..................... F-71
Consolidated Statement of Income and Retained Earnings for the Year
ended December 31, 1996............................................... F-72
Consolidated Statement of Cash Flows for the Year ended December 31,
1996.................................................................. F-73
Notes to Consolidated Financial Statements............................. F-74
BIG SANDY TELECOMMUNICATIONS, INC.:
Independent Auditor's Report........................................... F-78
Balance Sheets as of December 31, 1995 and 1994........................ F-79
Statements of Income for the Years Ended December 31, 1995 and 1994.... F-81
Statements of Changes In Stockholders' Equity for the Years Ended
December 31, 1995 and 1994............................................ F-82
Statements of Cash Flows for the Years Ended December 31, 1995 and
1994.................................................................. F-83
Notes to Consolidated Financial Statements............................. F-84
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF MJD
COMMUNICATIONS, INC. AND SUBSIDIARIES.................................... P-1
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MJD Communications, Inc.:
We have audited the accompanying consolidated balance sheets of MJD
Communications, Inc. and subsidiaries as of December 31, 1996 and 1997, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MJD
Communications, Inc. and subsidiaries as of December 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Lincoln, Nebraska
February 27, 1998, except the last two
paragraphs of note 2 and note 16 which are
as of April 2, 1998 and note 17 which is as
of April 8, 1998
F-3
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 4,252,732 6,822,462
Accounts receivable, net of allowance for doubtful
accounts of $57,734 in 1996 and $49,204 in 1997... 4,889,608 8,312,778
Prepaid and other assets........................... 429,831 1,248,627
Income taxes recoverable........................... 27,047 757,001
----------- -----------
Total current assets............................. 9,599,218 17,140,868
----------- -----------
Property, plant and equipment, net................... 41,614,696 61,206,890
----------- -----------
Other assets:
Investments........................................ 8,388,677 11,423,521
Goodwill, net of amortization...................... 34,473,377 50,432,932
Loan origination costs, net of amortization........ 1,729,767 2,981,391
Covenant not to compete, net of amortization....... 343,750 987,500
Other.............................................. 870,918 439,677
----------- -----------
Total other assets............................... 45,806,489 66,265,021
----------- -----------
Total assets................................... $97,020,403 144,612,779
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................... $ 2,389,472 4,999,714
Current portion of long-term debt.................. 3,349,437 5,409,333
Demand notes payable............................... -- 879,000
Current portion of capital lease obligations....... 77,039 41,173
Current portion of early retirement benefits....... 22,809 14,283
Current portion of covenant not to compete......... 75,000 256,250
Accrued interest payable........................... 1,318,608 2,818,769
Accrued property taxes............................. 799,214 1,170,969
Other accrued liabilities.......................... 961,847 1,443,677
Deferred income taxes.............................. 10,042 --
----------- -----------
Total current liabilities........................ 9,003,468 17,033,168
----------- -----------
Long-term liabilities:
Long-term debt, net of current portion............. 70,608,553 126,502,779
Accrued interest payable........................... 748,924 --
Long-term capital lease obligation, net of current
portion........................................... 76,471 109,246
Early retirement benefits payable, net of current
portion........................................... 38,371 22,083
Covenant not to compete, net of current portion.... 281,250 756,250
Deferred income taxes.............................. 4,304,585 6,983,449
Unamortized investment tax credits................. 69,471 198,817
----------- -----------
Total long-term liabilities...................... 76,127,625 134,572,624
----------- -----------
Minority interest.................................... 1,798,837 2,827,010
----------- -----------
Redeemable preferred stock........................... 10,689,417 130,164
----------- -----------
Stockholders' deficit:
Common stock....................................... 384 881
Additional paid-in capital......................... -- 16,910,450
Retained deficit................................... (599,328) (26,861,518)
----------- -----------
Total stockholders' deficit...................... (598,944) (9,950,187)
----------- -----------
Total liabilities and stockholders' deficit.... $97,020,403 144,612,779
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Operating revenues:
Switched services....................... $22,762,965 27,875,832 39,257,363
Other................................... 1,986,030 2,382,550 3,714,955
----------- ---------- ----------
Total operating revenues.............. 24,748,995 30,258,382 42,972,318
----------- ---------- ----------
Operating expenses:
Plant operations........................ 3,746,124 4,181,469 6,856,901
Corporate and customer service.......... 6,432,591 7,576,699 11,580,804
Depreciation and amortization........... 5,757,403 6,644,157 8,777,103
Other................................... 1,406,845 1,657,772 3,318,258
----------- ---------- ----------
Total operating expenses.............. 17,342,963 20,060,097 30,533,066
----------- ---------- ----------
Income from operations.................... 7,406,032 10,198,285 12,439,252
----------- ---------- ----------
Other income (expense):
Net loss on sale of investments and
other assets........................... (29,457) (2,933) (19,229)
Interest income......................... 224,980 180,015 212,035
Dividend income......................... 663,575 666,760 1,182,124
Interest expense........................ (7,178,722) (7,533,563) (9,587,604)
Other nonoperating, net................. 33,088 (14,883) 139,972
----------- ---------- ----------
Total other expense................... (6,286,536) (6,704,604) (8,072,702)
----------- ---------- ----------
Earnings before income taxes and
extraordinary item....................... 1,119,496 3,493,681 4,366,550
Income tax expense........................ (547,072) (1,461,583) (1,875,634)
----------- ---------- ----------
Earnings before extraordinary item........ 572,424 2,032,098 2,490,916
Extraordinary item-loss on early
retirement of debt, net of income tax
benefit of $2,296,480.................... -- -- (3,611,624)
----------- ---------- ----------
Earnings (loss) before minority interest.. 572,424 2,032,098 (1,120,708)
Minority interest in income of
subsidiaries............................. (5,730) (32,698) (61,635)
----------- ---------- ----------
Net earnings (loss)....................... $ 566,694 1,999,400 (1,182,343)
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCKHOLDERS'
COMMON PAID-IN EARNINGS EQUITY
STOCK CAPITAL (DEFICIT) (DEFICIT)
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994...... $380 191,770 (524,727) (332,577)
Net earnings.................... -- -- 566,694 566,694
Issuance of common stock........ 4 40,696 -- 40,700
Increase in value of put
warrants....................... -- -- (19,700) (19,700)
Accretion of preferred stock.... -- (83,104) -- (83,104)
---- ---------- ----------- -----------
Balance, December 31, 1995...... 384 149,362 22,267 172,013
Net earnings.................... -- -- 1,999,400 1,999,400
Increase in value of put
warrants....................... -- -- (597,335) (597,335)
Accretion of preferred stock.... -- (149,362) (2,023,660) (2,173,022)
---- ---------- ----------- -----------
Balance, December 31, 1996...... 384 -- (599,328) (598,944)
Net loss........................ -- -- (1,182,343) (1,182,343)
Issuance of common stock........ 488 15,874,616 -- 15,875,104
Conversion of preferred stock... 9 112,334 -- 112,343
Capital contribution............ -- 923,500 -- 923,500
Repurchase of preferred stock... -- -- (24,540,429) (24,540,429)
Preferred stock dividends paid.. -- -- (279,394) (279,394)
Increase in value of put
warrants....................... -- -- (260,024) (260,024)
---- ---------- ----------- -----------
Balance, December 31, 1997...... $881 16,910,450 (26,861,518) (9,950,187)
==== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)..................... $ 566,694 1,999,400 (1,182,343)
----------- ----------- -----------
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 6,002,980 6,914,258 9,093,037
Provision for uncollectible revenue... 165,167 4,812 --
Deferred income taxes................. 707,667 428,970 207,397
Direct financing lease................ (36,403) -- --
Deferred patronage dividends.......... (329,350) (303,501) (585,237)
Minority interest in income of
subsidiaries......................... 5,730 32,698 61,635
Net loss on sale of investments and
other assets......................... 29,457 2,993 16,715
Loss on early retirement of debt...... -- -- 1,864,428
Amortization of investment tax
credits.............................. (18,299) (16,135) (30,879)
Changes in assets and liabilities
arising from operations, net of
acquisitions:
Accounts receivable................. 525,388 (464,560) (1,563,230)
Prepaid and other assets............ (11,150) (18,703) (105,885)
Accounts payable.................... (571,531) 773,023 1,663,873
Accrued interest payable............ 72,560 105,463 720,369
Accrued liabilities................. 82,464 337,602 636,228
Income taxes recoverable............ (1,151,962) (24,373) (956,119)
----------- ----------- -----------
Total adjustments................. 5,472,718 7,772,547 11,022,332
----------- ----------- -----------
Net cash provided by operating
activities....................... 6,039,412 9,771,947 9,839,989
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of telephone properties,
net.................................... (110,234) (11,261,934) (30,845,006)
Acquisition of property, plant and
equipment.............................. (4,438,891) (8,438,739) (8,239,237)
Proceeds from sale of property, plant
and equipment.......................... 55,990 70,180 120,660
Salvage proceeds less cost of removal... -- -- (22,673)
Distributions from investments.......... -- 8,513 62,770
Payment on covenant not to compete...... -- (18,750) (93,750)
Acquisition of investments.............. (23,718) (148,804) (240,522)
Proceeds from sale of investments....... -- -- 402,706
Payments received on direct financing
leases................................. 35,546 -- 248,829
Increase in other assets................ -- -- (360,737)
----------- ----------- -----------
Net cash used in investing
activities....................... (4,481,307) (19,789,534) (38,966,960)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt................................... -- 12,823,684 71,134,318
Repayment of long-term debt............. (2,868,211) (3,672,890) (22,104,295)
Net proceeds from issuance of preferred
stock.................................. -- 1,815,558 --
Repurchase of preferred stock and
warrants............................... -- -- (31,487,339)
Dividends paid to preferred
stockholders........................... -- -- (279,394)
Net proceeds from the issuance of common
stock.................................. 40,700 -- 15,875,104
Loan origination costs.................. -- (326,072) (1,949,205)
Payment of early retirement benefits.... (23,468) (20,646) (24,814)
Dividends paid to minority
stockholders........................... (6,000) (4,020) (3,736)
Release of restricted funds............. -- -- 560,654
Repayment of capital lease obligation... (45,650) (16,933) (24,592)
----------- ----------- -----------
Net cash provided by (used in)
financing activities............. (2,902,629) 10,598,681 31,696,701
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (1,344,524) 581,094 2,569,730
Cash and cash equivalents, beginning of
year................................... 5,016,162 3,671,638 4,252,732
----------- ----------- -----------
Cash and cash equivalents, end of year.. $ 3,671,638 4,252,732 6,822,462
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
MJD Communications, Inc. (MJD) provides management services to its wholly-
owned subsidiaries: S T Enterprises, Ltd. (STE); MJD Ventures, Inc.
(Ventures); MJD Services Corp. (Services); MJD Holdings Corp. (Holdings) and
MJD Capital Corp. STE, Ventures, Services and Holdings also provide management
services to their wholly-owned subsidiaries.
Collectively, the wholly-owned subsidiaries of STE, Ventures, Services and
Holdings primarily provide telephone local exchange services in various
states. Operations also include resale of long distance services, cable
services, equipment sales, and installation and repair services. MJD Capital
Corp. leases equipment to other subsidiaries of MJD.
STE's wholly-owned subsidiaries include Sunflower Telephone Company
(Sunflower); Northland Telephone Company of Maine, Inc. and Northland
Telephone Company of Vermont, Inc. (The Northland Companies); S T
Communications, Inc.; S T Paging, Inc.; and S T Long Distance, Inc. (S T Long
Distance) Venture's wholly-owned subsidiaries include Sidney Telephone Company
(Sidney), and C-R Communications, Inc. (C-R). Services' wholly-owned
subsidiaries include Bluestem Telephone Company (Bluestem); Big Sandy Telecom,
Inc. (Big Sandy); Columbine Telecom Company (Columbine); and Odin Telephone
Exchange, Inc. (Odin). Holdings' wholly-owned subsidiaries include Kadoka
Telephone Co. (Kadoka) and Chautauqua & Erie Telephone Corporation (C&E).
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of MJD
Communications, Inc. and its subsidiaries (the Company). All intercompany
transactions and accounts have been eliminated in consolidation.
The consolidated financial statements have been prepared using generally
accepted accounting principles applicable to regulated entities. The Company's
telephone subsidiaries follow the accounting for regulated enterprises
prescribed by Statement of Financial Accounting Standards No. 71, Accounting
for the Effects of Certain Types of Regulation (SFAS No. 71). This accounting
recognizes the economic effects of rate regulation by recording costs and a
return on investment as such amounts are recovered through rates authorized by
regulatory authorities. Accordingly, SFAS No. 71 requires the Company's
telephone subsidiaries to depreciate telephone plant over useful lives that
would otherwise be determined by management. SFAS No. 71 also requires
deferral of certain costs and obligations based upon approvals received from
regulators to permit recovery of such amounts in future years. The Company's
telephone subsidiaries periodically review the applicability of SFAS No. 71
based on the developments in their current regulatory and competitive
environments.
Revenue Recognition From Telephone Operations
Revenues from telephone services are recognized from primarily three
sources, access, pooling and miscellaneous. Local access charges are billed to
local end users under tariffs approved by each state's Public Utilities
Commission. Access revenues are derived on the intrastate jurisdiction by
billing access charges to interexchange carriers and to regional bell
operating companies. These charges are billed based on toll or access tariffs
approved by the local state's Public Utilities Commission. Access charges for
the interstate jurisdiction are billed in accordance with tariffs filed by the
National Exchange Carrier Association (NECA) or by the individual company and
approved by the Federal Communications Commission.
F-8
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenues are determined on a bill and keep basis or a pooling basis. If on a
bill and keep basis, the company bills the charges to either the access
provider or the end user and keeps the revenue. If the company participates in
a pooling environment (interstate or intrastate), the toll or access billed
are contributed to a revenue pool. The revenue is then distributed to
individual companies based on their company specific revenue requirement. This
distribution is based on individual state Public Utilities Commission's
(intrastate) or Federal Communications Commission's (interstate) approved
separation rules and rates of return. Distribution from these pools can change
relative to changes made to expenses, plant investment or rate of return. Some
companies participate in federal and certain state universal service programs
that are pooling in nature but are regulated by rules separate from those
described above. These rules vary by state.
Miscellaneous revenues are derived by billing to either end users, access
providers or other parties, services such as directory advertising, billing
and collecting services, rent, etc. These services are typically billed under
contract or under tariff supervision.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and temporary cash
investments and trade receivables. The Company places its cash and temporary
cash investments with high quality financial institutions. Concentrations of
credit risk with respect to trade receivables are limited due to the Company's
large number of customers in several states. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
utilizes cash management accounts that invest excess funds in interest-bearing
securities.
Investments
Investments consist of stock in CoBank, ACB (CoBank), Rural Telephone Bank,
the Rural Telephone Finance Cooperative (RTFC), Southern Illinois Cellular,
Inc. and other minority equity investments in nonregulated entities. Such
investments are stated at cost and approximate fair value.
The Company currently receives patronage dividends for its investments in
CoBank stock and RTFC stock, a portion of which are paid currently and a
portion of which are deferred. The deferred portion of the patronage dividend
is included as part of the basis of the investment until paid. The Rural
Telephone Bank investment pays dividends annually based on the discretion of
its Board of Directors.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Repairs and maintenance
are charged to expense as incurred; major renewals and improvements are
capitalized. For telephone companies, the original cost of depreciable
property retired, together with removal cost, less any salvage realized, is
charged to accumulated depreciation. For all other companies, the original
cost and accumulated depreciation are removed from the accounts and any gain
or loss is included in the results of operations. The telephone companies
capitalize estimated costs of debt and equity funds used for construction
purposes for projects greater than $100,000.
F-9
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation is determined using the straight-line method for financial
reporting purposes. Depreciation expense was $5,020,699, $5,787,499 and
$7,465,891 for the years ended December 31, 1995, 1996 and 1997, respectively.
Loan Origination Costs
Loan origination costs are being amortized using the straight-line method
which approximates the effective interest rate method over the life of the
loans ranging from ten to fifteen years. Accumulated amortization of loan
origination costs was $478,785 and $664,753 at December 31, 1996 and 1997,
respectively.
Covenants not to Compete
The covenants not to compete are being amortized over their contracted life
of five years. Accumulated amortization of covenants not to compete was
$31,250 and $137,500 at December 31, 1996 and 1997, respectively.
Impairment of Long-Lived Assets and Excess Cost on Net Assets Acquired
(Goodwill)
In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The carrying value of long-lived assets, including
allocated goodwill, is reviewed for impairment at least annually, or whenever
events or changes in circumstances indicate that such carrying value may not
be recoverable, by assessing the recoverability of such carrying value through
estimated undiscounted future net cash flows expected to be generated by the
assets or the acquired business. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. The adoption of SFAS No. 121 did not affect the Company's
consolidated financial position or results of operations.
Goodwill consists of the difference between the purchase price incurred in
acquisitions using the purchase method of accounting and the fair value of net
assets acquired. Goodwill is being amortized using the straight-line method
over a 40-year period. Accumulated amortization of goodwill was $2,361,677 and
$3,555,340 at December 31, 1996 and 1997, respectively.
Income Taxes
The Company files a consolidated income tax return with its subsidiaries.
Current income tax expense is allocated to MJD and its subsidiaries based upon
their relative income or loss. The current income tax expense or benefit is
received from or paid to the respective subsidiaries. Deferred income taxes
are calculated on a separate company basis.
Investment tax credits were deferred and are taken into income over the
estimated useful lives of the assets that gave rise to the credits.
Stock-based Compensation
During 1996 the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation. As allowed by SFAS No. 123, the Company accounts for employee
stock compensation plans in accordance with Accounting Principles Board No.
25, Accounting for Stock Issued to Employees, whereby no compensation expense
is recognized in the consolidated financial statements.
F-10
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(2) ACQUISITIONS
Certain subsidiaries of MJD acquired telephone properties through four
separate acquisitions in 1996 and four acquisitions in 1997. There were no
acquisitions in 1995.
On January 19, 1996, Ventures acquired 100% of the outstanding common stock
of Sidney for $2,959,490. On June 3, 1996, Big Sandy acquired certain
telephone exchanges of Big Sandy Telecommunications, Inc. through the purchase
of certain assets for $3,114,055. On August 1, 1996, Bluestem acquired certain
telephone exchanges of United Telephone Company through the purchase of
certain assets for $3,885,348. On August 1, 1996, Services acquired 85% of the
outstanding common stock of Odin through the purchase of 100% of the
outstanding common stock of Penta-Gen, which owned Odin, for $5,038,596.
Penta-Gen was subsequently merged into Services.
On January 1, 1997, Holdings acquired 100% of the outstanding common stock
of Kadoka for $2,949,404. On April 18, 1997, Services acquired certain
telephone exchanges of Columbine Telephone Company, Inc. through the purchase
of certain assets for $4,642,672. On July 31, 1997, Holdings acquired 100% of
the outstanding common stock of C&E including its wholly-owned subsidiaries
for $22,000,000. On October 15, 1997, Ventures acquired 100% of the
outstanding common stock of C-R for $3,994,664.
Acquisition costs were $411,428 and $625,777 in 1996 and 1997, respectively.
The acquisitions have been accounted for using the purchase method and,
accordingly, the results of their operations have been included in the
Company's consolidated financial statements from the date of acquisition. The
excess of the purchase price and acquisition costs over the fair value of the
net identifiable assets acquired was $6,650,987 and $17,337,532 and has been
recognized as goodwill in 1996 and 1997, respectively. Goodwill is being
amortized using the straight-line method over forty years.
The allocation of the total net purchase price for the 1996 and 1997
acquisitions follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Current assets................................... $ 1,606,576 5,947,244
Property, plant and equipment.................... 5,055,069 18,905,919
Excess cost over fair value of net assets
acquired........................................ 6,650,987 17,337,532
Other assets..................................... 4,270,998 3,569,292
Current liabilities.............................. (2,149,748) (1,093,159)
Noncurrent liabilities........................... (24,965) (10,454,311)
----------- -----------
Total net purchase price....................... $15,408,917 34,212,517
=========== ===========
</TABLE>
The Company has entered into two contracts and two letters of intent to
acquire four separate telephone properties as follows: Taconic Telephone
Corp.; Ellensburg Telephone Company; Chouteau Telephone Company; and
Utilities, Inc. except its subsidiaries, Seacoast Cellular and Western Maine
Cellular. On March 30, 1998 the acquisition of Taconic was consummated for a
purchase price of $67.5 million. The remaining acquisitions are anticipated to
be consummated during 1998 for a total purchase price of approximately $163.5
million. These contemplated acquisitions will be accounted for using the
purchase method. The excess of purchase price and acquisition costs over the
fair value of the net identifiable assets acquired for all four acquisitions
is estimated to be approximately $161.2 million. The Company plans to finance
these acquisitions primarily with long-term debt.
F-11
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following unaudited pro forma information presents the combined results
of operations of the Company as though the acquisitions in 1996 and 1997 and
those acquisitions contemplated in 1998 occurred on January 1, 1996 and 1997,
respectively. These results include certain adjustments, including
amortization of goodwill, increased interest expense on debt related to the
acquisitions and related income tax effects. The pro forma financial
information does not necessarily reflect the results of operations if the
acquisitions had been in effect at the beginning of each period or which may
be attained in the future.
<TABLE>
<CAPTION>
PRO FORMA YEARS ENDED DECEMBER 31
----------------------------------
1996 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Revenues............................... $ 97,653,533 104,606,454
Earnings (loss) before extraordinary
item ................................. (7,601,154) (5,923,193)
Net loss............................... (10,338,442) (12,275,052)
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment as of December 31, 1996 and 1997
follows:
<TABLE>
<CAPTION>
ESTIMATED
LIFE (IN YEARS) 1996 1997
--------------- ------------ -----------
<S> <C> <C> <C>
Land............................ -- $ 523,694 878,752
Buildings....................... 30 5,808,308 8,648,890
Telephone equipment............. 10 - 25 82,166,545 112,356,634
Cable equipment................. 3 - 15 208,367 397,965
Furniture and equipment......... 5 - 10 1,633,250 3,196,328
Vehicles and equipment.......... 3 - 5 3,161,187 4,769,253
Computer software............... 5 174,656 246,288
------------ -----------
Total property, plant and
equipment.................... 93,676,007 130,494,110
Accumulated depreciation........ (52,061,311) (69,287,220)
------------ -----------
Net property, plant and
equipment.................... $ 41,614,696 61,206,890
============ ===========
</TABLE>
(4) INVESTMENTS
The investments are stated at cost and consist of the following at December
31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Southern Illinois Cellular, Inc. stock............... $4,551,800 4,551,800
Rural Telephone Bank stock........................... 2,348,104 2,364,698
CoBank stock and unpaid deferred CoBank patronage.... 1,108,541 1,689,416
RTFC secured certificates and unpaid deferred RTFC
patronage........................................... 127,422 373,248
Other minority equity investments.................... 252,810 2,444,359
---------- ----------
Total investments.................................. $8,388,677 11,423,521
========== ==========
</TABLE>
F-12
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5)LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Senior notes payable to CoBank:
Fixed rates ranging from 7.29% to 9.32%, due
1998 to 2004................................... $59,102,344 99,058,093
Variable rates ranging from 7.50% to 7.75% at
December 31, 1997, due 2002 to 2012............ -- 21,872,315
Senior notes payable to RTFC:
Fixed rates ranging from 8.8% to 9.2%, due
2011........................................... 1,451,344 1,399,216
Variable rates ranging from 6.45% to 6.65% at
December 31, 1997, due 2011 to 2012............ 984,840 5,686,309
Subordinated promissory notes payable, 8%, unless
deferred, in which case interest shall accrue at
10%, due 2000.................................... -- 3,500,000
Subordinated notes payable, 18%, net of discount
of $716,171, paid in 1997........................ 10,845,962 --
Other debt, 5.75% to 9.5%, due 1998 to 2002....... 1,573,500 396,179
----------- -----------
Total outstanding long-term debt.............. 73,957,990 131,912,112
Less current portion.............................. (3,349,437) (5,409,333)
----------- -----------
Total long-term debt, net of current portion.. $70,608,553 126,502,779
=========== ===========
</TABLE>
The approximate aggregate maturities of long-term debt for each of the five
years subsequent to December 31, 1997 are: 1998--$5,409,000; 1999--$7,170,000;
2000--$12,395,000; 2001--$9,641,000; 2002--$10,356,000; and thereafter
$86,941,000.
Certain debt agreements contain various restrictive covenants which, among
others, require that the Company maintain certain financial ratios. The
Company received waivers related to noncompliance with certain covenants of
the debt agreements. As a result of receiving the waivers, it is management's
opinion that the Company has complied with all such covenants.
The Company also has $879,000 unsecured demand notes payable to various
individuals and entities with interest payable at 5.75%.
The Company has available four lines of credit, with a total maximum limit
of $2,750,000, expiring 1998 to 2002.
Substantially all assets of the Company are collateralized to secure the
long-term debt and lines of credit.
As described in note 16, the Company refinanced its long-term debt on March
30, 1998.
(6)EMPLOYEE BENEFIT PLAN
The Company participates in a voluntary 401(k) savings plan (the Plan) of
STE that covers all eligible employees. Each plan year, the Company
contributes to the Plan an amount of matching contributions determined by the
Company at its discretion. For the plan years ended December 31, 1996 and
1997, the Company matched 100% of each employee's contribution up to 3% of
compensation and 50% of additional contributions up to 6%. The Plan also
allows for a profit sharing contribution that is made based upon management
discretion. Total Company contributions to the Plan were $267,799, $324,873,
and $422,069, for the years ended December 31, 1995, 1996, and 1997,
respectively.
F-13
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
C&E also sponsors a defined contribution 401(k) retirement savings plan for
union employees. C&E matches contributions to this plan based upon a
percentage of pay of all qualified personnel. Contributions to the plan were
$12,543 in 1997.
(7)INCOME TAXES
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal................................. $ (98,033) 913,116 1,425,059
State................................... (44,263) 135,632 274,057
--------- --------- ---------
Total current income tax expense
(benefit)............................ (142,296) 1,048,748 1,699,116
--------- --------- ---------
Investment tax credits.................... (18,299) (16,135) (30,879)
--------- --------- ---------
Deferred:
Federal................................. 560,823 338,243 130,190
State................................... 146,844 90,727 77,207
--------- --------- ---------
Total deferred income tax expense..... 707,667 428,970 207,397
--------- --------- ---------
Total income tax expense.............. $ 547,072 1,461,583 1,875,634
========= ========= =========
</TABLE>
Total income tax expense in 1995, 1996, and 1997 was greater than that
computed by applying U. S. Federal income tax rates to earnings before income
taxes. The reasons for the differences are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense............ $380,628 1,187,852 1,484,627
State income tax, net of federal income tax
benefit................................... 67,703 148,738 231,834
Amortization of investment tax credits..... (18,299) (16,135) (30,879)
Goodwill amortization...................... 105,311 103,707 185,690
Other...................................... 11,729 37,421 4,362
-------- --------- ---------
Total income tax expense................. $547,072 1,461,583 1,875,634
======== ========= =========
</TABLE>
F-14
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1997 are presented on below:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Deferred tax assets:
State tax carryforward.............................. $ -- 123,126
Employee benefits................................... 23,768 14,281
Allowance for doubtful accounts..................... 5,507 --
Alternative minimum tax credits..................... 292,691 720,667
Warrants issued in connection with early retirement
of debt............................................ -- 291,525
---------- ---------
Total gross deferred tax assets................... 321,966 1,149,599
Less, valuation allowance............................. -- --
---------- ---------
Net deferred tax assets............................... 321,966 1,149,599
---------- ---------
Deferred tax liabilities:
Property, plant and equipment, principally due to
depreciation differences........................... 1,924,895 4,288,167
Goodwill, due to amortization differences........... 768,199 1,172,089
Basis in investments................................ 1,943,499 2,672,792
---------- ---------
Total gross deferred tax liabilities.............. 4,636,593 8,133,048
---------- ---------
Net deferred tax liabilities.......................... $4,314,627 6,983,449
========== =========
</TABLE>
As a result of the nature and amount of the temporary differences which give
rise to the gross deferred tax liabilities and the Company's expected taxable
income in future years, no valuation allowance for deferred tax assets as of
December 31, 1996 and 1997 was necessary. The alternative minimum tax credits
carryforward indefinitely and can be used in a year when regular tax exceeds
alternative minimum tax.
(8)MINORITY INTEREST
The subordinated notes included detachable warrants to purchase 10,000
shares of STE's common stock at the stated par value of $.01 per share. In
conjunction with the retirement of the subordinated notes in 1997, STE issued
additional warrants to purchase 2,857 shares of STE's common stock. This
noncash transaction was recognized as part of the loss on the early retirement
of debt described in note 9. The warrants are currently exercisable, have no
expiration date and contain certain put and call provisions. The warrants may
not be put back to STE prior to July 31, 1999. STE may call the warrants
beginning after July 31, 1999. The agreement stipulates that the put/call
price of the warrants shall be equal to STE's net equity, as defined in the
agreement, multiplied by the ratio of exercisable warrants to the number of
shares of common stock outstanding on a fully-diluted basis on the date of the
put or call.
The Company recorded the warrants based on the fair value of STE's common
stock as determined by management, at the issuance date of the put warrants.
On an annual basis, the warrants are valued and any increase or decrease in
value is recognized in minority interest and charged to retained earnings
using the straight-line method over the remaining period until STE or the
warrant holders are allowed under the agreement to call/put the warrants as
mentioned above. At December 31, 1996 and 1997, the estimated fair value of
the warrants, as determined by management, was $3,000,000 and $3,455,500,
respectively.
In addition, on January 19, 1996, the Company issued warrants to purchase
7.69 shares representing 7.14% of Sidney's common stock. The warrants carry an
exercise price of $.01 per share and have no expiration date.
F-15
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The warrants are not exercisable until the RTFC loans are repaid or in the
event of a sale, merger, consolidation, or other transaction involving Sidney
pursuant to which such loans are to be repaid, refinanced, or substantially
all of the equity interests in Sidney are transferred. There are no put/call
provisions associated with these warrants.
As discussed in note 16, the Company was notified by the holders of all the
warrants of their intention to exercise the warrants.
(9)STOCKHOLDERS' EQUITY AND RECAPITALIZATION
Effective July 31, 1997, a recapitalization of the Company was completed. In
connection with the recapitalization, the following events occurred:
-- The Company revised its articles of incorporation to authorize the
following classes of capital stock:
13,500 shares of Series C 14% Cumulative Redeemable Nonvoting
Preferred Stock with a par value of $.01 per share (Series C
Preferred Stock); issued and outstanding 13,016 shares at December
31, 1997. There were 183,060 shares issued and outstanding under the
previous articles of incorporation at December 31, 1996.
130,000 shares of Class A Voting Common Stock with a par value of
$.01 (Class A Common Stock); issued and outstanding 88,060 shares at
December 31, 1997. There were 38,370 shares issued and outstanding
under the previous articles of incorporation at December 31, 1996.
125,000 shares of Class B Nonvoting Common Stock with a par value of
$.01 (Class B Common 1997 Stock); none issued at December 31, 1996
and 1997.
-- The Series A 11% Cumulative Redeemable Convertible Voting Preferred
Stock with a par value of $.01 per share (Series A Preferred Stock) was
canceled.
-- The Series B 11% Cumulative Redeemable Convertible Nonvoting Preferred
Stock with a par value of $.01 per share (Series B Preferred Stock) was
canceled.
-- The Company issued 44,234 shares of its Class A Common Stock for
proceeds of approximately $15.1 million. The Company incurred issuance
costs in the amount of $925,602 which are reflected as a reduction in
the proceeds received.
-- Certain Series A Preferred Stock shareholders converted 900 shares of
their Series A Preferred Stock into 932 shares of Class A Common Stock.
-- A shareholder of MJD contributed the net assets of Holdings totaling
$150,000 in consideration for 145 shares of Class A Common Stock.
-- The Company repurchased all of the outstanding shares of the Series A
Preferred Stock after the conversion above and a portion of shares of
the Series C Preferred Stock, common stock purchase warrants, and
contingent common stock warrants for approximately $35 million, of which
approximately $31.5 million was paid in cash. The Company issued
subordinated promissory notes for the remaining $3.5 million. In
addition, Preferred Stock dividends of $279,394 were paid. The Series A
Preferred Stock and Series B Preferred Stock were then canceled.
-- STE borrowed $39.2 million from CoBank and paid a cash dividend to MJD
of $23.4 million.
-- STE retired the $11,562,133 subordinated notes and paid related
prepayment penalties. As a result, the Company recognized an
extraordinary loss of approximately $5.9 million ($3.6 million net of
taxes), consisting of prepayment penalties of approximately $4.0
million, and the write-off of existing deferred financing costs of
approximately $1.1 million and the issuance of additional put warrants
valued at $750,000. (see note 8)
-- Existing subordinated notes payable to stockholders of the Company in
the amount of $923,500 were contributed as additional capital.
F-16
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1997, there were an additional 4,379 shares of Class A Common
Stock issued for proceeds of $1,500,000.
The Company has a stock option plan that covers officers, directors and
employees of the Company. The Company may issue qualified or nonqualified
stock options to purchase up to 5,684 shares of the Company's Class A Common
Stock to employees that will vest equally over five years from the date of
employment of the recipient and are exercisable from five to ten years. In
1995, the Company granted options to purchase 4,264 shares at $50 per share.
There were no options granted in 1996 or 1997. Since the Company applies APB
Opinion No. 25 in accounting for its plan, no compensation cost has been
recognized for its stock options in the financial statements. Had the Company
recorded compensation cost based on the fair value at the grant date for its
stock options following SFAS No. 123, the Company's net income for 1995, 1996
and 1997 would not have been significantly reduced.
Stock option activity for 1995, 1996 and 1997, under the plan, is summarized
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Outstanding at January 1............................. -- 4,264.0 4,264.0
Granted............................................ 4,264.0 -- --
Exercised.......................................... -- -- --
Canceled........................................... -- -- --
------- ------- -------
Outstanding at December 31........................... 4,264.0 4,264.0 4,264.0
------- ------- -------
Exercisable at December 31........................... 1,350.2 2,203.0 3,055.8
======= ======= =======
</TABLE>
(10)REDEEMABLE PREFERRED STOCK
The following is a summary of the Company's preferred stock:
<TABLE>
<CAPTION>
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
-------------------- -------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ----------- ------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 15,000 $ 1,418,086 55,000 $ 5,199,647 -- $ --
Conversion of preferred
stock.................. 54,100 5,114,562 (54,100) (5,114,562) -- --
Accretion of preferred
stock.................. -- 82,036 -- 1,068 -- --
------- ----------- ------- ----------- -------- -----------
Balance at December 31,
1995................... 69,100 $ 6,614,684 900 $ 86,153 -- $ --
Conversion of preferred
stock.................. 900 86,153 (900) (86,153) -- --
Issuance of preferred
stock.................. -- -- -- -- 183,060 1,815,558
Accretion of preferred
stock.................. -- 2,036,976 -- -- -- 136,046
------- ----------- ------- ----------- -------- -----------
Balance at December 31,
1996................... 70,000 $ 8,737,813 -- $ -- 183,060 $ 1,951,604
Conversion of preferred
stock.................. (900) (112,343) -- -- -- --
Repurchase of preferred
stock.................. (69,100) (8,625,470) -- -- (170,044) (1,821,440)
------- ----------- ------- ----------- -------- -----------
Balance at December 31,
1997................... -- $ -- -- $ -- 13,016 $ 130,164
======= =========== ======= =========== ======== ===========
</TABLE>
The Series C Preferred Stock carries cumulative dividends that accrue
quarterly at a rate of 14% per year on the issuance price and all accumulated
and unpaid dividends. The accumulated dividends are payable upon declaration
by the Board of Directors. The amount of unpaid cumulative dividends at
December 31, 1997 was $7,593.
F-17
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On June 7 and July 31, 1996, the Company collectively issued 183,060 shares
of its Series C Preferred Stock for proceeds of $1,830,600 or $10 per share.
The Company incurred issuance costs in the amount of $15,042 which are
reflected as a reduction in the proceeds received. As part of the
recapitalization in 1997 discussed in note 9, 170,044 shares of the stock were
repurchased.
The Series C Preferred Stock contains certain put and call provisions. At
the option of the shareholders, the Series C Preferred Stock may be put back
to the Company beginning June 30, 1999, unless certain events occur, including
an event of default under the preferred stock security agreement or
liquidation of the Company at which time the Series C Preferred Stock may be
put back immediately. In addition, the Company has the right to call the
Series C Preferred Stock at any time. The put/call price is $10 per share plus
accrued unpaid dividends, whether or not declared to the date of such payment.
In the event of liquidation, dissolution or winding up of the Company, the
Series C Preferred shareholders will be entitled to the $10 per share plus
accrued unpaid dividends, whether or not declared to the date of such payment.
In conjunction with the issuance of the Series C Preferred Stock in 1996,
the Company issued warrants to purchase 1,168.99 shares of the Company's Class
A Common Stock. In association with the recapitalization, the Company
repurchased warrants to purchase 1,086.05 shares and contingent warrants to
purchase 648 shares. There are no contingent warrants outstanding at December
31, 1997. The remaining warrants for 82.94 shares are currently exercisable,
carry an exercise price of $.01 per share and expire July 31, 2016. There are
no put/call provisions associated with these warrants.
As described in note 16, the Company repurchased the Series C Preferred
Stock on March 30, 1998.
(11)RELATED PARTY TRANSACTIONS
During 1997, the Company had an agreement with MJD Partners, L.P.
(Partners), a major shareholder of the Company. Under the terms of the
agreement, Partners provided senior management and acquisition services to the
Company. Partners was paid $1,020,000 under this agreement during 1997. This
agreement was terminated in 1998.
In connection with the recapitalization, described in note 9, the Company
entered into financial advisory agreements, dated July 31, 1997, with certain
equity investors, pursuant to which the equity investors provide certain
consulting and advisory services, related, but not limited to equity
financings and strategic planning. Pursuant to these agreements, the Company
pays annual advisory fees in an aggregate amount of $100,000 to the equity
investors payable on a quarterly basis until December 31, 2007. During 1997,
the Company paid $45,833 in such fees to the equity investors. The agreements
also provide that the Company will reimburse the equity investors for travel
relating to the Company's Board of Directors meetings. In the event of
additional equity investments in the Company by the equity investors, the
parties have agreed to negotiate in good faith to increase the advisory fee.
The Company also has entered into a consulting agreement dated as of July
31, 1997 with an entity controlled by a certain shareholder pursuant to which
the shareholder has agreed to provide general consulting and advice to the
Company as reasonably requested from time to time. Pursuant to the terms of
the agreement, the consulting company is paid an annual fee of $120,000 in
monthly installments plus all of the shareholder's out-of-pocket business
expenses up to $30,000. The term of the agreement is one year, subject to
automatic renewal for successive periods of one year each thereafter.
F-18
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1995 a law firm, in which a partner of such law firm is also a partner in
Partners, was paid $208,199 for general counsel services. In 1996, this same
law firm, was paid $321,251 of which $138,368 was for general counsel services
and $182,883 for acquisition related services. In 1997, this same law firm was
paid $1,070,132 for general counsel services and services related to
financings and new acquisitions.
(12)SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1995, 1996 and 1997, the Company paid
interest of $6,868,074 $7,204,795 and $8,301,646, respectively.
For the years ended December 31, 1995, 1996, and 1997, the Company paid
income taxes of $1,288,000, $1,084,766, and $529,352, respectively. The
Company received income tax refunds totaling $223,367 during 1997.
In conjunction with the recapitalization, the Company issued subordinated
promissory notes for $3.5 million for the repurchase of the Series A and
Series C Preferred Stock.
(13)QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
Revenue................. $6,560,744 7,880,509 7,335,857 8,481,272 30,258,382
Income from operations.. 2,254,129 3,331,595 2,038,769 2,573,792 10,198,285
Net earnings............ 291,730 939,934 164,975 602,761 1,999,400
1997
Revenue................. $8,766,654 9,120,775 11,303,202 13,781,687 42,972,318
Income from operations.. 2,789,744 2,998,629 3,901,546 2,749,333 12,439,252
Earnings before
extraordinary item and
minority interest...... $ 615,925 461,415 762,484 651,092 2,490,916
Net earnings (loss)..... 593,471 461,415 (2,851,789) 614,560 (1,182,343)
</TABLE>
During the third quarter 1997, the Company recognized a loss on early
retirement of debt of $5,908,104. The loss had the effect of reducing net
earnings by $3,611,624.
(14)DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Demand
Notes Payable
The carrying amount approximates fair value because of the short maturity of
these instruments.
Investments
Investments do not have a readily determinable fair value (not publicly
traded). The investments are stated at cost which management believes is not
impaired. A reasonable estimate of fair value could not be reasonably made
without incurring excessive costs.
Long-Term Debt
The fair value of the Company's long-term debt is estimated by discounting
the future cash flows of each instrument at rates currently offered to the
Company for similar debt instruments of comparable maturities. At December 31,
1997, the Company had long-term debt with a carrying value of $131,912,112 and
estimated fair value of $137,500,000.
F-19
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(15)MAJOR CUSTOMER
Compensation for interstate access services is based on reimbursement of
costs and an allowed rate of return. This compensation is received from the
National Exchange Carrier Association in the form of monthly settlements. Such
compensation amounted to 31.8%, 30.8% and 30.0% of revenues in 1995, 1996 and
1997, respectively. The Company also derives significant revenues from Nynex,
principally from network access and billing and collecting service. Such
compensation amounted to 27.5%, 20.1% and 16.3% of revenues in 1995, 1996 and
1997, respectively.
(16)SUBSEQUENT EVENTS
On March 30, 1998, the Company closed a $315 million senior secured credit
facility (the "New Credit Facility") which committed $75 million of term debt
(tranche C) amortized over nine years, $155 million of term debt (tranche B)
amortized over eight years and an $85 million reducing revolving credit
facility with a term of 6.5 years. Borrowings under the facility bear interest
at a rate based, at the option of the Company, on the participating banks'
prime rate or Euro dollar rate, plus an incremental rate of 3.0%, 2.75% and
2.5% for the Euro dollar margin and 2.0%, 1.75% and 1.50% for the prime rate
margins for the tranche C, tranche B and revolver facility, respectively. The
New Credit Facility is secured by a perfected first priority pledge of the
stock of certain subsidiaries of the Company as well as the promissory notes
evidencing intercompany advances. The New Credit Facility is also guaranteed
by four of the Company's intermediary holding companies, subject to
contractual or regulatory restrictions. The Company pays fees of one half of
1% per annum on the aggregate unused portion of the revolver and tranche B
commitment, in addition to an annual administrative agent's fee. Pursuant to
the New Credit Facility, the Company is required to enter into interest
hedging agreements that result in the fixing of the interest rate on no less
than 50% of the principal amount of total outstanding debt, including any
senior subordinated debt.
Proceeds from the New Credit Facility in the amount of $142,000,000 were
utilized to repay all of the outstanding long-term debt from CoBank and RTFC,
certain other long-term debt, repurchase the Series C Preferred Stock, pay
related transaction expenses and finance certain business acquisitions. On
March 30, 1998, the Company recognized an extraordinary loss of approximately
$4.3 million ($2.5 million net of income taxes) resulting from a prepayment
penalty of approximately $1.4 million and the write-off of unamortized loan
origination costs of [approximately $2.9 million] related to the refinanced
debt.
The Company's ability to make additional borrowings under the New Credit
Facility is subject to compliance with certain financial ratios and other
conditions set forth in the New Credit Facility. These conditions limit the
ability of the Company and certain of its subsidiaries to, among other things,
incur additional indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, merge or consolidate with another company or change the business
conducted.
Borrowings under the New Credit Facility to finance the acquisition of
Ellensburg (see note 2) will be conditioned upon the Company's receipt of
$15.0 million in common equity by certain existing shareholders.
In addition, on April 2, 1998, the holders of the warrants to purchase
12,857 shares of STE and 7.69 shares of Sidney, described in note 8, notified
the Company of their intention to exercise the warrants to be effective
June 1, 1998.
F-20
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation and
regulatory proceedings incidental to the conduct of its business, but the
Company is not a party to any lawsuit or proceeding which, in the opinion of
the Company, is likely to have a material adverse effect on the Company.
On April 6, 1998, Latin World Communications, Inc., ("LWC") and Debra A.
Boudrot, LWC's principal (collectively, "Plaintiffs") sued B. Stephen May
("May"), who is a former officer of S T Long Distance (a subsidiary of STE),
Siesta Telecom, Inc. ("Siesta"), which is a company controlled by May, and S T
Long Distance in the Circuit Court for the Twelfth Judicial Circuit, Sarasota
County, Florida. From March 1997 through early 1998, S T Long Distance
provided long distance services to Plaintiffs in connection with Plaintiffs'
prepaid telephone card distribution business. Plaintiffs have alleged, among
other things, that May, Siesta and S T Long Distance have engaged in fraud,
misappropriation of trade secrets, unfair competition, deceptive trade
practices and trade slander; and that May, Siesta and S T Long Distance have
breached various contractual obligations to the Plaintiffs and received
certain overpayments from the Plaintiffs. Plaintiffs seek approximately $1
million in damages relating to such alleged overpayments, and unspecified
monetary damages and injunctive relief relating to certain other matters. The
Company intends to vigorously contest all of the Plaintiffs' allegations, and
believes that it has no liability to the Plaintiffs. While the outcome of such
litigation cannot be predicted, the Company does not believe that such
litigation, even if determined adversely to the Company, would have a material
adverse effect on its financial condition or results of operations.
F-21
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents......................... $ 6,822,462 9,871,035
Accounts receivable............................... 8,312,778 12,246,512
Prepaid and other assets.......................... 1,248,627 3,086,923
Income taxes recoverable.......................... 757,001 1,161,964
------------ -----------
Total current assets............................ 17,140,868 26,366,434
------------ -----------
Property, plant and equipment, net.................. 61,206,890 88,021,413
------------ -----------
Other assets:
Investments....................................... 11,423,521 13,573,632
Goodwill, net of amortization..................... 50,432,932 96,260,765
Loan origination costs, net of amortization....... 2,981,391 9,007,351
Covenant not to compete, net of amortization...... 987,500 931,250
Other............................................. 439,677 1,382,104
------------ -----------
Total other assets.............................. 66,265,021 121,155,102
------------ -----------
Total assets.................................. $144,612,779 235,542,949
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 4,999,714 7,390,249
Current portion of long-term debt................. 5,409,333 3,716,460
Demand notes payable.............................. 879,000 829,500
Current portion of capital lease obligations...... 41,173 15,879
Current portion of early retirement benefits...... 14,283 14,283
Current portion of covenant not to compete........ 256,250 256,250
Accrued interest payable.......................... 2,818,769 14,744
Accrued property taxes............................ 1,170,969 1,047,546
Other accrued liabilities......................... 1,443,677 2,480,167
------------ -----------
Total current liabilities....................... 17,033,168 15,765,078
------------ -----------
Long-term liabilities:
Long-term debt, net of current portion............ 126,502,779 199,870,519
Long-term capital lease obligation, net of current
portion.......................................... 109,246 104,382
Early retirement benefits payable, net of current
portion.......................................... 22,083 18,023
Covenant not to compete, net of current portion... 756,250 668,750
Deferred income taxes............................. 6,983,449 11,016,806
Unamortized investment tax credits................ 198,817 187,040
------------ -----------
Total long-term liabilities..................... 134,572,624 211,865,520
------------ -----------
Minority interest................................... 2,827,010 2,851,794
------------ -----------
Redeemable preferred stock.......................... 130,164 --
------------ -----------
Stockholders' equity:
Common stock...................................... 881 1,366
Preferred stock................................... -- --
Additional paid-in capital........................ 16,910,450 33,747,706
Retained deficit.................................. (26,861,518) (28,688,515)
------------ -----------
Total stockholders' equity...................... (9,950,187) 5,060,557
------------ -----------
Total liabilities and stockholders' equity.... $144,612,779 235,542,949
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Operating revenues:
Switched services.................................... $8,132,456 11,652,916
Other................................................ 634,198 1,879,745
---------- ----------
Total operating revenues........................... 8,766,654 13,532,661
---------- ----------
Operating expenses:
Plant operations..................................... 1,124,698 2,289,605
Corporate and customer service....................... 2,268,797 3,412,748
Depreciation and amortization........................ 1,963,700 2,632,200
Other................................................ 619,700 1,158,926
---------- ----------
Total operating expenses........................... 5,976,895 9,493,479
---------- ----------
Income from operations................................. 2,789,759 4,039,182
---------- ----------
Other income (expense):
Net gain on sale of investments and other assets..... -- 6,756
Interest income...................................... 45,488 37,161
Dividend income...................................... -- 29,152
Interest expense..................................... (1,866,021) (2,775,145)
Other nonoperating, net.............................. 23,803 (3,192)
---------- ----------
Total other expense................................ (1,796,730) (2,705,268)
---------- ----------
Earnings before income taxes and extraordinary item.... 993,029 1,333,914
Income tax expense..................................... (377,089) (615,183)
---------- ----------
Earnings before extraordinary item..................... 615,940 718,731
Extraordinary item, net of tax......................... -- (2,520,943)
---------- ----------
Earnings (loss) before minority interest............... 615,940 (1,802,212)
Minority interest in income of subsidiaries............ (22,464) (24,785)
---------- ----------
Net earnings (loss).................................... $ 593,476 (1,826,997)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................................. $ 593,476 (1,826,997)
---------- ------------
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization..................... 2,026,691 2,711,017
Deferred income taxes............................. 188,673 (197,981)
Deferred patronage dividends...................... (6,076) (22,031)
Minority interest in income of subsidiaries....... 22,455 24,784
Net loss on sale of investments and other assets.. (9,621) (6,756)
Loss on early retirement of debt.................. -- 2,896,599
Amortization of investment tax credits............ (3,701) (11,777)
Changes in assets and liabilities arising from op-
erations, net of acquisitions:
Accounts receivable............................. 27,011 (486,642)
Prepaid and other assets........................ 25,290 (546,156)
Accounts payable................................ (411,370) 624,005
Accrued interest payable........................ 209,288 (2,804,024)
Accrued liabilities............................. 125,966 (50,675)
Income taxes recoverable........................ 197,257 (783,416)
---------- ------------
Total adjustments............................. 2,391,863 1,346,947
---------- ------------
Net cash provided by (used in) operating ac-
tivities..................................... 2,985,339 (480,050)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment........ (1,888,624) (670,835)
Proceeds from sale of property, plant and equip-
ment............................................... 33,110 7,652
Salvage proceeds less cost of removal............... -- 8,313
Distributions from investments...................... 5,780 11,655
Payment on covenant not to compete.................. (37,500) (87,500)
Payments received on direct financing leases........ (8,886) --
Acquisition costs................................... (4,080) (520,181)
Organizational costs................................ -- (107,284)
Increase in other assets............................ 487,956 --
Acquisitions of telephone properties................ -- (63,946,762)
---------- ------------
Net cash used in investing activities......... (1,412,244) (65,304,942)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............ -- 195,000,000
Repayment of long-term debt......................... 775,000 (133,865,085)
Net proceeds from issuance of preferred stock....... (5,491) --
Repurchase of preferred stock and warrants.......... (796,913) (130,166)
Dividends paid to preferred stockholders............ (7,751)
Net proceeds from the issuance of common stock...... -- 16,837,741
Loan origination costs.............................. -- (9,000,000)
Payment of early retirement benefits................ -- (4,061)
Repayment of capital lease obligation............... -- (4,864)
---------- ------------
Net cash provided by (used in) financing ac-
tivities..................................... (35,155) 68,833,565
---------- ------------
Net increase in cash and cash equivalents........... 1,537,940 3,048,573
Cash and cash equivalents, beginning of year........ 4,252,732 6,822,462
---------- ------------
Cash and cash equivalents, end of year.............. $5,790,672 9,871,035
========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(1) BASIS OF FINANCIAL REPORTING
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission; however, the Company believes the
disclosures which are made are adequate to make the information presented not
misleading.
The Company's condensed balance sheet at December 31, 1997 was derived from
the Company's audited balance sheet as of that date. The unaudited financial
information for the three months ended March 31, 1997 and 1998 has not been
audited by independent public accountants; however in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows for the three-month periods have been included
therein in accordance with generally accepted accounting principles. The
results of operations for the first three months of the year are not
necessarily indicative of the results of operations which might be expected
for the entire year.
(2) NET PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment is composed of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
Property, plant and equipment in service.......... $ 93,352,027 181,921,686
Accumulated depreciation.......................... (53,732,018) (95,829,712)
Plant under construction.......................... 2,292,387 1,929,439
------------ -----------
$ 41,912,396 88,021,413
============ ===========
</TABLE>
(3) CREDIT FACILITY
On March 30, 1998, the Company closed a $315 million senior secured credit
facility (the "New Credit Facility") which committed $75 million of term debt
(tranche C) amortized over nine years, $155 million of term debt (tranche B)
amortized over eight years and an $85 million reducing revolving credit
facility with a term of 6.5 years. Borrowings under the facility bear interest
at a rate based, at the option of the Company, on the participating banks'
prime rate or Euro dollar rate, plus an incremental rate of 3.0%, 2.75% and
2.5% for the Euro dollar margin and 2.0%, 1.75% and 1.50% for the prime rate
margins for the tranche C, tranche B and revolver facility, respectively. The
New Credit Facility is secured by a perfected first priority pledge of the
stock of all the subsidiaries of the Company as well as the promissory notes
evidencing intercompany advances. The New Credit Facility is also guaranteed
by the Company's four intermediary holding companies, subject to contractual
or regulatory restrictions. The Company pays fees of 1/4% per annum on the
aggregate unused portion of the revolver and tranche B commitment, in addition
to an annual agent's fee. Pursuant to the New Credit Facility, the Company is
required to enter into interest hedging agreements that result in the fixing
of the interest rate on no less than 50% of the principal amount of total
outstanding debt, including any subordinated debt.
Proceeds from the New Credit Facility in the amount of $142,000,000 were
utilized to repay all of the outstanding long-term debt from CoBank and RTFC,
pay related transaction expenses and finance certain business acquisitions. On
March 30, 1998, the Company recognized an extraordinary loss of approximately
$4.3 million ($2.5 million net of income taxes) resulting from a prepayment
penalty of approximately $1.4 million and the write-off of unamortized loan
origination costs of approximately $2.9 million related to the refinanced
debt.
The Company's ability to make additional borrowings under the New Credit
Facility is subject to compliance with certain financial ratios and other
conditions set forth in the New Credit Facility. These
F-25
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
conditions limit the ability of the Company and certain of its subsidiaries
to, among other things, incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, merge or consolidate with another
company or change the business conducted.
(4) ACQUISITIONS
On March 30, 1998, the Company purchased 100 percent of the outstanding
common stock of Taconic Telephone Corp. and subsidiaries for a purchase price
of $67.5 million. Acquisition costs were approximately $300,000. The
acquisition was accounted for using the purchase method and accordingly, the
results of its operations have been included in the Company's consolidated
financial statements from the date of acquisition. The excess of the purchase
price and acquisition costs over the fair value of the net identifiable assets
acquired was $45,296,097 and has been recognized as goodwill in the first
quarter of 1998. Goodwill is being amortized using the straight-line method
over forty years.
In the first quarter of 1998, The Company had entered into two contracts:
Ellensburg Telephone Company and Chouteau Telephone Company and one letter of
intent: Utilities, Inc. except its subsidiaries, Seacoast Cellular and Western
Maine Cellular. On April 30, 1998 the acquisition of Ellensburg was
consummated for a purchase price of $91.0 million. The remaining acquisitions
are anticipated to be consummated during 1998 for a total purchase price of
approximately $69.0 million. These contemplated acquisitions will be accounted
for using the purchase method. The excess of purchase price and acquisition
costs over the fair value of the net identifiable assets acquired for all
three acquisitions is estimated to be approximately $112.9 million. The
Company plans to finance these acquisitions primarily with long-term debt.
(5) ISSUANCE OF LONG-TERM NOTES
On May 5, 1998, the Company issued $125.0 million of 9 1/2 percent senior
subordinated notes due 2008 and $75.0 million of floating rate callable
securities (floating rate notes) due 2008. Interest on the floating rate notes
is at a rate equal to LIBOR plus 418.75 basis points (10 percent at May 5,
1998). Proceeds from the notes were utilized to pay existing bank indebtedness
and debt under the New Credit Facility.
(6) ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standard (SFAS) No. 130, Reporting
Comprehensive Income establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The standard also requires disclosure of the total of
comprehensive income in interim financial statements. Comprehensive income did
not differ from net earnings (loss) for the three month periods ended March
31, 1997 and 1998.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Taconic Telephone Corp.
We have audited the consolidated balance sheets of Taconic Telephone Corp.
and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Taconic Telephone Corp. and subsidiaries at December 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
March 6, 1998
Albany, New York
F-27
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,204,578 3,073,458
Accounts receivable, net of allowance of $119,553 and
$225,800 in 1996 and 1997, respectively............. 4,052,061 3,651,252
Inventories.......................................... 1,097,107 863,414
Deferred income taxes (note 5)....................... 44,644 92,036
Other current assets................................. 339,702 430,636
------------ ------------
Total current assets............................... 6,738,092 8,110,796
Property, plant and equipment (note 2):
Telephone:
In service......................................... 43,538,277 45,495,739
Under construction and other....................... 1,275,671 1,819,966
------------ ------------
44,813,948 47,315,705
Less accumulated depreciation.......................... (18,318,296) (20,756,761)
------------ ------------
26,495,652 26,558,944
Subsidiary:
Net of accumulated depreciation of $2,606,882 and
$3,025,429 in 1996 and 1997, respectively........... 2,370,740 2,252,162
Other assets (note 4)................................ 2,706,464 3,276,261
------------ ------------
$ 38,310,948 40,198,163
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 558,370 993,189
Accrued payroll and related items.................... 204,857 221,304
Other accrued expenses............................... 2,156,553 2,087,070
Current maturities of long-term debt (note 3)........ 642,254 668,278
------------ ------------
Total current liabilities.......................... 3,562,034 3,969,841
Long-term debt, less current maturities (note 3)....... 9,271,428 8,605,381
Deferred income taxes (note 5)......................... 4,675,841 4,380,934
Other long-term liabilities (note 7)................... 461,581 1,287,390
------------ ------------
Total liabilities.................................. 17,970,884 18,243,546
------------ ------------
Stockholders' equity:
Common stock, no par value; 80,000 shares authorized;
62,588 shares issued; 60,219 shares outstanding in
1996 and 1997....................................... 677,719 677,719
Retained earnings.................................... 20,124,170 21,697,303
Unrealized gain on marketable securities............. 150,396 191,816
------------ ------------
20,952,285 22,566,838
Less cost of treasury stock, (2,369 shares in 1996
and 1997)........................................... (612,221) (612,221)
------------ ------------
Total stockholders' equity......................... 20,340,064 21,954,617
------------ ------------
$ 38,310,948 40,198,163
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Telephone operating
revenues:
Local network
services............. $ 5,235,962 5,912,306 5,850,960 1,445,926 1,423,477
Long distance and
access services...... 8,618,850 8,246,383 9,155,034 2,114,692 2,503,927
Directory advertising,
billing and other
services............. 2,725,430 2,670,607 2,595,355 864,018 712,205
----------- ---------- ---------- --------- ---------
Total telephone
operating
revenues........... 16,580,247 16,829,296 17,601,349 4,224,636 4,639,609
CATV and systems
operations............. 2,326,816 2,446,677 2,795,713 673,911 725,110
----------- ---------- ---------- --------- ---------
Total operating
revenues........... 18,907,058 19,275,973 20,397,062 4,898,547 5,364,719
Telephone operating
expenses:
Plant specific........ 2,329,605 2,593,113 2,678,778 538,335 545,433
Plant non-specific.... 1,274,544 1,263,568 1,327,241 281,764 342,379
Customer operations... 2,325,571 2,562,919 2,655,925 628,301 633,993
Corporate operations.. 3,039,519 3,261,519 3,436,270 833,841 1,230,212
Depreciation and
amortization......... 2,704,164 2,818,757 2,912,796 718,848 748,323
Other taxes........... 906,586 1,099,188 1,080,140 311,530 232,947
----------- ---------- ---------- --------- ---------
Total telephone
operating
expenses........... 12,579,989 13,599,064 14,091,150 3,312,619 5,733,287
CATV and systems
operations............. 2,104,323 2,242,855 2,530,484 625,159 690,784
----------- ---------- ---------- --------- ---------
Total operating
expenses........... 14,684,312 15,841,919 16,621,634 3,937,778 4,424,071
----------- ---------- ---------- --------- ---------
Income from operations.. 4,222,746 3,434,054 3,775,428 960,769 940,648
Other income (expense):
Other income.......... 122,068 694,983 656,645 134,739 (295,444)
Interest expense...... (1,034,609) (950,302) (891,437) (225,074) (209,067)
----------- ---------- ---------- --------- ---------
912,541 (255,319) (234,792) (90,335) (504,511)
----------- ---------- ---------- --------- ---------
Earnings before income
taxes.................. 3,310,205 3,178,735 3,540,636 870,434 436,137
Income tax expense (note
5)..................... 1,087,412 874,949 1,281,007 314,921 141,602
----------- ---------- ---------- --------- ---------
Net earnings............ $ 2,222,793 2,303,786 2,259,629 555,513 294,536
=========== ========== ========== ========= =========
Basic earnings per share
of common stock........ $ 36.48 38.15 37.52 9.22 4.89
=========== ========== ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON TOTAL
COMMON RETAINED PAID IN TREASURY SECURITIES STOCKHOLDERS'
STOCK EARNINGS CAPITAL STOCK NET OF TAX EQUITY
-------- ---------- ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $677,719 16,979,189 -- (389,582) 132,275 17,399,601
Net earnings............ -- 2,222,793 -- -- -- 2,222,793
Dividends............... -- (694,704) -- -- -- (694,704)
Change in unrealized
gain on securities, net
of tax................. -- -- -- -- 183,808 183,808
-------- ---------- ------- -------- -------- ----------
Balance at December 31,
1995................... 677,719 18,507,278 -- (389,582) 316,083 19,111,498
Net earnings............ -- 2,303,786 -- -- -- 2,303,786
Purchase of common
shares................. -- -- -- (222,639) -- (222,639)
Dividends............... -- (686,894) -- -- -- (686,894)
Change in unrealized
gain on securities, net
of tax................. -- -- -- -- (165,687) (165,687)
-------- ---------- ------- -------- -------- ----------
Balance at December 31,
1996................... 677,719 20,124,170 -- (612,221) 150,396 20,340,064
Net earnings............ -- 2,259,629 -- -- -- 2,259,629
Dividends............... -- (686,496) -- -- -- (686,496)
Change in unrealized
gain on securities, net
of tax................. -- -- -- -- 41,420 41,420
-------- ---------- ------- -------- -------- ----------
Balance at December 31,
1997................... $677,719 21,697,303 -- (612,221) 191,816 21,954,617
======== ========== ======= ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 2,222,793 2,303,786 2,259,629 555,513 294,536
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 3,078,954 3,288,659 3,401,706 831,666 874,918
Deferred income tax
benefit............. (212,521) (324,320) (363,639) (67,336) (161,391)
Amortization of
discount on long-
term debt........... 2,211 2,209 2,231 553 553
Gain on sale of
equipment........... -- (413) (2,620) (966) (1,281)
Undistributed income
from investments.... (287,930) (166,433) (112,641) 71,908 107,912
Decrease (increase)
in accounts
receivable, net..... 396,183 (735,295) 400,809 (205,572) 57,668
Decrease (increase)
in inventories...... (86,820) (74,872) 233,693 (140,766) (35,220)
(Increase) decrease
in other current
assets.............. 48,162 139,711 (90,934) (24,181) 55,743
Increase (decrease)
in accounts payable
and accrued
expenses............ 233,175 (358,667) 381,783 294,235 (157,713)
Increase in other
liabilities......... (83,755) 110,066 825,809 162,276 50,907
----------- ---------- ---------- --------- ----------
Net cash provided
by operating
activities...... 5,310,452 4,184,431 6,935,826 921,767 792,096
CASH FLOWS FROM
INVESTING ACTIVITIES:
Expenditures for
property and
equipment............. (1,782,958) (2,778,977) (3,407,297) (351,229) (284,105)
Net salvage on
retirements........... 10,446 2,877 571 4,430 2,235
Expenditures for
subsidiary property
and equipment......... (462,158) (337,070) (337,071) (7,462) (34,731)
Proceeds from sale of
equipment............. -- 9,142 5,601 3,666 91
Purchase of
nonmarketable equity
securities............ -- (4,000) -- -- --
Proceeds from
collection of loan
receivable............ -- 61,932 -- -- --
Purchase of other
capitalized assets.... (144,901) -- -- -- --
----------- ---------- ---------- --------- ----------
Net cash used in
investing
activities...... (2,379,571) (3,046,096) (3,738,196) (350,595) (316,510)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from short-
term borrowings....... 130,000 -- -- -- --
Repayment of short-term
borrowings............ (600,000) (130,000) -- -- --
Repayment of long-term
borrowings............ (559,560) (676,328) (642,254) (160,513) (2,315,894)
Dividends paid......... (694,704) (686,894) (686,496) (168,613) (168,613)
Purchase of treasury
stock................. -- (222,639) -- -- --
Additional paid in
capital............... -- -- -- -- 2,193,837
----------- ---------- ---------- --------- ----------
Net cash used in
financing
activities...... (1,724,264) (1,715,861) (1,328,750) (329,126) (290,670)
----------- ---------- ---------- --------- ----------
Increase (decrease) in
cash and cash
equivalents........... 1,206,617 (577,526) 1,868,880 797,559 479,452
Cash and cash
equivalents at
beginning of year..... 575,487 1,782,104 1,204,578 1,204,578 3,073,458
----------- ---------- ---------- --------- ----------
Cash and cash
equivalents at end of
year.................. $ 1,782,104 1,204,578 3,073,458 2,002,137 3,552,910
=========== ========== ========== ========= ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for
interest.............. $ 1,038,466 1,104,521 891,437 225,074 209,067
=========== ========== ========== ========= ==========
Cash paid for income
taxes................. $ 985,000 1,265,000 1,627,623 -- --
=========== ========== ========== ========= ==========
Supplemental schedule
of non-cash investing
activities:
Capital lease
obligation on
equipment............. $ -- 143,852 -- -- --
=========== ========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1997 AND 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The consolidated financial statements include the accounts of Taconic
Telephone Corp. (the "Company") and its wholly owned subsidiaries
(collectively the "subsidiaries") Taconic Technology Corp. ("TECH"), Taconic
Cellular Corp. ("TCC"), Taconet Corp. ("TNC"), Taconet Wireless Corp. ("TWC")
and Taconic TelCom Corp ("TTC"). All significant inter-company transactions
and balances have been eliminated in consolidation.
The Company provides local exchange telecommunications services to
residential and commercial customers. TECH provides telecommunications
products to residential and commercial customers, operates a cable television
system and provides paging and Internet services. TCC has an ownership
interest in several cellular telephone general partnerships. TNC was formed to
hold interests in partnerships and corporations involved in signaling systems
and related data base services. TWC was formed to hold interests in
partnerships and corporations involved in the provision, marketing and
operations of personal communication services. TTC resells long distance
services to residential and commercial customers. TTC commenced operations in
1997. The companies operate in New York State, primarily in Columbia,
Rensselaer and Dutchess Counties.
The Company's telephone operation follows the accounting for regulated
enterprises prescribed by Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). This
accounting recognizes the economic effects of rate regulation by recording
costs and a return on investment as such amounts are recovered through rates
authorized by regulatory authorities. Accordingly, SFAS 71 requires the
Company's telephone operation to depreciate telephone plant over useful lives
as approved by regulators which could be longer than the useful lives that
would otherwise be determined by management. SFAS 71 also requires deferral of
certain costs and obligations based upon approvals received from regulators to
permit recovery of such amounts in future years. The Company's telephone
operation periodically reviews the applicability of SFAS 71 based on the
developments in their current regulatory and competitive environment. SFAS 71
may, at some future date, be deemed inapplicable due to changes in the
regulatory and competitive environments and/or a decision by the Company to
accelerate deployment of new technology. If the Company were to discontinue
the application of SFAS 71 for its regulated operation, the Company would be
required to write off its regulatory assets and regulatory liabilities
associated with such operation and would be required to adjust the carrying
amount of any other assets, including property, plant and equipment, that
would be deemed not recoverable. The Company believes its regulated operations
continue to meet the criteria for SFAS 71 and that the carrying value of its
regulated property, plant and equipment is recoverable in accordance with
established rate-making practices.
The Company maintains its accounts in accordance with the Uniform System of
Accounts prescribed for telephone companies by the New York State Public
Service Commission (the PSC).
(b) Inventories
Inventories are carried at the lower of average cost or market and consist
primarily of materials and supplies.
(c) Property, Plant and Equipment
Property, plant and equipment is stated at cost. Expenditures for
maintenance and repairs are expensed as incurred. Depreciation is provided for
using annual rates which are sufficient to amortize the cost of depreciable
assets over their estimated useful lives which range from four to fifty years.
F-32
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The cost of depreciable property retired is removed from telephone plant
accounts and charged to accumulated depreciation, which is credited with the
salvage less removal cost. Under this method, no profit or loss is calculated
on ordinary retirements of depreciable telephone property.
(d) Subsidiary Property and Equipment
Subsidiary property and equipment are stated at cost. Major expenditures for
property and those which substantially increase useful lives are capitalized.
Maintenance and repairs are expensed as incurred. Any gain or loss on disposal
is recognized in operations.
The subsidiaries provide for depreciation of property and equipment using
annual rates which are sufficient to amortize the cost of depreciable assets
over their estimated useful lives which range from five to twenty years
utilizing the straight-line method.
(e) Allowance for Funds Used During Construction
Regulatory bodies allow the Company to capitalize an allowance for funds
used during construction ("AFUDC"). AFUDC represents the borrowing costs and a
return on common equity of funds used to finance construction of regulated
assets. AFUDC is capitalized as a component of additions to property, plant
and equipment and is credited to income. AFUDC does not represent current cash
earnings; however, under established regulatory rate-making practices, after
the related plant is placed in service, the Company is permitted to include in
the rates charged for utility services a fair return on and depreciation of
such AFUDC included in plant in service. The allowance rates for funds
capitalized during the construction of certain plant assets were 9.49%, 9.40%
and 9.34%, and totaled $13,280, $28,510 and $23,435 for March 31, 1998,
December 31, 1997 and December 31, 1996, respectively.
(f) Investments
The Company records investments in marketable debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Statement
115 requires investments in marketable equity securities to be reported at
fair value, with net unrealized gains reported, net of income taxes, as a
separate component of stockholders' equity.
The Company accounts for its investments in nonmarketable equity securities
and partnerships in the following manner:
. investments in excess of 50% in investee equity are consolidated.
. investments of 20-50% in investee equity are accounted for under the
equity method. That is, the Company adjusts its investments for its
proportion of the income earned and distributions made by the investee.
. investments under 20% are accounted for at the lower of cost or market
unless the Company is able to exercise significant influence over
operating and financial policies of the investee.
(g) Revenues and Accounts Receivable
Local service charges are recognized when earned regardless of the period in
which they are billed. Long distance revenues are derived from
interstate/intralata long-distance calls that originate or terminate in the
Company's Hancock, Massachusetts exchange. Network access service revenues are
earned from interexchange carriers by providing access to the Company's local
exchange network. The Company also generates revenue through billing
subscriber line charges to their end user customers. Interstate carrier common
line revenues are
F-33
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recognized under pooling arrangements with other telephone companies and are
allocated among the companies based on respective costs and investments to
provide these services. Revenues recognized through the various pooling
processes are initially based on estimates. Adjustments are recorded in
subsequent years as participating companies finalize their respective costs
and investments. The Company has settled all toll and access charge revenue
agreements through 1996.
Accounts receivable consists primarily of amounts due from residential,
commercial and interexchange carrier customers for telecommunications
services. The Company performs ongoing credit evaluations of its customers.
The Company maintains an allowance for doubtful accounts to cover potential
credit losses.
(h) Income Taxes
The Company accounts for income taxes using the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rate is recognized in income in
the period that includes the enactment date.
The Company files consolidated Federal tax returns with its subsidiaries.
Investment tax credits are deferred and amortized over the estimated useful
life of the equipment which gave rise to the credit.
(i) Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents.
(j) Regulatory Matters
On May 30, 1995, the Company filed a petition with the PSC for approval of a
proposed Quality Assurance Plan (the Plan), which was approved August 21,
1996. This incentive plan eliminated rate of return regulation for the
Company's New York State operations as of September 1, 1996. The five-year
plan freezes basic local rates with limited exceptions. Non-basic rates will
not increase in excess of 40% over this same time period. Additionally, the
Company has offered its local exchange service for resale to competitors at a
discounted rate.
The Company is the first small telephone company in the country to
successfully negotiate an incentive regulation plan.
Regarding federal issues, the Telecommunications Act of 1996 ("Act") was
passed early in 1996. This legislation encourages competition, anticipates
lower rates for consumers, and assures rural customers they will have the same
services as their urban counterparts. The Company continues to monitor recent
court decisions and the activity of the Federal Communications Commission as
it issues orders which attempt to interpret and implement the Act.
(k) Reclassifications
Certain items in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
(l) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
F-34
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(m) Impairment of Long-Lived Assets
In 1996 the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The carrying value of long-lived assets is reviewed for
impairment at least annually, or whenever events or changes in circumstances
indicate that such carrying value may not be recoverable, by assessing the
recoverability of such carrying value through estimated undiscounted future
net cash flows expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. The adoption of SFAS No. 121 did not
affect the Company's consolidated financial position or results of operations.
(n) Basic Earnings Per Share
Basic earnings per share of common stock was computed by dividing net
earnings by the weighted average number of common shares outstanding during
the respective periods. The weighted average number of common shares
outstanding was 60,939, 60,393 and 60,219 during 1995, 1996 and 1997,
respectively.
(2)PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment in service at December 31, 1996 and December
31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Land............................................... $ 100,442 100,442
Customer premises wiring........................... 427,210 427,210
Other work equipment............................... 563,445 561,383
Motor vehicles..................................... 720,357 716,834
Furniture and office equipment..................... 1,088,148 1,120,792
Buildings.......................................... 3,091,851 3,157,272
Central office equipment........................... 14,348,632 15,040,958
Poles, cables and wire............................. 22,475,840 23,593,356
Other.............................................. 722,352 777,492
------------ ----------
Total telephone plant in service................. $ 43,538,277 45,495,739
============ ==========
</TABLE>
The Company provides for depreciation on a straight-line basis at annual
rates which will amortize the depreciable property over its estimated useful
life. Such provision as a percentage of the average balance of telephone plant
in service was 6.48 percent at December 31, 1996, December 31, 1997 and March
31, 1998. Individual annual depreciable rates are as follows:
<TABLE>
<S> <C>
Motor vehicles................................................... 9.50-15.00%
Other work equipment............................................. 5.67%
Buildings........................................................ 2.66%
Furniture and office equipment................................... 5.00-20.00%
Central office equipment......................................... 6.67-10.35%
Customer premises wiring......................................... 5.91%
Poles, cables, and wire.......................................... 2.00-11.33%
</TABLE>
F-35
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3)LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
First mortgage notes payable to the Rural Utilities
Service at 8.72%, due in quarterly installments of
$158,802 including interest, through December 31,
2009............................................... $4,914,431 4,700,767
First mortgage note payable to the Rural Utilities
Service at 10.782%, due in quarterly installments
of $70,658 including interest, through December 31,
2016............................................... 2,309,321 2,274,222
First mortgage note payable at prime, (8.50% and
8.25% at December 31, 1997 and 1996, respectively)
due in quarterly installments of $51,667 plus
interest, through December 31, 2004................ 1,653,333 1,446,667
Capital lease at 8.15% due in monthly installments
of $3,498 including interest, through March 31,
2000............................................... 119,505 86,034
Note payable at prime plus 1/2% (9.00% and 8.75% at
December 31, 1997 and 1996, respectively) due in
monthly installments of $10,833 plus interest,
through February 1, 1999, at which time remaining
principal of $563,334 is due in full, secured by
interest in TECH accounts receivable, inventory,
and a second lien on property and equipment........ 823,333 693,334
Note payable at prime plus 1/2% (9.00% and 8.75% at
December 31, 1997 and 1996, respectively) due in
monthly installments of $1,944 plus interest,
through March 1, 2002, secured by TECH property and
equipment.......................................... 122,501 99,167
---------- ---------
Total long-term debt................................ 9,942,424 9,300,191
Less discount on long-term debt..................... (28,742) (26,532)
Less current maturities............................. (642,254) (668,278)
---------- ---------
Long-term debt, net of current maturities......... $9,271,428 8,605,381
========== =========
</TABLE>
Certain of the obligations contain covenants which restrict the amount of
dividends that may be paid without approval and limit other obligations,
guarantees, and require maintenance of certain operating ratios. A subsidiary
of the Company, TECH, was in violation of three covenants related to notes
payable as of December 31, 1997, with respect to working capital, current
ratio and capital expenditure levels. Appropriate waivers were obtained in all
cases.
The estimated minimum future principal payments at December 31, 1997 are
scheduled as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
1998.......................................................... $ 668,278
1999.......................................................... 1,130,031
2000.......................................................... 565,428
2001.......................................................... 585,429
2002.......................................................... 601,144
Thereafter.................................................... 5,749,881
----------
$9,300,191
==========
</TABLE>
As of December 31, 1996 and 1997, the Company had available unsecured lines
of credit totaling $8,500,000, with interest based on referenced rates at the
times of borrowing.
F-36
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4)OTHER ASSETS
Other assets at December 31, 1996 and 1997 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Investments in partnerships...................... $1,065,269 1,177,910
Investments in marketable equity securities,
available for sale.............................. 738,284 801,044
Deferred pension expense due to regulatory
requirements (note 7)........................... 625,991 1,037,246
Other............................................ 276,920 260,061
---------- ---------
$2,706,464 3,276,261
========== =========
</TABLE>
(5)INCOME TAXES
The Company accounts for income taxes using the asset and liability method
required by Financial Accounting Standards Board Statement No. 109 "Accounting
for Income Taxes". Generally accepted accounting principles for regulated
enterprises adopting Statement 109 required the recognition of deferred tax
assets and liabilities. The net effect of deferred regulatory assets and
liabilities of approximately $275,000 was recorded as an increase to deferred
income tax liabilities as of January 1, 1993, and is being amortized over a
fifteen-year period.
The balance of deferred regulatory assets and liabilities was $220,000 and
$238,333 at December 31, 1997 and 1996, respectively.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Income taxes charged to
the statements of
operations
Federal:
Current............... $1,299,933 1,199,269 1,644,646 382,207 302,993
Deferred.............. (212,521) (324,320) (363,639) (67,386) (161,391)
---------- --------- --------- ------- --------
Income taxes charged
to the statements of
operations........... 1,087,412 874,949 1,281,007 314,921 141,602
Income taxes charged
(credited) to
stockholders' equity
Deferred.............. 94,692 (85,360) 21,340 44,010 91,353
---------- --------- --------- ------- --------
Total income taxes.. $1,182,104 789,589 1,302,347 358,931 232,955
========== ========= ========= ======= ========
</TABLE>
F-37
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1997 are presented below.
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable due to allowance for
doubtful accounts............................. $ 42,274 $ 86,501
Investments in partnerships.................... 190,951 298,853
Warranty reserve............................... 2,370 3,168
Current deferred revenue....................... -- 2,367
Deferred revenue due to regulatory require-
ments......................................... 80,487 62,601
Deferred pension expense....................... -- 68,746
Deferred expense due to environmental
remediation................................... -- 48,745
----------- -----------
Total gross deferred tax assets.............. 316,082 570,981
Less valuation allowance....................... -- --
----------- -----------
Net deferred tax assets...................... 316,082 570,981
----------- -----------
Deferred tax liabilities:
Plant and equipment, principally due to differ-
ences in depreciation......................... (4,424,130) (4,313,310)
Unamortized investment tax credits............. (340,642) (275,528)
Deferred pension expense due to regulatory
requirements.................................. (55,899) (13,838)
Investment differences due to market adjust-
ments......................................... (116,836) (248,183)
Unamortized discount on debt................... (9,772) (9,020)
----------- -----------
Total gross deferred tax liabilities......... (4,947,279) (4,859,878)
----------- -----------
Net deferred tax liability................... $(4,631,197) $(4,288,898)
=========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences.
(6)LEASES
The Company leases equipment under operating leases, for which the future
non-cancelable minimum lease payments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------
<S> <C>
1998............................................................. $234,627
1999............................................................. 206,003
2000............................................................. 134,188
2001............................................................. 7,486
--------
$582,304
========
</TABLE>
F-38
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total rental expense for all operating leases was $228,908, $334,647 and
$303,017 for 1995, 1996 and 1997, and $66,847 and $60,986 for the three months
ended March 31, 1997 and March 31, 1998, respectively.
(7)RETIREMENT PLANS
The Company has a qualified defined benefit pension plan covering
substantially all of its full-time employees. The Company's funding policy is
to contribute annually an amount within the range established by the Employee
Retirement Income Security Act (ERISA) of 1974. Contributions to the plan are
intended to provide not only for benefits attributed to service to date but
also for those expected to be earned in the future. Effective January 1, 1996,
the plan was frozen with respect to the employees of TECH.
The defined benefit plan was amended in 1997 to cease benefit accruals for
all participants in preparation to terminate and liquidate the plan in 1998.
The amendment also increased benefits to the level of the fair value of plan
assets at December 31, 1997 or $5,452,047. In accordance with regulatory
policy, a curtailment gain of $1,010,268 was deferred as of December 31, 1997
and is included in other long-term liabilities on the accompanying consolidated
balance sheet.
Net periodic pension cost for 1995, 1996 and 1997 included the following
components:
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the
period..................................... $ 284,812 404,989 435,351
Interest cost on projected benefit
obligations................................ 349,426 434,571 476,026
Actual return on plan assets................ (197,636) (678,898) (529,998)
Net amortization and deferral............... (150,102) 488,347 167,308
--------- -------- --------
Net periodic pension cost................... 286,500 649,009 548,687
Increase (decrease) due to pension expense
computed under regulatory requirements..... 14,660 (34,839) (548,687)
Amortization of deferred pension asset...... -- 68,716 137,432
--------- -------- --------
Pension cost expensed due to regulatory
requirements............................... $ 301,160 682,886 137,432
========= ======== ========
</TABLE>
The following table sets forth the funded status of the plan and amounts
recognized in the Company's balance sheets at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Projected benefit obligation:
Vested employees................................... $3,971,160 5,452,047
Non-vested employees............................... 253,167 --
---------- ---------
Accumulated benefit obligation................... 4,224,327 5,452,047
Effect of projected future compensation levels....... 2,667,089 --
---------- ---------
Total projected benefit obligation............... 6,891,416 5,452,047
Plan assets at fair value (primarily corporate
securities and government bonds).................... 5,434,130 5,452,047
---------- ---------
Projected benefit obligation in excess of plan
assets.............................................. (1,457,286) --
Unrecognized net obligation.......................... 38,828 --
Unrecognized prior service cost...................... (57,287) --
Unrecognized net (gain) loss......................... 1,014,164 --
---------- ---------
Accrued pension obligation........................... $ (461,581) --
========== =========
</TABLE>
F-39
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assumptions used in determining the funded status information and
pension expense under Financial Accounting Standards Board Statement No. 87
(SFAS No. 87) for 1995, 1996 and 1997 were:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Discount rate.............................................. 7.15% 7.15% 7.00%
Expected long-term rate of return on assets................ 9.50% 8.15% 7.50%
Rate of increase in compensation levels.................... 5.00% 5.00% 5.00%
</TABLE>
In accordance with the provisions of Financial Accounting Standards Board
Statement No. 71, a deferred asset of $625,991 $1,037,246 and at December 31,
1996 and 1997, respectively, has been established to provide for any variation
between pension expense computed under SFAS No. 87 and pension expense
computed for regulatory purposes.
The Company has a defined contribution retirement plan, pursuant to Section
401(k) of the Internal Revenue Code, covering substantially all of its full-
time employees. The plan provides that participants may contribute a
percentage of compensation, but not in excess of the maximum allowed under the
Code. Prior to 1996, the plan made no provision for employer contributions.
Effective January 1, 1996, full-time employees of Taconic Technology having at
least one year of service were eligible to receive employer contributions
under the plan of 5% of gross wages and matching up to 3% of employee
contributions. Effective January 1, 1997, full-time employees of Taconic
Telephone having at least one year of service were eligible for the same level
of employer contributions as Taconic Technology employees. The Company's
expense was $10,546 for 1996 and $344,616 for 1997 and $85,097 and $18,295 for
the three months ended March 31, 1997 and March 31, 1998, respectively. .
(8)SALE OF COMPANY
During 1997, the Company's board of directors approved a definitive
agreement to sell 100% of the Company's common stock to MJD Ventures, Inc. of
Charlotte, N.C. The transaction received PSC approval in February, 1998 and is
expected to be consummated no later than the second quarter of 1998.
(9)ENVIRONMENTAL REMEDIATION
During 1997, the Company engaged an environmental consultant to undertake an
environmental site assessment of all property owned by the Company. As a
result, the Company opted to remove all in-ground fuel tanks and replace most
with above ground storage tanks. In those locations where testing detected the
existence of soil contamination, remediation was either undertaken or planned.
Utilizing projected costs derived from the remediation plan, the Company was
able to develop estimates of cash payments for the remediation costs which are
considered fixed and reliably determinable. The aggregate cost related to
remediation, principally the removal and treatment of contaminated soil is
estimated to be $103,000. Other costs, including site assessments, testing and
tank removal and replacement are estimated to be $168,000. Approximately
$128,000 has been incurred as of December 31, 1997. The remaining estimated
costs have been recorded in current liabilities on the accompanying
consolidated balance sheet.
(10)DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued
Expenses: the carrying amount approximates fair value because of the short
maturity of these instruments
Investments: the investments are stated at fair value
Long-Term Debt: the carrying value of the Company's long-term debt
approximates fair value.
F-40
<PAGE>
TACONIC TELEPHONE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue................. $4,706,451 $4,869,411 $4,975,221 $4,724,890 $19,275,973
Income from operations.. 1,020,069 1,048,612 923,243 442,130 3,434,054
Net earnings............ 665,202 689,007 649,973 299,604 2,303,786
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue................. $4,898,547 $5,031,223 $5,274,498 $5,192,794 $20,397,062
Income from operations.. 960,769 964,894 1,129,248 700,517 3,775,428
Net earnings............ 555,513 560,451 702,345 441,328 2,259,629
</TABLE>
(12) MAJOR CUSTOMERS
The Company derives significant revenues from AT&T and NYNEX principally
from network access and billing and collection services. Such revenues
amounted to 19.9%, 18.3% and 16.6% for AT&T and 11.4%, 8.1%, and 8.5% for
NYNEX of total operating revenues for the years ended December 31, 1995, 1996
and 1997, respectively and 17.7% and 13.0% for AT&T and 8.7% and 7.4% for
NYNEX for the three months ended March 31, 1997 and 1998, respectively.
F-41
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Ellensburg Telephone Company
We have audited the accompanying consolidated balance sheet of Ellensburg
Telephone Company and subsidiary as of December 31, 1996 and 1997 and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ellensburg
Telephone Company and subsidiary as of December 31, 1996 and 1997 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Moss Adams LLP
Seattle, Washington
February 11, 1998
F-42
<PAGE>
ELLENSBURG TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash............................... $ 793,800 $ 575,500 $ 377,828
Short-term marketable securities... 4,549,500 4,893,600 6,441,152
Receivables less allowance for
uncollectibles:
1996--$198,000; 1997--$209,500.... 930,400 1,015,100 1,499,729
Materials and supplies (first-in,
first-out cost basis)............. 264,100 220,000 243,598
Prepaid expenses................... 170,200 198,200 68,313
Income tax prepaid and deferred.... 234,200 72,600 184,700
------------ ------------ ------------
Total current assets............. 6,942,200 6,975,000 8,815,320
------------ ------------ ------------
Other investments and assets......... 3,263,700 4,508,600 4,312,075
------------ ------------ ------------
Property, plant and equipment, at
cost................................ 55,312,800 57,692,000 58,175,974
Less accumulated depreciation...... (25,207,200) (27,557,800) (28,104,516)
------------ ------------ ------------
30,105,600 30,134,200 30,071,458
------------ ------------ ------------
$ 40,311,500 $ 41,617,800 $ 43,198,853
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt.. $ 133,300 $ -- $ --
Accounts payable................... 1,272,400 439,900 1,000,135
Accrued liabilities................ 865,500 791,700 1,377,204
------------ ------------ ------------
Total current liabilities........ 2,271,200 1,231,600 2,377,339
------------ ------------ ------------
Deferred federal income tax.......... 4,239,500 4,224,300 4,201,973
------------ ------------ ------------
Employee benefit plans............... 1,429,000 1,748,300 1,827,797
------------ ------------ ------------
Regulatory liability................. 482,900 429,600 429,600
------------ ------------ ------------
Shareholders' equity
Common stock, $10 par; authorized
1,000,000 shares.................. 6,851,600 6,851,600 6,851,600
Additional paid-in capital......... 11,476,700 11,476,700 11,476,700
Retained earnings.................. 13,560,600 15,655,700 16,033,844
------------ ------------ ------------
31,888,900 33,984,000 34,362,144
------------ ------------ ------------
$ 40,311,500 $ 41,617,800 $ 43,198,853
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
ELLENSBURG TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues
Local telephone
services............. $ 3,386,000 $ 3,656,000 $ 3,894,700 $ 942,783 $1,025,374
Network access........ 8,320,600 9,040,800 9,301,400 2,544,922 2,104,583
Long distance
services............. 138,000 108,500 104,700 26,778 21,251
Miscellaneous
revenues............. 1,386,100 1,269,100 1,397,200 339,979 354,482
Uncollectible
revenues............. (45,800) (15,500) (39,300) (13,875) 2,573
----------- ----------- ----------- ---------- ----------
13,184,900 14,058,900 14,658,700 3,840,587 3,508,263
----------- ----------- ----------- ---------- ----------
Operating expenses
Plant operations...... 1,957,300 2,310,700 2,298,500 605,994 528,670
Depreciation and
amortization......... 3,112,000 3,324,800 3,601,100 944,154 843,853
Network operations.... 350,400 297,000 340,100 73,088 114,187
Marketing and customer
services............. 1,439,800 1,571,900 1,610,800 443,877 414,444
General and
administrative....... 1,238,800 1,202,200 1,441,400 351,168 444,063
Operating taxes....... 506,400 408,800 484,300 118,851 122,140
----------- ----------- ----------- ---------- ----------
8,604,700 9,115,400 9,776,200 2,537,132 2,467,357
----------- ----------- ----------- ---------- ----------
Operating income.... 4,580,200 4,943,500 4,882,500 1,303,455 1,040,906
----------- ----------- ----------- ---------- ----------
Other income (expenses)
Interest income....... 239,900 235,700 242,800 56,250 72,882
Interest expense...... (1,000) (100) (100) -- --
Other income.......... 317,800 515,000 811,600 192,847 155,332
----------- ----------- ----------- ---------- ----------
556,700 750,600 1,054,300 249,097 228,214
----------- ----------- ----------- ---------- ----------
Income before income
tax provision...... 5,136,900 5,694,100 5,936,800 1,552,552 1,269,120
Income tax provision.... 1,523,100 1,760,000 1,923,200 501,960 411,365
----------- ----------- ----------- ---------- ----------
Net income.............. $ 3,613,800 $ 3,934,100 $ 4,013,600 $1,050,592 $ 857,755
=========== =========== =========== ========== ==========
Earnings per share...... $ 5.27 $ 5.74 $ 5.86 $ 1.53 $ 1.25
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
ELLENSBURG TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PAR
NUMBER VALUE OF ADDITIONAL
OF SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994..... 685,158 $6,851,600 $11,476,700 $ 9,644,000
Cash dividends paid, $2.60
per share................... -- -- -- (1,781,400)
Net income for the year...... -- -- -- 3,613,800
------- ---------- ----------- -----------
Balance, December 31, 1995..... 685,158 6,851,600 11,476,700 11,476,400
Cash dividends paid, $2.70
per share................... -- -- -- (1,849,900)
Net income for the year...... -- -- -- 3,934,100
------- ---------- ----------- -----------
Balance, December 31, 1996..... 685,158 6,851,600 11,476,700 13,560,600
Cash dividends paid, $2.80
per share................... -- -- -- (1,918,500)
Net income for the year...... -- -- -- 4,013,600
------- ---------- ----------- -----------
Balance, December 31, 1997..... 685,158 6,851,600 11,476,700 15,655,700
Cash dividends paid, $.70 per
share....................... -- -- -- (479,611)
Net income for the three
months...................... -- -- -- 857,755
------- ---------- ----------- -----------
Balance, March 31, 1998........ 685,158 $6,851,600 $11,476,700 $16,033,844
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
ELLENSBURG TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
---------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income............. $ 3,613,800 $ 3,934,100 $ 4,013,600 $ 1,050,592 $ 857,755
Adjustments to
reconcile net income
to cash flows from
operating activities
Depreciation and
amortization........ 3,250,900 3,472,400 3,732,300 977,831 860,902
Deferred income tax
and investment
credit.............. 98,300 (61,600) (15,200) (15,146) (22,327)
Joint venture and
affiliate income.... (250,000) (310,900) (736,000) (9,837) (131,755)
Employee benefit
plans............... 178,100 322,400 319,300 82,405 79,497
Regulatory
liability........... (174,300) (117,900) (53,300) -- --
Changes in assets and
liabilities
Receivables........ (339,100) 113,800 (84,700) (552,678) (484,629)
Materials and
supplies.......... (32,100) (52,800) 44,100 -- (23,598)
Prepaid expenses... (32,200) (25,800) (28,000) 114,818 129,887
Income tax prepaid
and deferred...... (151,000) (210,400) 161,600 234,200 72,600
Accounts payable
and accrued
liabilities....... 132,100 598,300 (906,300) (259,057) 961,034
------------ ------------ ------------ ----------- -----------
Cash flows from
operating
activities...... 6,294,500 7,661,600 6,447,400 1,623,128 2,299,366
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Additions to property,
plant and equipment,
net................... (3,355,900) (5,103,500) (3,760,900) (1,174,804) (541,643)
Decrease (increase) in
investments and other
assets................ (1,458,000) 1,112,500 (508,900) (630,000) 71,760
Proceeds from sales of
marketable
securities............ 16,579,600 13,527,200 19,114,000 5,651,118 3,525,853
Purchases of marketable
securities............ (15,840,400) (15,469,600) (19,458,100) (5,733,777) (5,073,397)
------------ ------------ ------------ ----------- -----------
Cash flows from
investing
activities...... (4,074,700) (5,933,400) (4,613,900) (1,887,463) (2,017,427)
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments of long-term
debt.................. (133,300) (133,300) (133,300) -- --
Cash dividends paid.... (1,781,400) (1,849,900) (1,918,500) (479,611) (479,611)
------------ ------------ ------------ ----------- -----------
Cash flows from
financing
activities...... (1,914,700) (1,983,200) (2,051,800) (479,611) (479,611)
------------ ------------ ------------ ----------- -----------
CHANGE IN CASH......... 305,100 (255,000) (218,300) (743,946) (197,672)
CASH
Beginning of year...... 743,700 1,048,800 793,800 793,800 575,500
------------ ------------ ------------ ----------- -----------
End of year............ $ 1,048,800 $ 793,800 $ 575,500 $ 49,854 $ 377,828
============ ============ ============ =========== ===========
SUPPLEMENTAL
INFORMATION
Cash paid during the
year for:
Income tax........... $ 1,750,100 $ 2,150,000 $ 1,830,000 $ -- $ 60,000
============ ============ ============ =========== ===========
Interest............. $ 1,000 $ 100 $ 100 $ -- $ --
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
ELLENSBURG TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1997 AND 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's principal business is operation of a telephone company serving
Ellensburg and Selah, Washington and surrounding areas. The Company also
provides wireless communication services directly and with other joint venture
partners.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and a wholly-owned subsidiary. The Company's
investments in affiliated ventures (not majority owned) engaged in paging,
cellular and other services are reported on the equity method. Income from
these ventures amounted to $250,000, $310,900, $736,000 and $140,000 for the
years ended December 31, 1995, 1996, 1997 and for the three months ended March
31, 1998, respectively. Investments in ventures where the ownership percentage
is less than 20% are carried at cost. All significant intercompany accounts
and transactions have been eliminated.
PROPERTY, PLANT AND EQUIPMENT--The cost of property, plant and equipment is
depreciated on the straight-line composite method based upon the estimated
useful lives of the related assets. Provisions for depreciation were 6.4%,
6.4%, 6.5% and 6.5% of average depreciable assets in service for 1995, 1996,
1997 and for the three months ended March 31, 1998, respectively.
INCOME TAX--Deferred income taxes are computed using the liability method.
Under the liability method, taxes are recorded based on the future tax effects
of the difference between the tax and financial reporting bases of the
Company's assets and liabilities. In estimating future tax consequences, all
expected future events are considered, except for potential income tax law or
rate changes. Deferred income tax expense is measured by the change in the net
deferred income tax asset or liability during the year. For regulated
companies, the deferred regulatory liabilities are recognized at the revenue
requirement level.
Investment tax credits are deferred and amortized to income over the
estimated useful lives of the related plant additions. The net deferrals
accumulate to $252,700, $183,400, $122,900 and $111,600 at December 31, 1995,
1996, 1997 and March 31, 1998, respectively.
NETWORK ACCESS REVENUES--Certain network access revenues are recorded on an
estimated basis each month. These revenues are subject to later settlement
with an exchange carrier association based on studies of actual costs. The
1995, 1996 and 1997 revenues were increased by $113,200, $308,200 and
$145,900, respectively, representing prior years' amounts refunded by the
exchange carrier association. Certain network access revenue for 1995, 1996
and 1997 is subject to final settlement. There were no increases or decreases
for the first three months of 1998.
INVESTMENTS--Short-term marketable securities are carried at cost, adjusted
for amortization of premium and accretion of discounts, which are recognized
as adjustments to income. Such cost approximates market. These securities
consist of U.S. Treasury Bills and, generally, have a maturity of less than
twelve months from date of purchase. Under the provisions of Statement of
Financial Accounting Standards No. 115, Investments in Debt and Equity
Securities, these investments are classified as held-to-maturity.
CALCULATION OF EARNINGS AND DIVIDENDS PER SHARE--Earnings per share are
computed based on the average number of shares outstanding. These calculations
are in conformity with recently issued Statement of
F-47
<PAGE>
ELLENSBURG TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Accounting Standards No. 128. Dividends per share are computed based
on the number of shares outstanding on the date the dividend is paid.
RECLASSIFICATIONS--Certain reclassifications of 1995 and 1996 balances have
been made to conform to the 1997 presentation. The reclassifications have no
effect on net income for 1995 and 1996.
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS--Financial instruments
which potentially subject the Company to concentrations of credit risk consist
of cash, short-term marketable securities and receivables. The Company
maintains bank accounts with major financial institutions and balances from
time to time exceed insured limits. Investments are in securities issued by
the U.S. Government and its agencies. Receivables are due from a large number
of customers in the Company's service area, and also include settlements from
other carriers and exchange associations. The Company believes these policies
do not result in significant risks.
FUTURE ACCOUNTING CHANGES--Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" will be effective for the Company in
1998. This standard requires that certain items recognized under accounting
principles as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" will be effective for the
Company in 1998. This standard revises employers' disclosures about pension
and other post-retirement benefit plans. It does not change the measurement or
recognition of those plans.
Other recent pronouncements do not affect the Company.
NOTE 2--LINES OF CREDIT
The Company has a revolving credit facility with a bank with maximum
borrowings of $3,000,000, bearing interest at the bank's reference lending
rate plus .25%. The line is unsecured and matures October 1, 1998. The Company
also has a revolving credit facility with a finance cooperative with maximum
borrowings of $6,000,000, bearing interest at the prime rate plus 1.50%. The
line is unsecured, and available through March 10, 2001. The Company has an
understanding with the lenders that the total outstanding balances will not
exceed $6,000,000. There were no balances outstanding on either credit line at
December 31, 1996, 1997, or March 31, 1998.
NOTE 3--INCOME TAX
The income tax provision is composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
---------------------------------- ------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Current................. $1,599,100 $2,122,500 $2,000,700 $521,327 $426,365
Deferred................ 1,200 (293,200) (17,000) (4,250) (3,672)
Investment credits
amortized.............. (77,200) (69,300) (60,500) (15,117) (11,328)
---------- ---------- ---------- -------- --------
$1,523,100 $1,760,000 $1,923,200 $501,960 $411,365
========== ========== ========== ======== ========
</TABLE>
The difference between the total expected income tax provision at the
federal statutory rate of 34% and the actual provision is accounted for as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
---------------------------------- ------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Computed expected tax
expense............... $1,746,600 $1,936,000 $2,018,500 $527,875 $431,541
Investment tax credit
amortization.......... (77,200) (69,300) (60,500) (15,117) (11,328)
Rate differential on
temporary differences
that are reversing.... (53,000) (53,000) (53,000) (13,248) (13,248)
Other, net............. (93,300) (53,700) 18,200 2,450 4,400
---------- ---------- ---------- -------- --------
Income tax
provision........... $1,523,100 $1,760,000 $1,923,200 $501,960 $411,365
========== ========== ========== ======== ========
</TABLE>
F-48
<PAGE>
ELLENSBURG TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ MARCH 31
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets
Pension costs and benefit plans..... $ 485,900 $ 594,600 $ 621,650
Other investments................... 4,300 4,300 4,300
Allowance for doubtful accounts..... 67,000 71,300 64,000
Accrued vacation.................... 116,000 120,700 120,700
----------- ----------- -----------
Total deferred income tax assets.. 673,200 790,900 810,650
----------- ----------- -----------
Deferred tax liabilities
Depreciation and asset basis
differences........................ (4,729,700) (4,823,200) (4,827,923)
----------- ----------- -----------
Net deferred income taxes......... $(4,056,500) $(4,032,300) $(4,017,273)
=========== =========== ===========
</TABLE>
Net deferred income tax balances at December 31 are classified as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ MARCH 31
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax asset--current............ $ 183,000 $ 192,000 $ 184,700
Deferred tax liabilities--long-term.... (4,239,500) (4,224,300) (4,201,973)
----------- ----------- ------------
$(4,056,500) $(4,032,300) $(4,017,273)
=========== =========== ============
</TABLE>
As a result of implementing the liability method of accounting for income
taxes, the Company recorded a regulatory liability, which represents the
reduction of deferred taxes resulting from the decrease in the statutory
federal income tax rate to 34%. This reduction of accumulated deferred income
taxes is being amortized over the regulatory lives of the related depreciable
assets concurrent with their inclusion in the ratemaking base.
NOTE 4--ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 and 1997 include the following
components:
<TABLE>
<CAPTION>
DECEMBER 31
----------------- MARCH 31
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Vacation pay..................................... $342,600 $354,900 $ 354,900
Property taxes................................... 350,100 371,100 464,886
Income tax payable............................... -- -- 485,796
Other............................................ 172,800 65,700 71,622
-------- -------- ----------
$865,500 $791,700 $1,377,204
======== ======== ==========
</TABLE>
NOTE 5--EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan which covers substantially
all employees. This plan provides pension benefits based upon participants'
compensation levels and length of service. The Company's funding policy is to
contribute amounts deductible for federal income tax purposes. The Company
contributed $99,000 in 1995, $83,200 in 1996, $88,100 in 1997 and $0 in the
three months ended March 31, 1997 and 1998, respectively. Pension cost
amounted to $279,700, $339,600 and $321,400 for 1995, 1996 and 1997,
respectively.
F-49
<PAGE>
ELLENSBURG TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pension cost for the years ended December 31, 1995, 1996 and 1997 includes
the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost................................. $ 191,300 $ 228,500 $ 224,300
Interest cost................................ 420,900 485,500 511,700
Return on assets............................. (585,100) (555,400) (819,800)
Amortization of transition adjustment........ 252,600 181,000 405,200
--------- --------- ---------
Net pension cost............................. $ 279,700 $ 339,600 $ 321,400
========= ========= =========
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the accompanying balance sheet at December 31, 1996 and 1997.
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation............................ $5,314,000 $5,809,800
========== ==========
Accumulated benefit obligation....................... $5,326,100 $5,909,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Projected benefit obligation....................... $(7,575,600) $(8,009,400)
Fair value of plan assets.......................... 6,011,700 6,774,800
----------- -----------
Projected benefit obligation in excess of (less
than) plan assets................................. (1,563,900) (1,234,600)
Unrecognized amounts of net assets, liabilities and
gains............................................. 386,900 (175,700)
----------- -----------
Pension plan obligation............................ $(1,177,000) $(1,410,300)
=========== ===========
</TABLE>
The actuarial present value of the projected benefit obligation at December
31, 1996 and 1997, respectively, was determined using a weighted average
discount rate of 7.0%, and a rate of increase in future compensation levels of
5.5%. The expected long-term rate of return on assets was 8%.
The Company applies Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Post-retirement Benefits Other than Pensions ("FAS
106"), which requires the cost of nonpension, post-retirement benefits granted
to employees to be accrued and recognized as expense over the period in which
the employee provides services and becomes eligible to receive benefits. The
accumulated post-retirement benefits granted to employees as of January 1,
1993 amounted to approximately $677,000, which is being amortized over a 20
year period. The Company recognized net periodic post-retirement benefit costs
approximating $78,900, $72,500, $93,400, $17,000 and $21,000 in 1995, 1996,
1997 and for the three months ended March 31, 1997 and 1998, respectively. The
recorded obligation for this plan is $252,000, $338,000 and $359,000 at
December 31, 1996, 1997 and March 31, 1998, respectively. The accumulated
post-retirement benefits and net periodic post-retirement benefit costs are
based upon an assumed medical inflation rate of 7.0%, which is subject to
change. An increase in the assumed medical inflation rate of 1.0% would
effectively increase the accumulated post-retirement benefits obligation by
13% and the net periodic benefit expense by 15%.
Substantially all employees are eligible to participate in a thrift plan
which allows each employee to contribute up to 6% of individual earnings to
the plan. Company contributions to the plan are at least one half of the
employee contributions and amounted to $74,800 in 1995, $66,300 in 1996,
$82,400 in 1997 and $21,100 and $22,900 for the three months ended March 31,
1997 and 1998, respectively. It is the current policy of the plan trustees to
invest contributions in common stock of the Company, when available, and U.S.
government securities.
F-50
<PAGE>
ELLENSBURG TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PROPOSED MERGER
The Company has entered into an Agreement and Plan of Merger dated December
31, 1997 (the "Merger Agreement"), which is subject to approval by the
shareholders at a special meeting to be held on February 24, 1998. Under terms
of the Merger Agreement, and as more fully explained in the Proxy Statement,
the Company's shareholders will receive cash for their shares of common stock.
F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Directors and Stockholders
Utilities, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Utilities,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income and retained earnings, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Utilities, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
results of their consolidated operations and their consolidated cash flows for
each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Berry, Dunn, McNeil & Parker
Portland, Maine
February 12, 1998 (except for Notes 3, 13,
and 14, which are dated May 17, 1998,
February 19, 1998, and March 27, 1998,
respectively)
F-52
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1996 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................. $ 6,999,028 $ 4,297,997 $ 4,830,278
Accounts receivable, net of allowance for
doubtful accounts of $14,986 at March 31,
1998, $42,664 in 1997 and $45,829 in
1996..................................... 2,818,058 2,580,390 3,081,515
Due from affiliates....................... 13,396 6,886 --
Recoverable income taxes.................. -- -- 169,621
Materials and supplies.................... 153,547 116,334 138,596
Prepaid expenses.......................... 12,725 48,150 13,507
----------- ----------- -----------
TOTAL CURRENT ASSETS................... 9,996,754 7,049,757 8,233,517
----------- ----------- -----------
PROPERTY, PLANT, AND EQUIPMENT, AT COST
Telecommunications plant in service
General support assets................... 6,200,971 6,156,449 6,189,111
Central office equipment................. 17,977,267 15,999,835 17,598,995
Information origination/termination
equipment............................... 162,417 283,704 162,417
Cable and wire facilities................ 20,599,704 19,636,679 20,590,636
Cellular communications plant............ 1,203,173 1,192,851 1,203,173
----------- ----------- -----------
46,143,532 43,269,518 45,744,332
Less accumulated depreciation............ 24,041,978 21,233,463 24,527,391
----------- ----------- -----------
22,101,554 22,036,055 21,216,941
Telecommunications plant under
construction............................. 647,549 567,755 1,032,974
----------- ----------- -----------
NET PROPERTY, PLANT, AND EQUIPMENT..... 22,749,103 22,603,810 22,249,915
----------- ----------- -----------
OTHER ASSETS
Cellular license, net..................... 1,730,786 1,824,338 1,707,398
Investment in and advances to Portland
Cellular Partnership..................... 777,784 785,778 789,340
Investment in nontraded stocks............ 1,871,091 1,913,859 1,871,091
Deferred charges, net..................... 1,220,984 700,510 1,359,050
Goodwill, net............................. 8,150,527 8,420,707 8,085,006
----------- ----------- -----------
TOTAL OTHER ASSETS..................... 13,751,172 13,645,192 13,811,885
----------- ----------- -----------
$46,497,029 $43,298,759 $44,295,317
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1997 1996 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt..... $ 1,889,584 $ 1,878,639 $ 1,960,439
Dividends payable..................... 1,082,522 82,524 82,522
Accounts payable...................... 1,213,178 1,942,039 1,467,861
Due to affiliates..................... -- -- 11,693
Income taxes payable.................. 1,201,889 162,202 --
Accrued expenses...................... 535,094 294,220 675,523
Accrued wages......................... 291,586 338,187 304,077
Accrued interest...................... 235,869 261,517 229,672
Customer deposits..................... 50,333 48,590 36,459
----------- ----------- -----------
Total current liabilities........... 6,500,055 5,007,918 4,768,246
----------- ----------- -----------
DEFERRED CREDITS
Income taxes.......................... 3,395,612 2,388,995 3,453,190
Unamortized investment tax credits.... 143,497 191,324 131,540
Other deferred credits................ 259,112 298,086 268,855
----------- ----------- -----------
Total deferred credits.............. 3,798,221 2,878,405 3,853,585
----------- ----------- -----------
LONG-TERM DEBT, EXCLUDING CURRENT
PORTION................................ 24,022,957 25,885,685 23,484,054
OTHER LIABILITIES....................... 773,243 596,379 776,961
----------- ----------- -----------
Total liabilities................... 35,094,476 34,368,387 32,882,846
----------- ----------- -----------
MINORITY INTEREST....................... 37,500 42,000 37,500
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized
50,000 shares, issued 31,136 shares,
outstanding 30,792 shares............ 815,205 815,205 815,205
Retained earnings..................... 10,622,318 8,145,637 10,632,236
----------- ----------- -----------
11,437,523 8,960,842 11,447,441
Less common stock in treasury, 344
shares, at cost..................... (72,470) (72,470) (72,470)
----------- ----------- -----------
Total stockholders' equity.......... 11,365,053 8,888,372 11,374,971
----------- ----------- -----------
$46,497,029 $43,298,759 $44,295,317
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 AND
THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1997 1996 1995 1998 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Basic local network
services............. $ 3,264,356 $ 3,049,929 $ 3,057,114 $ 771,891 $ 765,596
Network access
services............. 6,015,791 5,718,810 5,873,537 1,603,207 1,294,771
Long-distance network
services............. 5,557,779 5,476,960 5,329,295 1,406,256 1,332,532
Miscellaneous......... 322,933 257,210 255,384 78,514 75,648
Service revenues...... 1,198,392 1,777,538 1,369,284 269,334 357,455
Cellular
communications
revenues............. 1,645,974 1,421,054 1,209,728 366,891 364,731
Less uncollectible
revenues............. (174,359) (145,279) (141,599) (48,549) (42,562)
----------- ----------- ----------- ---------- ----------
TOTAL OPERATING
REVENUE............ 17,830,866 17,556,222 16,952,743 4,447,544 4,148,171
----------- ----------- ----------- ---------- ----------
OPERATING EXPENSES
Plant specific
operations........... 2,394,140 2,327,448 2,712,240 964,986 609,518
Plant nonspecific
operations........... 2,255,028 1,963,413 929,670 624,998 605,588
Depreciation and
amortization......... 3,515,918 3,376,023 3,112,306 924,259 874,155
Customer operations... 1,410,351 1,162,523 1,430,682 503,328 335,904
Corporate operations.. 2,272,279 2,275,615 2,684,846 428,514 573,747
Cellular operations... 1,331,868 1,268,310 1,147,582 226,905 288,340
----------- ----------- ----------- ---------- ----------
TOTAL OPERATING
EXPENSES........... 13,179,584 12,373,332 12,017,326 3,672,990 3,287,252
----------- ----------- ----------- ---------- ----------
OPERATING TAXES
Federal and state
income taxes......... 1,357,276 1,475,894 1,178,488 146,941 131,768
Other operating
taxes................ 653,907 647,566 656,085 174,420 146,239
----------- ----------- ----------- ---------- ----------
TOTAL OPERATING
TAXES.............. 2,011,183 2,123,460 1,834,573 321,361 278,007
----------- ----------- ----------- ---------- ----------
NET OPERATING
INCOME............. 2,640,099 3,059,430 3,100,844 453,193 582,912
----------- ----------- ----------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest and
dividends............ 215,578 189,475 125,828 75,646 51,842
Loss from Portland
Cellular
Partnership.......... (282,994) (284,932) (338,871) (28,444) (79,891)
Legal settlement...... 4,500,000 -- -- -- --
Gain on sale of
subsidiary........... -- 367,516 -- -- --
Goodwill
amortization......... (270,180) (269,820) (275,285) (65,521) (67,545)
Other, net............ 299,047 519,442 384,953 74,447 62,601
Income taxes.......... (1,103,800) 542,242 723,657 98,539 95,200
----------- ----------- ----------- ---------- ----------
NET OTHER INCOME.... 3,357,651 1,063,923 620,282 154,667 62,207
----------- ----------- ----------- ---------- ----------
INCOME BEFORE
INTEREST EXPENSE... 5,997,750 4,123,353 3,721,126 607,860 645,119
Interest expense........ 2,187,849 2,647,443 2,937,493 514,670 584,181
----------- ----------- ----------- ---------- ----------
NET INCOME BEFORE
MINORITY INTEREST.. 3,809,901 1,475,910 783,633 93,190 60,938
Minority interest....... 3,130 3,450 3,810 750 840
----------- ----------- ----------- ---------- ----------
NET INCOME.......... $ 3,806,771 $ 1,472,460 $ 779,823 $ 92,440 $ 60,098
=========== =========== =========== ========== ==========
Earnings per common
share.................. $ 123.63 $ 47.82 $ 25.17 $ 3.00 $ 1.95
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 AND
THREE-MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY
STOCK EARNINGS STOCK TOTAL
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994...... $815,205 $ 6,515,352 $ (9,737) $ 7,320,820
Net income....................... -- 779,823 -- 779,823
Dividends declared; $9.84 per
share........................... -- (303,917) -- (303,917)
Purchase of stock for the
treasury, 457 shares............ -- -- (107,778) (107,778)
Sale of treasury stock, 191
shares.......................... -- -- 45,045 45,045
-------- ----------- -------- -----------
BALANCES, DECEMBER 31, 1995...... 815,205 6,991,258 (72,470) 7,733,993
Net income....................... -- 1,472,460 -- 1,472,460
Dividends declared; $10.33 per
share........................... -- (318,081) -- (318,081)
-------- ----------- -------- -----------
BALANCES, DECEMBER 31, 1996...... 815,205 8,145,637 (72,470) 8,888,372
Net income....................... -- 3,806,771 -- 3,806,771
Dividends declared, $43.20 per
share........................... -- (1,330,090) -- (1,330,090)
-------- ----------- -------- -----------
BALANCES, DECEMBER 31, 1997...... 815,205 10,622,318 (72,470) 11,365,053
Net income (unaudited)........... -- 92,440 -- 92,440
Dividends declared, $2.68 Per
share (unaudited)............... -- (82,522) -- (82,522)
-------- ----------- -------- -----------
BALANCES, MARCH 31, 1998......... $815,205 $10,632,236 $(72,470) $11,374,971
======== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 AND
THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1997 1996 1995 1998 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income............. $ 3,806,771 $ 1,472,460 $ 779,823 $ 92,440 $ 60,098
Adjustments to
reconcile net income
to net cash provided
(used) by operating
activities
Patronage dividends.... -- -- (39,069) -- --
Depreciation and
amortization.......... 3,795,180 3,645,843 3,387,591 989,780 941,700
Deferred income taxes.. 976,209 282,655 298,108 47,837 17,000
Amortization of
deferred investment
tax credits........... (45,823) (45,823) (47,827) (11,957) (11,456)
Loss from Portland
Cellular Partnership.. 282,994 284,932 338,871 28,444 79,891
Legal settlement....... (4,500,000) -- -- -- --
Gain on sale of
subsidiary............ -- (367,516) -- -- --
Decrease (increase) in
Accounts receivable... (237,668) 381,814 (449,206) (263,457) (11,529)
Recoverable income
taxes................ -- 31,583 (31,583) (169,621) --
Due from affiliates... (6,510) (6,886) 144,178 13,396 6,886
Materials and
supplies............. (37,213) (48,379) 47,928 14,951 (56,283)
Prepaid expenses...... 35,425 (29,553) (9,531) (782) --
Increase (decrease) in
Accounts payable...... (728,861) 781,663 290,110 254,683 (210,872)
Income taxes payable.. 1,039,687 162,202 (280,867) (1,201,889) (73,333)
Due to affiliates..... -- (85,840) 31,295 11,693 --
Accrued expenses and
other liabilities.... 291,012 130,222 111,647 150,441 153,305
Customer deposits..... 1,743 174 22,857 (13,874) --
----------- ----------- ----------- ----------- ----------
NET CASH PROVIDED
(USED) BY OPERATING
ACTIVITIES........... 4,672,946 6,589,551 4,594,325 (57,915) 895,407
----------- ----------- ----------- ----------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Plant additions......... (3,552,217) (2,802,602) (2,741,179) (384,883) (714,945)
Proceeds from sale of
subsidiary............. -- 969,225 -- -- --
Proceeds from legal
settlement............. 4,500,000 -- -- -- --
Plant removal costs..... (39,601) (13,500) (7,206) -- --
Salvage................. 57,518 16,811 30,485 -- --
Contributions to plant.. 19,841 4,410 1,236 -- --
Distributions from
(contributions to)
Portland Cellular
Partnership............ (275,000) (100,000) 350,000 (40,000) (50,000)
Payment of deferred
charges................ (538,849) (11,615) (34,756) (135,382) --
----------- ----------- ----------- ----------- ----------
NET CASH PROVIDED
(USED) BY INVESTING
ACTIVITIES........... 171,692 (1,937,271) (2,401,420) (560,265) (764,945)
----------- ----------- ----------- ----------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Retirement of preferred
stock of subsidiary.... (4,500) (4,500) (4,500) -- --
Payment of long-term
debt................... (1,809,015) (2,452,487) (1,270,141) (468,048) (431,321)
Payment on line of
credit................. -- -- (250,000) -- --
Dividends paid.......... (330,092) (314,077) (300,868) (1,082,522) (83,363)
Purchase of treasury
stock.................. -- -- (107,778) -- --
Sale of treasury stock.. -- -- 45,045 -- --
----------- ----------- ----------- ----------- ----------
NET CASH USED BY
FINANCING
ACTIVITIES........... (2,143,607) (2,771,064) (1,888,242) (1,550,570) (514,684)
----------- ----------- ----------- ----------- ----------
NET INCREASE
(DECREASE) IN CASH
AND CASH
EQUIVALENTS.......... 2,701,031 1,881,216 304,663 (2,168,750) (384,222)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 4,297,997 2,416,781 2,112,118 6,999,028 4,297,997
----------- ----------- ----------- ----------- ----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 6,999,028 $ 4,297,997 $ 2,416,781 $ 4,830,278 $3,913,775
=========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, 1995 AND MARCH 31, 1998
(INFORMATION AS OF AND FOR THE THREE-MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Nature of Operations
Utilities, Inc. (the Company) and its subsidiaries derive operating revenues
primarily from providing regulated telephone, cellular communication and data
processing services to customers in Maine and to other domestic
telecommunication providers. The Company extends credit at standard terms,
after appropriate review, to customers.
The Company's telephone and cellular operations are subject to various
degrees of regulation by the Federal Communications Commission (FCC) and the
Maine Public Utilities Commission (MPUC). On February 8, 1996, the
"Telecommunications Act of 1996" (the Act) was signed into law. The Act seeks
to stimulate competition in the provision of telecommunications services. The
FCC and MPUC are charged with implementing its provisions. The effect of the
Act on the Company cannot be determined at this time.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Reporting
The consolidated financial statements include the accounts of the Company
and its subsidiaries: Standish Telephone Company, Maine Telephone Company,
China Telephone Company, Seacoast Cellular, Inc., and Western Maine Cellular,
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Regulatory Accounting
The Telephone Companies follow the accounting prescribed by the Uniform
System of Accounts of the Federal Communications Commission (FCC) and the
Maine Public Utilities Commission (MPUC) and Statement of Financial Accounting
Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of
Regulation. This accounting recognizes the economic effects of rate regulation
by recording costs and a return on investment as such amounts are recovered
through rates authorized by regulatory authorities. The Company annually
reviews the continued applicability of SFAS No. 71 based on the current
regulatory and competitive environment.
Cash and Cash Equivalents
All liquid investments with an original maturity of three months or less are
considered to be cash equivalents. The Company maintains its cash in bank
deposit accounts, which at times may exceed federally insured limits, or in
government securities. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant risk on cash and
cash equivalents.
Depreciation
Depreciation is computed on average plant investment by primary plant
accounts using the straight-line method over the assets' useful lives.
Depreciation expense was $3,369,166, $3,199,371 and $2,922,521 for the
F-58
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
years ended December 31, 1997, 1996, and 1995 respectively, and $884,071 and
$829,992 for the three-month periods ended March 31, 1998 and 1997.
Capitalization Policy
Additions to property, plant, and equipment, telecommunications plant in
service and replacements of retirement units of property are capitalized at
original cost, which includes labor, material and overhead.
Cellular License
The Western Maine Cellular, Inc. license is being amortized by the straight-
line method over twenty-five years. Amortization expense related to the
license was $93,552 for each of the years ended December 31, 1997, 1996, and
1995, and $23,388 for the three-month periods ended March 31, 1998 and 1997.
Deferred Charges
Deferred charges include start-up, organization and deferred financing costs
being amortized by the straight-line method over ten years, deferred pension
costs of the regulated telephone companies, and billing system software
development costs. The billing system software costs approximated $539,000 as
of December 31, 1997, and when placed in service, will be amortized using the
straight-line method over the useful life of the billing software.
Amortization expense on deferred charges was $62,282, $83,100 and $96,233 for
the years ended December 31, 1997, 1996, and 1995. Amortization expense was
$16,800 and $20,775 for the three-month periods ended March 31, 1998 and 1997.
Impairment of Long-Lived Assets and Excess Cost on Net Assets Acquired
(Goodwill)
Goodwill arose from the purchase of the Maine Telephone Company from GTE of
Maine in 1994. It is being amortized on the straight-line method over thirty-
five years. By agreement with the MPUC, the goodwill and related amortization
are excluded from regulated operations for rate making purposes.
In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The carrying value of long-lived assets, including
allocated goodwill is reviewed for impairment at least annually, or whenever
events or changes in circumstances indicate that such carrying value may not
be recoverable, by assessing the recoverability of such carrying value through
estimated undiscounted future net cash flows expected to be generated by the
assets or the acquired business. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. The adoption of SFAS No. 121 did not affect the Company's
consolidated financial position or results of operations.
Investments
Investments in the Rural Telephone Finance Cooperative (RTFC) Subordinated
Capital Certificates (SCCs) and the Rural Telephone Bank (RTB) Class B stock
were purchased as a requisite to obtaining financing and are carried at cost.
RTB Class C stock acquired by Maine Telephone Company pursuant to its
acquisition of telecommunications property is carried at cost. The Seacoast
Cellular, Inc. investment in Portland Cellular Partnership (PCP) is accounted
for by the equity method.
F-59
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Materials and Supplies
Materials and supplies are valued at the lower of first-in, first-out (FIFO)
average cost or market.
Income Taxes
Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for tax purposes.
Investment tax credits deferred for financial reporting purposes are being
amortized over the lives of the properties that gave rise to the credits.
Pension Plan
The Company has a noncontributory pension plan covering substantially all
employees, and an unqualified supplemental plan for certain officers. Benefits
are based on years of service and levels of compensation. The Company funds
pension costs accrued.
As mandated by the MPUC, the telephone companies recognize periodic pension
expense as the amounts to be funded are accrued. Pension costs calculated
under SFAS No. 87 are carried as deferred charges until such time as they are
funded.
Revenue Recognition
Operating revenues are recognized when services are provided to customers.
Interstate network access services revenues are recorded based on estimates of
the Telephone Companies' telephone plant investment, operating expenses, and
allowable rates of return on investment allocable to those services.
Nationwide pooling of the revenues is administered by the National Exchange
Carrier Association (NECA), of which the Telephone Companies are members. NECA
files interstate access charge tariff schedules with the FCC and accumulates
and distributes pooled revenues derived from interstate network access
services to its members. The Telephone Companies record the effect of NECA
settlements, including retroactive adjustments, upon notification of such
settlements from NECA.
The Telephone Companies' intrastate network access and long-distance
services revenues are based on agreements with Bell Atlantic, the
interconnecting carrier.
In 1998, Bell Atlantic plans to cancel the long-distance network revenue
settlement agreement referred to above. The cancellation will be effective no
later than May 31, 1998, and possibly earlier at the Company's discretion.
After cancellation, the Company will bill Bell Atlantic and other intrastate
long-distance carriers for access to its customers. The Company intends to
file access rates, based on revenue generated from existing settlements for
similar services and usage, with the MPUC.
During 1997, the Maine legislature enacted a law requiring that, by May 30,
1999, charges for intrastate access service be less than or equal to those
charged for interstate access services. The MPUC has amended its access charge
rules to ensure compliance with the law. The access filing referred to above
will be the first step in the compliance phase for the Company. This phase is
expected to last through much of 1998 and possibly into 1999. The impact of
this process, if any, on the future earnings of the Company is not known at
this time.
F-60
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
Earnings Per Share
Earnings per share data are based on the weighted average number of common
shares outstanding during each year. There were no potentially dilative
securities in any of the years presented.
Reclassification
Based on updated property records, approximately $385,000 of goodwill was
reclassified to telecommunications plant in service during 1997. The impact on
earnings was not significant. The December 31, 1996 balances have been
reclassified to conform to the December 31, 1997, presentation.
Effect of New Financial Accounting Standards
During 1997, the Financial Accounting Standards Board issued two Statements
of Financial Accounting Standards ("SFAS") which apply to the Company: SFAS
No. 128, Earnings Per Share, and SFAS No. 129, Disclosure About Capital
Structure. These statements do not change the measurement or recognition
methods used in financial statements but, rather, deal with disclosure and
presentation requirements.
2. SALE OF SUBSIDIARY
On January 19, 1996, the Company sold all the common stock of its
subsidiary, Sidney Telephone Company, in a cash transaction. The Company
recognized a pretax gain on the sale of $367,516. The results of Sidney
Telephone Company's operations during the nineteen days it was owned by the
Company in 1996 were not significant and were included in the gain.
3. INVESTMENT IN AND ADVANCES TO PORTLAND CELLULAR PARTNERSHIP
The Company's wholly-owned subsidiary, Seacoast Cellular, Inc. ("Seacoast"),
is a one-third general partner in Portland Cellular Partnership. The
investment is accounted for by the equity method and represents Seacoast's
only activity.
The Partnership was originally granted a license to provide service in the
Portland New England County Metropolitan Area (NECMA). That grant was
subsequently challenged by losing applicants and was ultimately rescinded and
awarded to Northeast Cellular Telephone Company (Northeast). On November 28,
1994, Northeast commenced operations and the Partnership ceased providing
service in the Portland NECMA while continuing to pursue its legal rights in
an attempt to regain the license.
On November 18, 1996, the FCC rescinded Northeast's Portland license,
reinstated the Partnership's license, and granted Northeast interim authority
to operate until ten days after the Partnership notifies Northeast that it is
ready to recommence operations. Subsequently, Northeast filed, with the United
States Court of Appeals, an emergency motion for stay of the FCC decision
pending appeal. The motion was granted on March 10, 1997. The Court heard
arguments on the appeal on September 30, 1997, and on January 16, 1998,
affirmed the FCC decision. Northeast filed a motion for rehearing on March 2,
1998. The Court denied Northeast's motion for rehearing on March 19, 1998. On
April 17, 1998, the Court granted Northeast a stay of the effectiveness of its
affirmation of the FCC decision. This has the effect of leaving Northeast the
operator until the Supreme Court rules on its petition for certiorari which
was filed on May 17, 1998. The Supreme Court will likely decide whether to
hear the case in October 1998.
F-61
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENT IN AND ADVANCES TO PORTLAND CELLULAR PARTNERSHIP (CONCLUDED)
The Partnership intends to resume operations in Portland as soon as legally
and operationally practicable and has obtained a bank commitment for financing
in an amount that management believes is adequate to effect the transition.
4. LEGAL SETTLEMENT
During 1997, Seacoast Cellular, Inc. received $4,500,000 from a party
against whom it had commenced a civil action, in settlement of that action.
5. INVESTMENTS IN NONTRADED STOCKS
Investments in nontraded stocks consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
--------------------- ----------
1997 1996 1998
---------- ---------- ----------
<S> <C> <C> <C>
Rural Telephone Finance Cooperative (RTFC)
Subordinated Capital Certificates and
Patronage Capital Certificates, carried at
original cost, held as a requisite to
obtaining RTFC financing................... $ 728,384 $ 771,152 $ 728,384
Rural Telephone Bank (RTB) Class B stock,
carried at original cost, held as a requisite
to obtaining RTB financing................... 399,050 399,050 399,050
RTB Class C stock, carried at cost............ 399,050 701,600 399,050
Other, at cost................................ 42,057 42,057 42,057
---------- ---------- ----------
$1,871,091 $1,913,859 $1,871,091
========== ========== ==========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------- ---------
1997 1996 1998
--------- --------- ---------
<S> <C> <C> <C>
UTILITIES, INC.
Mortgage payable to bank, due in monthly
installments, including interest at 9%, of
$5,029, through 2003; collateralized by real
estate........................................ $ 254,588 $ 292,673 $ 245,372
Note payable to bank, unsecured, due in monthly
installments of $6,917, plus interest, at the
bank's prime rate (8.5% at December 31, 1997
and March 31, 1998), through July 1999........ 124,500 214,416 103,750
Note payable to bank, due in installments of
$32,389, plus interest at the LIBOR rate, for
the LIBOR interest period selected from time-
to-time by the Company, plus 2% (8% at
December 31, 1997 and 7.68% at March 31,
1998), through January 2002, with a final
payment of the balance due in February 2002;
collateralized by all assets of Utilities,
Inc., excluding certain real estate and
investments in subsidiaries................... 3,562,778 3,960,000 3,465,611
</TABLE>
F-62
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31
1997 1996 1998
----------- ----------- -----------
<S> <C> <C> <C>
STANDISH TELEPHONE COMPANY
10.50% notes payable to the Rural Telephone
Bank, due in monthly installments of
$10,616, including interest, through 2009;
collateralized by all corporate assets
except vehicles........................... $ 816,415 $ 855,833 $ 805,610
10.50% notes payable to the Rural Telephone
Bank, due in monthly installments of
$28,823, including interest, through 2019;
collateralized by all corporate assets
except vehicles........................... 2,957,378 2,990,861 2,947,396
MAINE TELEPHONE COMPANY
The following consists of notes payable to the RTFC, collateralized by a
blanket mortgage on all property, except vehicles, of Maine Telephone Company:
Variable rate note payable due in quarterly
installments, including interest at the
RTFC short-term rate (6.65% at December
31, 1997 and March 31, 1998), through
October 2008.............................. 2,638,422 2,813,362 2,595,422
9.2% note payable due in quarterly
installments, including interest, through
October 2008.............................. 5,280,481 5,630,604 5,194,419
Note payable, due in quarterly
installments, including interest (fixed
through October 2001 at 8.8%, then
variable), through October 2008........... 5,280,481 5,630,604 5,194,419
CHINA TELEPHONE COMPANY
6.50% notes payable to the Rural Telephone
Bank, due in quarterly installments of
$46,169, including interest, through 2013;
collateralized by all corporate assets,
except vehicles........................... 1,801,953 1,871,236 1,784,100
WESTERN MAINE CELLULAR, INC.
Note payable to bank, due in monthly in-
stallments of $29,050, plus interest at
the LIBOR rate, for the LIBOR interest pe-
riod selected from time-to-time by the
Company, plus 2% (8% at December 31, 1997
and 7.68% at March 31, 1998), through Jan-
uary 2002, with a final payment of the
balance due in February 2002. The note is
made jointly and severally by Utilities,
Inc. and Western Maine Cellular, Inc., and
is collateralized by all assets of Western
Maine Cellular, Inc....................... 3,195,545 3,504,735 3,108,394
----------- ----------- -----------
25,912,541 27,764,324 25,444,493
Less current portion..................... 1,889,584 1,878,639 1,960,439
----------- ----------- -----------
Long-term debt, excluding current
portion............................... $24,022,957 $25,885,685 $23,484,054
=========== =========== ===========
</TABLE>
Maturities on long-term debt for the next five years are estimated to be as
follows:
<TABLE>
<S> <C>
1998........................................................... $1,960,439
1999........................................................... 1,920,900
2000........................................................... 1,941,200
2001........................................................... 2,014,900
2002........................................................... 5,168,745
</TABLE>
F-63
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
As of March 31, 1998, and December 31, 1997 and 1996, $1,072,050 of
additional Rural Telephone Bank (RTB) funds were available to China Telephone
Company under an RTB note approved in December 1991.
The notes due to the RTB contain restrictions on additional borrowings and
on the payment of dividends on common stock. Retained earnings of the
telephone subsidiaries available for the payment of dividends to the Company
at March 31, 1998, December 31, 1997 and 1996, approximated $1,676,000,
$1,632,000 and $1,322,000, respectively.
All, or portions, of the RTFC variable rate notes may be converted to a
fixed rate at any time as long as the RTFC continues to offer a fixed rate at
such time for similar loans.
The loan agreements with RTFC contain restrictions on additional borrowings
and limit payment of dividends on common stock. Under the terms of the
agreement, Maine Telephone Company may not pay dividends if its equity drops
below 20% of its total assets and as long as that equity ratio is less than
40%, it may not pay dividends for any purpose other than retiring debt
incurred by Utilities, Inc., in connection with the investment in the
subsidiary. Maine Telephone Company's separately stated equity of $5,408,857
amounted to approximately 26% of total assets at March 31, 1998. At December
31, 1997, Maine Telephone Company's separately stated equity of $5,399,789
amounted to approximately 26% of total assets.
As a requisite to obtaining the RTFC financing, Maine Telephone Company
purchased Subordinated Capital Certificates (SCCs), which represent
investments in the lender that will be amortized against the loan principal as
the debt is repaid.
Cash paid for interest was $2,247,496, $2,633,266 and $3,093,192 in 1997,
1996, and 1995, respectively; and $546,989 and $651,825 for the three-month
periods ended March 31, 1998 and 1997, respectively.
During 1997, the Company refinanced $7,372,716 of notes payable to the bank
in a noncash transaction.
7. LINES OF CREDIT
Utilities, Inc., and Standish Telephone Company maintain separate $500,000
unsecured lines of credit which bear interest at the prime rate. As of March
31, 1998, December 31, 1997 and 1996, and no advances were outstanding.
F-64
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
The components of income tax expense are:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ ----------------
1997 1996 1995 1998 1997
---------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $1,152,585 $555,304 $158,387 $10,522 $24,019
State................. 378,105 141,516 46,163 2,000 6,945
---------- -------- -------- ------- -------
Total current income
tax expense........ 1,530,690 696,820 204,550 12,522 31,024
---------- -------- -------- ------- -------
Amortization of
investment tax
credits................ (45,823) (45,823) (47,827) (11,957) (11,456)
---------- -------- -------- ------- -------
Deferred:
Federal............... 806,169 210,458 239,877 36,506 13,000
State................. 170,040 72,197 58,231 11,331 4,000
---------- -------- -------- ------- -------
Total deferred
income tax
expense............ 976,209 282,655 298,108 47,837 17,000
---------- -------- -------- ------- -------
Total income tax
expense............ $2,461,076 $933,652 $454,831 $48,402 $36,568
========== ======== ======== ======= =======
</TABLE>
Income tax expense is allocated as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ------------------
1997 1996 1995 1998 1997
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating income........ $1,357,276 $1,475,894 $1,178,488 $146,941 $131,768
Other income and expense
items.................. 1,103,800 (542,242) (723,657) (98,539) (95,200)
---------- ---------- ---------- -------- --------
$2,461,076 $ 933,652 $ 454,831 $ 48,402 $ 36,568
========== ========== ========== ======== ========
Total income tax expense in 1997, 1996, and 1995 was greater than that
computed by applying U.S. Federal income tax rates to earnings before income
taxes. The reasons for the differences are as follows:
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ------------------
1997 1996 1995 1998 1997
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
expense................ $2,131,068 $ 818,078 $ 419,782 $ 47,886 $ 32,866
State income tax, net of
federal income tax
benefit................ 361,776 141,051 68,900 8,798 7,224
Amortization of
investment tax
credits................ (45,823) (45,823) (47,827) (11,957) (11,456)
Other................... 14,055 20,346 13,976 3,675 7,934
---------- ---------- ---------- -------- --------
Total income tax
expense.............. $2,461,076 $ 933,652 $ 454,831 $ 48,402 $ 36,568
========== ========== ========== ======== ========
</TABLE>
F-65
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES (CONCLUDED)
The components of the deferred tax liability (asset) at December 31 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1997 1996 1998
---------- ---------- ----------
<S> <C> <C> <C>
Tax effect of temporary differences
related to:
Depreciation......................... $3,306,956 $2,978,681 $3,358,330
Regulatory assets and liabilities--
deferred taxes...................... (9,064) (42,661) (9,396)
Regulatory liability--deferred toll
revenue............................. (42,635) (42,635) (42,635)
Unamortized investment tax credits... (79,517) (76,313) (71,582)
Goodwill amortization................ 317,988 323,335 354,800
Other................................ (98,116) (246,164) (93,782)
Alternative minimum tax credit
carryforward.......................... -- (505,248) (42,545)
---------- ---------- ----------
$3,395,612 $2,388,995 $3,453,190
========== ========== ==========
</TABLE>
Cash paid for income taxes was $491,000, $540,000, and $517,000 in 1997,
1996, and 1995, respectively. Cash paid for income taxes for the three-month
periods ended March 31 was $1,439,500 and $130,000 for 1998 and 1997,
respectively.
9. PENSION PLAN
The Companies have defined benefit pension plans covering substantially all
employees. Benefits are based on years of service and levels of compensation.
The Companies' funding policies are to contribute annually the amount deducted
for tax purposes. Also included below is an unqualified supplemental pension
plan for certain officers which will be funded as benefits are paid.
The net pension cost was comprised of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost................................. $190,163 $158,660 $131,482
Interest on projected benefit obligation..... 178,251 160,982 148,766
Expected return on plan assets............... (166,297) (145,506) (118,596)
Amortization of unrecognized net obligation
at January 1, 1989.......................... 4,091 4,091 4,091
Amortization of unrecognized net obligation
on supplemental pension at January 1, 1992.. 9,011 10,137 11,819
Amortization of unrecognized net gain........ (11,225) (8,064) (2,597)
-------- -------- --------
$203,994 $180,300 $174,965
======== ======== ========
</TABLE>
F-66
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. PENSION PLAN (CONCLUDED)
The following reconciles the Plans' funded status to amounts recognized in
the Company's financial statements as of December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of projected benefit
obligation
Vested.......................................... $(1,605,469) $(1,305,607)
Nonvested....................................... (87,000) (286,567)
----------- -----------
Accumulated benefit obligation................ (1,692,469) (1,592,174)
Additional amounts related to projected salary
increases........................................ (613,589) (485,107)
----------- -----------
Projected benefit obligation.................. (2,306,058) (2,077,281)
Plan assets at fair value, Group Annuity Contracts
and bank deposits at interest.................... 2,139,343 1,785,124
----------- -----------
Unfunded excess projected obligation over plan
assets....................................... $ (166,715) $ (292,157)
=========== ===========
The unfunded excess consists of:
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Unrecognized net gains from assumption changes and
favorable actuarial experience................... $ 494,906 $ 400,882
Unrecognized net obligation at January 1, 1989,
being amortized over 20 years.................... (16,436) (20,527)
Unrecognized net obligation on supplemental
pension plan at January 1, 1992, being recognized
over four years.................................. (72,086) (81,097)
Accrued pension cost included in recorded
liabilities...................................... (573,099) (591,415)
----------- -----------
$ (166,715) $ (292,157)
=========== ===========
</TABLE>
The rate of increase in future compensation levels used in determining the
actuarial value of projected benefit obligation was 6% for 1997, 1996, and
1995. The weighted-average discount rate and the expected long-term rate of
return on assets was 8% for 1997, 1996, and 1995.
Actuarial information was not available for disclosure as of and for the
three-month periods ended March 31, 1998 and 1997.
10. MINORITY INTEREST
Minority interest at March 31, 1998, December 31, 1997 and December 31, 1996
consisted of 1,500, 1,500 and 1,680, respectively, shares of $25 par value 8%
cumulative preferred stock issued by Standish Telephone Company (Standish).
Standish has agreed to redeem 180 shares of this stock annually at par. In
addition to the annual redemption requirement, the stock may be called at
$26.25 per share. Minority interest in the consolidated statements of income
and retained earnings represents preferred dividends.
11. RELATED PARTY TRANSACTIONS
The Company is affiliated, through common ownership, with Telephone Service
Company, which provides plant construction and maintenance services to the
Telephone Companies under contracts subject to regulation
F-67
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
by the MPUC. Charges from Telephone Service Company for construction and
maintenance in 1997, 1996 and 1995 approximated $640,000, $439,000, and
$529,000, respectively. These charges were $209,300 and $110,330 for the
three-month periods ended March 31, 1998 and 1997, respectively.
The Company provides data processing services to Portland Cellular
Partnership (PCP). Total billings for 1997, 1996, and 1995 approximated
$171,000, $135,000, and $122,000, respectively. Total billings for the three-
month periods ended March 31, 1998 and 1997 were $47,900 and $41,400.
Western Maine Cellular, Inc., has network usage, revenue sharing, trademark
and service agreements with PCP. Amounts incurred relative to the agreements
approximated $143,000, $149,000, and $121,000 in 1997, 1996 and 1995,
respectively, and $32,600 and $36,163 for the three-month periods ended March
31, 1998 and 1997. Amounts received for network usage provided to PCP
approximated $98,000, $102,000, and $90,000 in 1997, 1996, and 1995,
respectively, and $18,300 and $22,200 for the three-month periods ended March
31, 1998 and 1997.
12. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable
The carrying amount approximates fair value because of the short maturity of
these instruments.
Investments
Investments do not have a readily determinable fair value (not publicly
traded). With the exception of the Investment in Portland Cellular
Partnership, which is accounted for using the equity method, the investments
are stated at cost which management believes is not impaired. An estimate of
the fair value could not be reasonably made without incurring excessive costs.
Long-Term Debt
The fair value of the Company's long-term debt is estimated by discounting
the future cash flows of each instrument at rates currently offered to the
Company for similar debt instruments of comparable maturities. At March 31,
1998, the Company had long-term debt with a carrying value of $25,444,493 and
estimated fair value of $26,751,000. At December 31, 1997, the Company had
long-term debt with a carrying value of $25,912,541 and estimated fair value
of $27,270,000.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
13. SUBSEQUENT EVENT--AGREEMENT TO SELL SUBSIDIARY
On February 19, 1998, the Company signed a stock purchase agreement to sell
100% of the common stock of Western Maine Cellular, Inc.
F-68
<PAGE>
UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENT--AGREEMENT TO SELL SUBSIDIARY (CONCLUDED)
Condensed financial data of Western Maine Cellular, Inc. included in the
basic financial statements are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- ----------
1997 1996 1998
---------- ---------- ----------
<S> <C> <C> <C>
Current assets............................. $ 262,027 $ 262,646 $ 215,727
Net property, plant, and equipment......... 630,679 728,176 610,379
Cellular license........................... 1,730,786 1,824,338 1,707,398
Other assets............................... 28,690 25,320 28,303
---------- ---------- ----------
$2,652,182 $2,840,480 $2,561,807
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1997 1996 1998
---------- ---------- ----------
<S> <C> <C> <C>
Current liabilities...................... $ 599,701 $ 578,425 $ 702,300
Long-term debt........................... 2,846,945 3,156,735 2,759,794
Deferred income taxes.................... 133,000 367,495 133,000
Stockholders' deficit.................... (927,464) (1,262,175) (1,033,287)
---------- ---------- ----------
$2,652,182 $2,840,480 $2,561,807
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ------------------
1997 1996 1995 1998 1997
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Statements of Income
Operating revenues...... $1,615,534 $1,407,088 $1,206,516 $365,448 $361,278
Operating expenses...... 1,592,076 1,540,458 1,400,270 440,959 358,983
---------- ---------- ---------- -------- --------
Net operating income
(loss)............... 23,458 (133,370) (193,754) (75,511) 2,295
Interest expense........ (280,055) (405,557) (454,749) (63,363) (76,392)
Income tax benefit...... 99,000 215,876 258,457 55,467 29,547
---------- ---------- ---------- -------- --------
Net loss.............. $ (157,597) $ (323,051) $ (390,046) $(83,407) $(44,550)
========== ========== ========== ======== ========
</TABLE>
14. SUBSEQUENT EVENT--MERGER
On March 27, 1998, the Company entered into an agreement to merge with a
subsidiary of MJD Communications, Inc. (MJD). The agreement contemplates that
the pre-merger stockholders' shares will be redeemed for cash, leaving MJD as
the sole remaining stockholder. The post-merger entity will consist of the
existing operation of Utilities, Inc., Standish Telephone Company, Maine
Telephone Company, and China Telephone Company. The transaction is expected to
close in the third or fourth quarter of 1998.
F-69
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Chautauqua & Erie Telephone Corporation
We have audited the accompanying consolidated balance sheet of Chautauqua &
Erie Telephone Corporation as of December 31, 1996, and the related
consolidated statements of income and retained earnings, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Chautauqua & Erie Telephone Corporation as of December 31, 1996, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Buffalo, New York
February 24, 1997
F-70
<PAGE>
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................. $ 4,094,370
Due from customers and agents.................................... 466,227
Other accounts receivable........................................ 803,655
Materials and supplies........................................... 480,362
Prepaid expenses................................................. 154,080
-----------
Total current assets........................................... 5,998,694
Noncurrent assets:
Net cash value of life insurance................................. 183,878
Other assets, net of accumulated amortization.................... 714,919
-----------
Total noncurrent assets........................................ 898,797
Telephone plant, at cost:
Telephone plant in service....................................... 21,654,432
Telephone plant under construction............................... 31,251
-----------
21,685,683
Less accumulated depreciation.................................... 8,018,651
-----------
Net telephone plant................................................ 13,667,032
-----------
Total assets................................................... $20,564,523
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities on long-term debt............................. $ 870,000
Notes payable.................................................... 2,319,000
Accounts payable................................................. 400,503
Accrued taxes, interest and dividends............................ 2,048,147
Other current liabilities........................................ 484,540
-----------
Total current liabilities...................................... 6,122,190
Long-term debt, less current maturities............................ 1,012,294
Deferred federal income taxes...................................... 2,493,610
Pension obligation................................................. 17,564
-----------
Total liabilities.............................................. 9,645,658
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 79,498
shares issued and outstanding................................... 775,320
Retained earnings................................................ 10,143,545
-----------
Total shareholders' equity..................................... 10,918,865
-----------
Total liabilities and shareholders' equity..................... $20,564,523
===========
</TABLE>
See accompanying notes.
F-71
<PAGE>
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Operating revenues:
Local service.................................................... $ 1,892,626
Network access service........................................... 3,777,331
Long distance network service.................................... 73,965
Miscellaneous.................................................... 1,002,697
-----------
6,746,619
Other............................................................ (17,190)
-----------
Total operating revenues....................................... 6,729,429
Operating expenses:
Plant specific................................................... 1,474,595
Plant nonspecific................................................ 1,322,827
Customer operations.............................................. 605,798
Corporate operations............................................. 1,269,154
Operating taxes.................................................. 431,227
-----------
Total operating expenses....................................... 5,103,601
-----------
Operating income............................................... 1,625,828
Other income (expense):
Interest......................................................... (345,669)
Gain on sale of investment in cellular partnership............... 4,658,700
Other, net....................................................... (72,259)
-----------
Total other income (expense)................................... 4,240,772
-----------
Income before income taxes......................................... 5,866,600
Federal income taxes:
Current.......................................................... 1,953,570
Deferred......................................................... 276,046
-----------
2,229,616
-----------
Net income......................................................... 3,636,984
Retained earnings--January 1....................................... 7,047,147
-----------
10,684,131
Dividends paid:
Common, $6.80 per share.......................................... 540,586
-----------
Retained earnings--December 31..................................... $10,143,545
===========
</TABLE>
See accompanying notes.
F-72
<PAGE>
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income........................................................ $ 3,636,984
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation--telephone plant................................... 1,032,829
Amortization.................................................... 49,609
Gain on sale of cellular partnership............................ (4,658,306)
Provision for deferred income taxes............................. 220,894
Decrease in pension obligation.................................. (124,035)
Changes in operating assets and liabilities, net of effects from
purchase of Chautauqua Cable, Inc.:
Increase in due from customers and agents..................... (22,287)
Increase in other accounts receivable......................... (36,738)
Decrease in materials and supplies............................ 124,702
Decrease in prepaid expenses.................................. 6,147
Decrease in other assets...................................... 17,685
Decrease in accounts payable.................................. (538,320)
Increase in accrued taxes, interest and dividends and other
current liabilities.......................................... 1,798,423
-----------
Net cash provided by operating activities................... 1,507,587
INVESTING ACTIVITIES:
Premium payments for officer's life insurance................... (7,206)
Capital expenditures--telephone plant........................... (955,656)
Salvage proceeds in excess of cost of removal--telephone plant.. 7,025
Proceeds from sale of cellular partnership...................... 4,988,700
-----------
Net cash provided by investing activities................... 4,032,863
FINANCING ACTIVITIES:
Principal payments on notes payable and long-term debt.......... (1,241,243)
Dividends paid.................................................. (540,586)
-----------
Net cash used in financing activities............................. (1,781,829)
-----------
Net increase in cash.............................................. 3,758,621
Cash at beginning of year......................................... 335,749
-----------
Cash at end of year............................................... $ 4,094,370
===========
</TABLE>
See accompanying notes.
F-73
<PAGE>
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1.ACCOUNTING POLICIES
The Company maintains its accounts in accordance with the Uniform System of
Accounts prescribed for telephone companies by the New York State Public
Service Commission (PSC), which is in accordance with generally accepted
accounting principles. A summary of significant accounting policies is as
follows:
Consolidation
The financial statements include the accounts of Chautauqua & Erie Telephone
Corporation and its wholly-owned, deregulated subsidiaries, Chautauqua & Erie
Communications, Inc., C & E Communications, Ltd., Western New York Cellular,
Inc. and Chautauqua & Erie Network, Inc.
Chautauqua & Erie Communications, Inc., C & E Communications, Ltd., and
Chautauqua Cable, Inc. are active operating companies, while the remaining two
represent investments.
All material intercompany accounts have been eliminated in the financial
statements. Certain costs and expenses of Chautauqua & Erie Communications,
Inc. provided by Chautauqua & Erie Telephone Corporation have not been
eliminated in order to more accurately reflect the operations of the telephone
company and this subsidiary. These costs are for expenses that would have been
paid to an outside supplier if not to Chautauqua & Erie Telephone Corporation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized upon the placing of calls by customers or rendering,
by the company, of other related services.
Toll Settlements
Toll revenues are often pooled by telephone companies on a national and a
state-wide basis and are apportioned back to the companies based upon cost to
provide services. This process is known as "toll settlements."
The computations are very complex and on a routine basis, these toll
settlements are adjusted for previous quarters and years. When calculations
are changed the companies are notified of a retroactive toll settlement (plus
or minus) which applies to previously reported periods. Retroactive toll
settlements may have a material effect on current net income.
It is industry practice to record retroactive toll settlements in the year
determined. There are no known material unrecorded retroactive settlements as
of the balance sheet date. The amount of retroactive toll settlements
recognized in 1996 was not material.
Other Assets
Other assets include $577,656 of franchise licenses and goodwill associated
with the purchase of Chautauqua Cable, Inc., which is being amortized over 15
years. Accumulated amortization was $63,731 at December 31, 1996.
Telephone Plant
Telephone plant is stated at original cost. The Company has consistently
followed the practice of capitalizing certain costs related to construction,
including payroll and payroll related costs.
F-74
<PAGE>
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets.
Upon retirement, the cost of the asset retired is charged against
accumulated depreciation together with the costs of removal, net of salvage.
Materials and Supplies
New materials, reusable materials and deregulated station equipment and
other electronic equipment are carried at cost or market, if lower, utilizing
the first-in, first-out method.
Federal Income Taxes
Deferred federal income taxes are provided for temporary differences in the
basis of assets and liabilities for financial and income tax accounting
purposes, principally with respect to telephone plant.
The Internal Revenue Service does not recognize expensing of the inside
wiring component of station connections as required by the New York State
Public Service Commission. Therefore, the inside wiring component of station
connections is capitalized for Federal income tax purposes resulting in
greater income for tax purposes than that used for accounting purposes. The
tax benefit created by this timing difference has been normalized.
In accordance with PSC requirements, the Company has identified a portion of
its deferred tax liability as being associated with investment tax credits
realized in prior years which are fully normalized and amortized to income
over the average service life of the related telephone plant and other
equipment.
Risks and Uncertainties
The Company provides services to residential and commercial customers
generally located within Chautauqua County, New York. The deregulation of the
telecommunications industry allows for the possible entry of other local and
long distance carriers into the Chautauqua County market.
The Company requires deposits for certain equipment leased to customers.
Collateral is generally not required in connection with ongoing services
provided.
2.LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of two separate mortgage bonds.
One of the bonds is due February 1, 1997 and accrues interest at 8 1/8%. The
balance outstanding at December 31, 1996 for this bond, before unamortized
discount, was $840,000 . The second bond is due November 1, 2001 and accrues
interest at 9 1/8%. The balance outstanding at December 31, 1996 for this
bond, before unamortized discount, was $1,050,000.
The bonds are collateralized by all of the telephone plant and equipment.
These bonds are covered by indenture agreements which require, under certain
conditions, annual sinking fund payments.
Aggregate maturities of sinking fund requirements for the five years
following December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................ $870,000
1998................................................................ 30,000
1999................................................................ 30,000
2000................................................................ 30,000
2001................................................................ 930,000
</TABLE>
F-75
<PAGE>
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3.NOTES PAYABLE
Notes payable consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Outstanding amounts under a $3,000,000 available
unsecured line of credit at approximately prime......... $1,150,000
Unsecured demand notes payable to various individuals and
entities with interest payable at 5.75%................. 1,169,000
Unsecured time notes--repaid in 1996..................... --
----------
$2,319,000
==========
</TABLE>
4.RETIREMENT PLANS
The Company sponsors two defined benefit pension plans covering
substantially all employees. These plans are individually maintained for union
and management employees, both of which are funded by trusteed funds and are
noncontributory. The Company's policy is to fund pension costs annually based
on current actuarial determinations.
Pension benefits are based on years of service and compensation.
Net periodic pension cost for the union plan includes the following
components:
<TABLE>
<S> <C>
Service cost-benefits earned during the period..................... $ 25,693
Interest cost on projected benefit obligation...................... 27,692
Actual return on plan assets....................................... (73,169)
Net amortization and deferral...................................... 19,879
--------
Net periodic pension cost.......................................... $ 95
========
</TABLE>
Actuarial assumptions used in the calculation for the union plan were as
follows:
<TABLE>
<S> <C>
Discount rates.......................................................... 7.5%
Rates of increase in compensation levels................................ 4.0%
Expected long-term rate of return on assets............................. 8.0%
</TABLE>
The following table sets forth the union plan's funded status at December
31, 1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested........................................................ $ 279,228
Nonvested..................................................... 7,315
---------
Total accumulated benefit obligations....................... $ 286,543
=========
Projected benefit obligation.................................... $(422,618)
Plan assets at fair value....................................... 540,831
---------
Excess of plan assets over projected benefit obligation......... 118,213
Unrecognized transition asset................................... (38,100)
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions.................. (128,218)
Amount deferred as regulatory asset............................. 30,541
---------
Accrued pension cost............................................ $ (17,564)
=========
</TABLE>
F-76
<PAGE>
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 31, 1996, the Company froze the benefits accrued under its
pension plan for management employees. The Company expects to distribute lump
sum payments to all participants as actuarially determined in the fourth
quarter of 1997. The Company has calculated its accrued pension liability at
December 31, 1996 in accordance with all the requirements of the Pension
Benefit Guaranty Corporation, the Internal Revenue Service, and the U.S.
Department of Labor. As such, the Company has recorded an accrual of
approximately $300,000 to account for the unfunded benefit obligation at
December 31, 1996 which is included in other current liabilities. The unfunded
benefit obligation is the difference between the expected settlement
obligation of approximately $1,850,000 and the fair value of plan assets at
December 31, 1996 of approximately $1,500,000. A contribution of $300,000 was
made to the plan by the Company in January of 1997. As a result of these
transactions, the Company recorded a net periodic pension cost for the
management plan of approximately $130,000 for 1996.
Assets of the plans are stated at fair value and consist primarily of listed
stocks and corporate debt.
The Company sponsors a defined contribution 401(k) retirement savings plan
for non union employees. Contributions to the plan are based upon a percentage
of salaries of all qualified personnel. Additional contributions may be made
at the discretion of management. Contributions to this plan amounted to
$32,334 in 1996.
The Company also sponsors a defined contribution 401(k) retirement savings
plan for union employees. The Company matches contributions to this plan based
upon a percentage of pay of all qualified personnel. Contributions to this
plan amounted to $9,311 in 1996.
5.SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
<TABLE>
<S> <C>
Interest............................................................ $350,267
Income taxes........................................................ 280,000
</TABLE>
6.SALE OF PARTNERSHIP INTEREST
The Company sold its 11.25% ownership interest in a cellular communications
partnership, during 1996. The Company's carrying value for the ownership
interest was approximately $330,000 and the sale price was $4,988,700. The
gain on the sale, net of tax of $1,736,000, is included in income from
deregulated subsidiaries in the income statement.
7.COMMITMENTS
During 1996, the Company entered into an agreement to sell all of its
outstanding stock to MJD Holding Corp., pending approval from the PSC and the
Federal Communications Commission (FCC).
F-77
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Big Sandy Telecommunications, Inc.
Simla, Colorado
We have audited the accompanying balance sheets of Big Sandy
Telecommunications, Inc. (a Colorado Corporation) as of December 31, 1995 and
1994, and the related statements of income, changes in stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Big Sandy
Telecommunications, Inc. as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for investments in 1994.
Kiesling Associates
Colorado Springs, Colorado
February 6, 1996
F-78
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $ 1,858,423 $ 686,684
Temporary investments................................. 81,256 81,256
Accounts receivable--
Due from customers.................................. 19,387 16,374
Interexchange carriers.............................. 59,148 68,215
Other............................................... 661 28,902
Materials and supplies, at average cost............... 25,503 31,849
Prepayments--
Income Taxes........................................ -- 26,481
Other............................................... 34,422 30,432
Deferred income taxes................................. 9,090 11,438
----------- ----------
2,087,890 981,631
----------- ----------
NONCURRENT ASSETS
Investments--
Marketable equity securities........................ 7,302,239 5,505,808
Other............................................... 37,478 37,478
Cash value of life insurance.......................... 128,194 101,472
----------- ----------
7,467,911 5,644,758
----------- ----------
PROPERTY AND EQUIPMENT
Telecommunications plant in service................... 2,953,752 2,949,651
Other property........................................ 229,156 228,917
----------- ----------
3,182,908 3,178,568
----------- ----------
Less accumulated depreciation......................... 2,016,173 1,893,578
----------- ----------
1,166,735 1,284,990
----------- ----------
TOTAL ASSETS............................................ $10,722,536 $7,911,379
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-79
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable--
Interexchange carriers.............................. $ 1,289 $ 39,002
Other............................................... 38,061 18,903
Customer deposits..................................... 9,127 7,058
Current portion of long-term debt..................... 189,600 178,700
Current portion of deferred compensation liability.... 46,098 42,701
Accrued taxes--
Income taxes........................................ 346,138 --
Other............................................... 27,297 29,357
Other accrued liabilities............................. 43,144 49,093
----------- ----------
700,754 364,814
----------- ----------
LONG-TERM DEBT, less current portion.................... 2,417,581 2,607,177
----------- ----------
DEFERRED CREDITS
Deferred income taxes................................. 2,807,232 2,121,822
Deferred investment tax credit, net................... 38,824 50,040
Deferred compensation liability, less current
portion.............................................. 22,617 68,715
Deferred regulatory liability......................... 26,687 35,372
----------- ----------
2,895,360 2,275,949
----------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value, 50,000 shares authorized;
21,250 shares issued and outstanding................. 12,166 12,166
Unrealized holding gains and losses on certain
investments.......................................... 2,197,504 631,075
Retained earnings..................................... 2,499,171 2,020,198
----------- ----------
4,708,841 2,663,439
----------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY................ $10,722,536 $7,911,379
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-80
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
OPERATING REVENUES
Local network services.................................... $188,586 $183,053
Network access services................................... 550,829 524,573
Miscellaneous............................................. 162,198 148,622
-------- --------
901,613 856,248
-------- --------
OPERATING EXPENSES
Plant specific operations................................. 173,882 138,608
Plant nonspecific operations.............................. 7,872 7,999
Depreciation and amortization............................. 175,951 161,418
Customer operations....................................... 107,194 94,466
Corporate operations...................................... 263,161 252,507
General taxes............................................. 29,550 29,123
-------- --------
757,610 684,121
-------- --------
NET OPERATING INCOME........................................ 144,003 172,127
-------- --------
OTHER INCOME
Interest and dividend income.............................. 367,439 353,986
Gain--sale of investments................................. 446,957 27,511
Other, net................................................ (45,428) (64,076)
Interest expense.......................................... (129,159) (142,263)
-------- --------
639,809 175,158
-------- --------
INCOME BEFORE INCOME TAX EXPENSE............................ 783,812 347,285
-------- --------
INCOME TAX EXPENSE.......................................... 204,114 41,096
-------- --------
NET INCOME.................................................. $579,698 $306,189
======== ========
Earnings per share.......................................... $ 27.27 $ 14.41
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
INVESTMENT
COMMON GAINS AND RETAINED
STOCK LOSSES EARNINGS
------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1993..................... $12,166 $ -- $1,920,009
Net income for the year........................ -- -- 306,189
Cash Dividends ($9.69/share)................... -- -- (206,000)
Change in unrealized gains and losses, net of
income taxes of $375,425...................... -- 631,075 --
------- ---------- ----------
Balance, December 31, 1994..................... 12,166 631,075 2,020,198
Net income for the year........................ -- -- 579,698
Cash Dividends ($4.74/share)................... -- -- (100,725)
Change in unrealized gains and losses, net of
income taxes of $931,862...................... -- 1,566,429 --
------- ---------- ----------
Balance, December 31, 1995..................... $12,166 $2,197,504 $2,499,171
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-82
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 579,698 $ 306,189
Adjustments to reconcile net income to net cash
provided by operating
activities--
Gain on sale of investments......................... (446,957) (27,511)
Depreciation........................................ 173,048 158,514
Amortization--
Intangible property............................... 2,872 2,872
Acquisition adjustment............................ 31 31
Increase in cash value of life insurance............ (26,721) (7,863)
Deferred income tax expense (benefit)............... (252,789) 16,973
Deferred investment tax credits, net................ (11,216) (13,084)
Change in assets and liabilities (Increase) decrease
in:
Accounts receivable............................. 6,302 (18,766)
Material and supplies........................... 1,629 (758)
Inventories..................................... 4,716 (1,206)
Prepayments..................................... 22,491 (50,544)
Increase (decrease) in:
Accounts payable................................ (16,486) (5,569)
Accrued taxes................................... 344,078 (70,670)
Other accrued liabilities....................... (5,948) (20,778)
---------- ----------
Net cash provided by operating activities..... 374,748 267,830
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment................. (57,695) (223,552)
Purchase of investments............................. -- (7,710)
Sale of investments................................. 1,176,808 --
Salvage from property retired....................... -- 8,250
---------- ----------
Net cash provided by (used in) investing
activities................................... 1,119,113 (223,012)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt......................... (178,696) (168,539)
Dividends paid...................................... (100,725) (206,000)
Reduction of deferred compensation liability........ (42,701) (39,423)
---------- ----------
Net cash used in financing activities......... (322,122) (413,962)
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents.. 1,171,739 (369,144)
Cash and Cash Equivalents at Beginning of Year........ 686,684 1,055,828
---------- ----------
Cash and Cash Equivalents at End of Year.............. $1,858,423 $ 686,684
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of Operations
The Company's principal business is providing telecommunications exchange
and local access services in a service area located primarily in eastern
Colorado. The Company also operates a small cable television system in the
same area.
B. System of Accounts
The accounting policies of Big Sandy Telecommunications, Inc. conform to
generally accepted accounting principles. Telephone operations reflect
practices appropriate to the telephone industry. The accounting records of the
Company are maintained in accordance with the Uniform System of Accounts for
Class A and B Telephone Companies prescribed by the Federal Communications
Commission and the Colorado Public Utilities Commission.
C. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
D. Property and Equipment
Telephone plant is capitalized at original cost, including the capitalized
cost of salaries and wages, materials, certain payroll taxes and employee
benefits. Beginning in September, 1995, regulators modified accounting
principles for the allowance for funds used during construction (AFUDC) to
conform with Statement of Financial Accounting Standards No. 34
"Capitalization of Interest Cost". The impact of this change was not material.
No AFUDC was taken in 1995 or 1994.
Renewals and betterments of units of property are charged to telephone plant
in service. When telephone plant is retired, its cost is removed from the
asset account and charged against accumulated depreciation, together with
removal cost less any salvage realized. No gains or losses are recognized in
connection with routine retirements of depreciable telephone property. Repairs
and renewals of minor items of property are included in plant specific
operations expense.
E. Depreciation
The Company provides for depreciation for financial reporting purposes on
the straight-line method by the application of rates, based on the estimated
service lives of the various classes of depreciable property, as approved by
the Colorado Public Utilities Commission.
Depreciation on depreciable property resulted in composite rates of 5.51%
and 5.17% for 1995 and 1994, respectively.
F. Income Taxes
Income taxes are accounted for using a liability method and provide for the
tax effects of transactions reported in the financial statements including
both taxes currently due and deferred. Deferred income taxes reflect
F-84
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, using current enacted tax rates. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
Investment tax credits (ITC), which were deferred prior to the Tax Reform
Act of 1986, are being amortized over the regulatory life of the plant which
produced the ITC.
G. Revenue Recognition
Local network, network access, and miscellaneous revenues are recognized
when earned regardless of the period in which they are billed.
Revenues relating to the provision of access services to customers are
derived, in part, from tariffed access charges to toll service providers
(interexchange carriers), and in part from sharing in interstate pools.
Interstate revenues are determined in accordance with cost separation
procedures.
The Company is compensated for intrastate access under access charge
procedures based on expense and plant investment levels as determined by the
Company and approved by the Colorado Public Utilities Commission.
Reported interstate revenues and certain intrastate revenues are estimates
subject to subsequent adjustments resulting from changes in expense and plant
investment levels and the rate of return experience of the various pools.
H. Cash Equivalents
All highly liquid investments with a maturity of three months or less from
date of purchase are considered cash equivalents.
I. Pension Expenses
The Company's policy is to fund pension costs accrued.
J. Investments
Effective January 1, 1994, the Company implemented Statement of Financial
Accounting Standards No. 115 (SFAS 115) "Accounting for Certain Investments in
Debt and Equity Securities." SFAS 115 requires certain investments to be
categorized as either trading, available-for-sale, or held-to-maturity. Debt
and marketable equity securities bought and held principally for selling in
the near future are classified as trading securities and carried at fair
value. Unrealized holding gains and losses on trading securities are reported
in earnings. Debt and marketable equity securities classified as available-
for-sale are carried at fair value with unrealized holding gains and losses
recorded as a separate component of stockholders' equity. Debt securities the
Company has both the positive intent and ability to hold to maturity are
classified as held-to-maturity and are carried at amortized cost. The Company
uses FIFO method of computing realized gains and losses. In accordance with
SFAS 115, prior period financial statements have not been restated. The
cumulative effect of adopting this standard was an increase in stockholders'
equity at January 1, 1994, of $1,634,994 (net of $972,652 in deferred income
taxes) to reflect the net unrealized holding gains and losses on securities
classified as available-for-sale.
F-85
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Non-marketable equity investments, over which the Company has significant
influence or a 20% ownership, are reflected on the equity method. Other non-
marketable equity investments are stated at cost.
2.PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 includes the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Telephone plant in service--
Land................................................ $ 26,419 $ 26,419
Buildings........................................... 200,685 199,306
Switching equipment................................. 954,140 983,702
Outside plant....................................... 1,440,835 1,407,461
Furniture and office equipment...................... 70,007 71,977
Vehicles and work equipment......................... 247,516 246,102
Other plant and equipment........................... 14,150 14,684
---------- ----------
2,953,752 2,949,651
---------- ----------
Other property--
CATV plant in service............................... 229,010 228,741
CATV plant adjustment............................... 146 176
---------- ----------
229,156 228,917
---------- ----------
Total property and equipment...................... $3,182,908 $3,178,568
========== ==========
</TABLE>
3.LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
2% RUS mortgage notes................................. $1,526,183 $1,588,675
8% note payable--H. Raymond Hope...................... 1,080,998 1,197,202
---------- ----------
2,607,181 2,785,877
Less current maturity................................. 189,600 178,700
---------- ----------
$2,417,581 $2,607,177
========== ==========
</TABLE>
The annual requirements for principal payments on long-term debt for the
next five years are as follows:
<TABLE>
<S> <C>
1996..................................... $189,600
1997..................................... 201,300
1998..................................... 213,900
1999..................................... 227,500
2000..................................... 242,200
</TABLE>
In January, 1996, the Company repaid in full its RUS mortgage notes.
Substantially all property and equipment of the telephone company is pledged
as security for the long-term debt under a loan agreement with the Rural
Utilities Service (RUS). These mortgage notes are to be repaid in equal
quarterly installments covering principal and interest beginning three years
after date of issue and expiring by 2010.
F-86
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In connection with the redemption of all of his stock, the Company issued to
H. Raymond Hope an unsecured promissory note of $1,427,135, dated August 25,
1992, with interest at 8%. The note is payable in 120 monthly installments of
$17,315, including principal and interest, beginning October 1, 1992. The note
is due and payable in full if certain events should occur in the future.
Cash paid for interest during the years ended December 31, 1995 and 1994
totaled $129,739 and $143,801, respectively.
The mortgage to the United States of America, underlying the RUS notes,
contains certain restrictions on the declaration or payment of cash dividends,
redemption of capital stock, or investment in affiliated companies. As of
December 31, 1995, the maximum amount which could be distributed in accordance
with these restrictions was approximately $1,305,600, except as might be
specifically authorized in writing in advance by the RUS.
4.INCOME TAXES
Income taxes reflected in the Statements of Operations consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
--------- --------
<S> <C> <C>
Income Taxes
Federal income taxes--
Current tax expense................................. $ 406,075 $ 36,677
Deferred tax expense (benefit)...................... (218,057) 13,999
Amortization of investment tax credits.............. (6,236) (12,441)
State income taxes--
Current tax expense................................. 62,044 530
Deferred tax expense (benefit)...................... (34,732) 2,974
Investment tax credits (net)........................ (4,980) (643)
--------- --------
--------- --------
Total income tax expense................................ $ 204,114 $ 41,096
========= ========
</TABLE>
Cash paid for income taxes and estimated income taxes for 1995 and 1994,
totaled $95,500 and $56,000, respectively.
F-87
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the statutory federal income tax rate
of 34% to the Company's effective tax rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Statutory federal income tax rate.............. 34.0 % 34.0 %
State income taxes, net of federal benefit..... 2.3 1.7
Amortization of investment tax credits......... (1.5) (5.4)
Benefit of graduated rates..................... -0- (13.6)
Dividends received deduction and other perma-
nent differences.............................. (8.1) (16.4)
Other differences.............................. (0.7) 0.9
----------- -----------
Effective income tax rate...................... 26.0 % 1.2 %
=========== ===========
Deferred Federal and state tax liabilities and assets at December 31, 1995
and 1994 comprise the following:
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax asset:
Regulatory liabilities and unamortized ITC... $ (24,436) $ (28,613)
Accrued liabilities.......................... (34,721) (48,763)
----------- -----------
Deferred tax assets........................ (59,157) (77,376)
----------- -----------
Deferred tax liability:
Investments.................................. 2,715,290 2,043,661
Property, plant and equipment................ 139,606 141,486
Other........................................ 2,403 2,613
----------- -----------
Deferred tax liabilities................... 2,857,299 2,187,760
----------- -----------
Net deferred tax liability..................... $ 2,798,142 $ 2,110,384
=========== ===========
Current portion................................ $ (9,090) $ (11,438)
Noncurrent portion............................. 2,807,232 2,121,822
----------- -----------
$ 2,798,142 $ 2,110,384
=========== ===========
</TABLE>
Deferred Credits includes a regulatory liability at December 31, 1995 and
1994 of $26,687 and $35,372, respectively. A substantial portion of the
regulatory liability represents an amount associated with unamortized
investment tax credits. This amount will be amortized in the same manner as
the underlying investment tax credits. The regulatory liability also includes
an amount representing excess deferred taxes on depreciable assets, resulting
primarily from reductions in the statutory Federal income tax rate. This
amount is being amortized over the lives of the related depreciable assets in
accordance with the average rate assumption method as required by income tax
regulations.
F-88
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5.INVESTMENTS
Investments at December 31, 1995 and 1994 include:
The amortized costs and fair value of available-for-sale securities are:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Available-for-Sale:
Equity securities............ $3,797,448 $3,504,791 $-0- $7,302,239
---------- ---------- ---- ----------
Amount included in:
Noncurrent investments....... $7,302,239
==========
Held-to-maturity:
Debt securities.............. $ 20,000 $ 19,500 $-0- $ 39,500
========== ========== ==== ==========
Amount included in:
Noncurrent investments....... $ 20,000
==========
DECEMBER 31, 1994
Available-for-Sale:
Equity securities............ $4,499,308 $1,006,500 $-0- $5,505,808
========== ========== ==== ==========
Amount included in:
Noncurrent investments....... $5,505,808
==========
Held-to-maturity:
Debt securities.............. $ 20,000 $ 18,800 $-0- $ 38,800
========== ========== ==== ==========
Amount included in:
Noncurrent investments....... $ 20,000
==========
</TABLE>
Proceeds from sales of available-for-sale securities totaled $1,148,816 and
$27,992 in 1995 and 1994, respectively. The gross realized gains on sales of
available-for-sale securities totaled $446,957 and $27,511, in 1995 and 1994,
respectively. There were no realized losses in 1995 or 1994. The net
adjustment to unrealized holding gains (losses) on available-for-sale
securities included as a separate component of stockholders' equity before tax
totaled $2,498,291 in 1995, and $(1,003,919) in 1994.
Investments include the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash surrender value--officers' life insurance........ $ 128,194 $ 101,472
Stock--Smokey Hill Cellular, Inc...................... 6,282 6,282
Stock--Rural Telephone Bank........................... 5,000 5,000
Stock--U.S. Intelco Networks, Inc..................... 6,196 6,196
Stock--U.S. West, Inc. ............................... 5,505,808 5,505,808
Stock--U.S. West Media Group.......................... 1,796,431 --
U.S. Savings Bonds.................................... 20,000 20,000
---------- ----------
$7,467,911 $5,644,758
========== ==========
</TABLE>
F-89
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6.CELLULAR ACTIVITIES
The Company has a 29.78% interest in a company involved in cellular
activities in Colorado. The total investment is $6,282.
In late 1995, the Company entered into an agreement to sell its interest in
this company. The proceeds of the sale are expected to be approximately
$283,700.
7.RETIREMENT PLAN
The Company has a non-contributory defined benefit plan covering most
employees. The multi-employer retirement program is with the National
Telephone Cooperative Association (NTCA) and has been approved by the Internal
Revenue Service. Pension cost, expensed and capitalized, for 1995 and 1994 was
$29,183 and $27,820, respectively. The Company makes annual contributions to
the plan equal to amounts accrued for pension expense.
8.FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of the following information about the fair value of certain
financial instruments for which it is practicable to estimate that value. For
purposes of the following disclosure, the fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation.
The amounts disclosed represent management's best estimate of fair value. In
accordance with SFAS 107, the Company has excluded certain financial
instruments and all other nonfinancial instruments from its disclosure.
Accordingly, the aggregate fair value amounts presented are not intended to,
and do not, represent the underlying fair value of the Company.
The methods and assumptions used to estimate fair value are as follows:
CASH AND SHORT-TERM INVESTMENTS
The carrying amount approximates fair value because of the short maturity of
those instruments.
LONG-TERM INVESTMENTS
The fair value of some investments are estimated based on quoted market
prices for those or similar investments, and other information available to
management.
For investments totaling $11,196, there are no quoted market prices. Due to
the excessive costs that would be incurred, management does not believe it is
practicable to provide a current estimate of fair value.
LONG-TERM DEBT
The fair value of the Company's long-term debt was estimated based on the
current rates available to the Company for debt with similar remaining
maturities.
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
1995
---------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Cash and temporary investments........................ $1,939,678 $1,939,678
Long-term investments for which it is:
Practicable to estimate fair value.................. 7,328,521 7,625,439
Not practicable..................................... 11,196
Long-term debt........................................ 2,417,581 2,081,000
</TABLE>
F-90
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9.DEFERRED COMPENSATION AGREEMENT
The Company entered into a deferred compensation agreement, dated July 1,
1992, with a retired officer and former shareholder. The agreement provides
for 60 monthly payments of $4,166.67, totaling $250,000, beginning July 1,
1992. The Company's annual obligation for reduction of the liability of
$68,715 at December 31, 1995, for the next two years is as follows:
<TABLE>
<S> <C>
1996...................................... $46,098
1997...................................... 22,617
</TABLE>
10.CONCENTRATIONS OF CREDIT RISK
The Company grants credit to local service customers, all of whom are
located in the franchised service area, and telecommunications intrastate and
interstate long distance carriers. The Company may be subject to competition
for telecommunications services, including telecommunications exchange
services, in the franchised area.
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and temporary
cash investments. The Company limits the amount of credit exposure in any one
financial institution by placing its temporary cash investments in several
financial institutions.
Of the Company's cash and cash equivalents, $37,204 and $17,828 at December
31, 1995 and 1994, respectively, are maintained in financial institutions in
excess of amounts insured by an agency of the Federal Government.
11.CONTINGENCIES
In January, 1996, the Company entered into an Asset Purchase Agreement
providing for the sale of all of its assets and rights used in the operations
of its telecommunications and cable television business activities. The sale
is subject to certain regulatory agency approvals, and is expected to be
consummated by mid-1996. If consummated, the sale would result in a
substantial gain to the Company.
F-91
<PAGE>
BIG SANDY TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12.SEGMENT INFORMATION
The Company currently operates within industry segments related to
telecommunications and cable television services. Financial information by
industry segments for the years ending December 31, 1995 and 1994 is summarized
as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Operating Revenues
Telecommunications operations...................... $ 797,019 $ 756,538
Cable television operations........................ 104,594 99,710
----------- ----------
$ 901,613 $ 856,248
=========== ==========
Operating Income
Telecommunications operations...................... $ 138,287 $ 161,945
Cable television operations........................ 5,716 10,182
----------- ----------
$ 144,033 $ 172,127
=========== ==========
Identifiable Assets
Telecommunications operations...................... $10,656,219 $7,836,106
Cable television operations........................ 66,317 75,273
----------- ----------
$10,722,536 $7,911,379
=========== ==========
Depreciation and Amortization
Telecommunications operations...................... $ 163,736 $ 148,669
Cable television operations........................ 12,215 12,749
----------- ----------
$ 175,951 $ 161,418
=========== ==========
Capital Expenditures
Telecommunications operations...................... $ 55,978 $ 220,707
Cable television operations........................ 1,717 2,845
----------- ----------
$ 57,695 $ 223,552
=========== ==========
</TABLE>
F-92
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated statement of operations for
the year ended December 31, 1997 is based on historical results of MJD
Communications, Inc. and subsidiaries (the "Company"); the acquisition of
Taconic Telephone Corp. ("Taconic") on March 30, 1998; the acquisition of
Ellensburg Telephone Company ("Ellensburg") on April 30, 1998; the acquisition
of Chouteau Telephone Company ("Chouteau") on June 1, 1998; and the probable
acquisition of Utilities, Inc. and its subsidiaries except for Seacoast
Cellular and Western Maine Cellular ("Utilities"). The pro forma consolidated
statement of operations also gives affect to the results of Kadoka Telephone
Company, Columbine Telephone Company, Chautauqua & Erie Telephone Corporation,
and C-R Communications, Inc. (the "1997 Acquisitions") for preacquisition
operations from January 1, 1997 to the date of the respective acquisition. The
1997 Acquisitions, Taconic acquisition, Ellensburg acquisition and Chouteau
acquisition (the "Completed Acquisitions") and the Utilities acquisition (the
"Pending Acquisition") are accounted for under the purchase method of
accounting.
Pro forma adjustments, and the assumptions on which they are based are
described in the accompanying notes to the pro forma consolidated financial
statements. The accompanying pro forma consolidated statement of operations
for the year ended December 31, 1997 contain those pro forma adjustments
necessary to reflect the Completed Acquisitions and the Pending Acquisition as
if the purchase of the respective company was consummated on January 1, 1997
and to reflect the use of proceeds from the New Credit Facility and the sale
of notes related to the Offering as if it was consummated on January 1, 1997.
The following unaudited pro forma consolidated balance sheet and
consolidated statement of operations as of and for the three months ended
March 31, 1998 are based on historical results of the Company; the acquisition
of Taconic on March 30, 1998; the acquisition of Ellensburg on April 30, 1998;
the acquisition of Chouteau on June 1, 1998; and the probable acquisition of
Utilities. The acquisitions are accounted for under the purchase method of
accounting.
Pro forma adjustments, and the assumptions on which they are based are
described in the accompanying notes to the pro forma consolidated financial
statements. The accompanying pro forma consolidated balance sheet as of March
31, 1998 contains those pro forma adjustments necessary to reflect the
purchase of Ellensburg, Chouteau and Utilities as if they were consummated on
that date. It also contains those pro forma adjustments necessary to reflect
the use of the proceeds from the sale of notes related to the Offering and the
issuance of common stock in connection with the acquisition of Ellensburg, as
of March 31, 1998.
The accompanying pro forma consolidated statement of operations for the
three months ended March 31, 1998 contain those pro forma adjustments
necessary to reflect Taconic, Ellensburg, Chouteau and Utilities Inc. as if
the purchase of the respective company was consummated on January 1, 1998 and
to reflect the use of proceeds from the New Credit Facility and the sale of
notes related to the Offering as if it was consummated on January 1, 1998.
The pro forma consolidated financial statements may not be indicative of the
actual financial position or results of operations as of the date and for the
periods presented, respectively, nor are the results indicative of the
Company's future results of operations.
P-1
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
PRO FORMA FOR
COMPLETED
MJD ACQUISITIONS,
COMMUNICATIONS INC. 1997 PRO FORMA NEW CREDIT FACILITY
HISTORICAL ACQUISITIONS(1) TACONIC ELLENSBURG CHOUTEAU ADJUSTMENTS AND OFFERING(2)
------------------- --------------- ---------- ---------- --------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating
revenues:
Switched
services....... $39,257,363 5,004,866 15,005,994 13,300,800 4,182,391 -- 76,751,414
Other........... 3,714,955 1,027,604 5,391,068 1,357,900 148,181 -- 11,639,708
----------- --------- ---------- ---------- --------- ----------- -----------
Total operating
revenues........ 42,972,318 6,032,470 20,397,062 14,658,700 4,330,572 -- 88,391,122
----------- --------- ---------- ---------- --------- ----------- -----------
Operating
expenses:
Plant
operations..... 6,856,901 1,196,507 4,006,019 2,638,600 893,926 -- 15,591,953
Corporate and
customer
services....... 11,580,804 1,972,690 6,092,195 3,052,200 1,984,740 (2,020,000)(a) 22,662,629
Depreciation and
amortization... 8,777,103 968,371 3,401,706 3,601,100 584,731 3,043,961 (b) 20,376,972
Other........... 3,318,258 866,000 3,121,714 484,300 122,501 -- 7,912,773
----------- --------- ---------- ---------- --------- ----------- -----------
Total operating
expenses........ 30,533,066 5,003,568 16,621,634 9,776,200 3,585,898 1,023,961 66,544,327
----------- --------- ---------- ---------- --------- ----------- -----------
Income from
operations...... 12,439,252 1,028,902 3,775,428 4,882,500 744,674 (1,023,961) 21,846,795
----------- --------- ---------- ---------- --------- ----------- -----------
Other income
(expense):
Net gain (loss)
on sale of
investments and
other assets... (19,229) 10,349 -- -- -- -- (8,880)
Interest
income......... 212,035 139,775 -- 242,800 -- -- 594,610
Dividend
income......... 1,182,124 -- -- -- -- -- 1,182,124
Interest
expense........ (9,587,604) (372,625) (891,437) (100) (219,319) 11,071,085 (c) (30,787,207)
(28,854,746)(c)
(1,932,461)(d)
Other
nonoperating,
net............ 139,972 (361,557) 656,645 811,600 145,466 -- 1,392,126
----------- --------- ---------- ---------- --------- ----------- -----------
Total other
income
(expense)....... (8,072,702) (584,058) (234,792) 1,054,300 (73,853) (19,716,122) (27,627,227)
----------- --------- ---------- ---------- --------- ----------- -----------
Earnings (loss)
before income
taxes and
extraordinary
item............ 4,366,550 444,844 3,540,636 5,936,800 670,821 (20,740,083) (5,780,432)
Income tax
(expense)
benefit......... (1,875,634) (172,911) (1,281,007) (1,923,200) (148,069) 6,464,487 (e) 1,063,666
----------- --------- ---------- ---------- --------- ----------- -----------
Earnings (loss)
before
extraordinary
item............ 2,490,916 271,933 2,259,629 4,013,600 522,752 (14,275,596) (4,716,766)
Extraordinary
item............ (3,611,624) -- -- -- -- (852,946)(f) (6,287,094)
(1,822,524)(g)
----------- --------- ---------- ---------- --------- ----------- -----------
Earnings (loss)
before minority
interest........ (1,120,708) 271,933 2,259,629 4,013,600 522,752 (16,951,066) (11,003,860)
Minority interest
in income of
subsidiaries.... (61,635) -- -- -- -- -- (61,635)
----------- --------- ---------- ---------- --------- ----------- -----------
Net earnings
(loss).......... $(1,182,343) 271,933 2,259,629 4,013,600 522,752 (16,951,066) (11,065,495)
=========== ========= ========== ========== ========= =========== ===========
</TABLE>
P-2
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
COMPLETED
PRO FORMA FOR ACQUISITIONS,
COMPLETED NEW CREDIT FACILITY
ACQUISITIONS, OFFERING AND
NEW CREDIT FACILITY, PRO FORMA PENDING
AND OFFERING(2) UTILITIES ADJUSTMENTS ACQUISITION(3)
-------------------- ---------- ----------- -------------------
<S> <C> <C> <C> <C>
Operating revenues:
Switched services...... $ 76,751,414 14,837,926 -- 91,589,340
Other.................. 11,639,708 1,377,406 -- 13,017,114
------------ ---------- ---------- -----------
Total operating
revenues............... 88,391,122 16,215,332 -- 104,606,454
------------ ---------- ---------- -----------
Operating expenses:
Plant operations....... 15,591,953 4,649,168 -- 20,241,121
Corporate and customer
services.............. 22,662,629 3,372,369 (1,856,000)(h) 24,178,998
Depreciation and
amortization.......... 20,376,972 3,305,917 986,637 (i) 25,169,526
500,000 (j)
Other.................. 7,912,773 591,700 -- 8,504,473
------------ ---------- ---------- -----------
Total operating
expenses............... 66,544,327 11,919,154 (369,363) 78,094,118
------------ ---------- ---------- -----------
Income from operations.. 21,846,795 4,296,178 369,363 26,512,336
------------ ---------- ---------- -----------
Other income (expense):
Net gain (loss) on sale
of investments and
other assets.......... (8,880) -- -- (8,880)
Interest income........ 594,610 -- -- 594,610
Dividend income........ 1,182,124 199,228 -- 1,381,352
Interest expense....... (30,787,207) (1,907,794) 1,907,794 (k) (37,027,026)
(6,239,819)(k)
Other nonoperating,
net................... 1,392,126 28,867 -- 1,420,993
------------ ---------- ---------- -----------
Total other income
(expense).............. (27,627,227) (1,679,699) (4,332,025) (33,638,951)
------------ ---------- ---------- -----------
Earnings (loss) before
income taxes and
extraordinary item..... (5,780,432) 2,616,479 (3,962,662) (7,126,615)
Income tax (expense)
benefit................ 1,063,666 (977,076) 1,116,832 (e) 1,203,422
------------ ---------- ---------- -----------
Earnings (loss) before
extraordinary item..... (4,716,766) 1,639,403 (2,845,830) (5,923,193)
Extraordinary item...... (6,287,094) -- -- (6,287,094)
------------ ---------- ---------- -----------
Earnings (loss) before
minority interest...... (11,003,860) 1,639,403 (2,845,830) (12,210,287)
Minority interest in
income of
subsidiaries........... (61,635) (3,130) -- (64,765)
------------ ---------- ---------- -----------
Net earnings (loss)..... $(11,065,495) 1,636,273 (2,845,830) (12,275,052)
============ ========== ========== ===========
</TABLE>
P-3
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
The unaudited pro forma consolidated statement of operations reflects
various stages of pro forma information as follows:
FOR PURPOSES OF THE PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS:
(1) The "1997 Acquisitions" column reflects the results of the 1997
Acquisitions from January 1, 1997 to the acquisition date of the respective
company. Results of operations from the date of acquisition to December 31,
1997 for the 1997 Acquisitions are included in the historical results of
the Company.
(2) The "Pro Forma for Completed Acquisitions, New Credit Facility and
Offering" column reflects the historical results of operations of the
Company for the year ended December 31, 1997, with pro forma adjustments as
if the purchase of the 1997 Acquisitions, Taconic, Ellensburg and Chouteau,
the refinancing of debt utilizing the New Credit Facility and sale of notes
from the Offering were consummated on January 1, 1997.
(3) The "Pro Forma for Completed Acquisitions, New Credit Facility,
Offering and Pending Acquisition" column reflects the results of operations
of the "Pro Forma for Completed Acquisitions, New Credit Facility and
Offering" column for the year ended December 31, 1997 with further pro
forma adjustments as if the purchase of Utilities was consummated on
January 1, 1997.
THE PRO FORMA ADJUSTMENTS ARE AS FOLLOWS:
(a) Reflects the elimination of corporate expenses of Taconic, Ellensburg
and Chouteau related to specifically identified duplicative employees'
salaries and related benefits
(b) Reflects the amortization of goodwill created from the acquisitions
of Taconic, Ellensburg and Chouteau over the estimated useful life of 40
years.
(c) Reflects the interest expense on the New Credit Facility using an
interest rate of 9.5 percent, the interest expense on the Offering using an
interest rate of 9.5 percent for the $125 million Fixed Rate Notes and an
interest rate of 10.0 percent for the $75 million Floating Rate Notes and
the elimination of historical interest expense due to the retirement of
substantially all of the existing debt obligations.
(d) Reflects the amortization of loan origination costs over the term of
the New Credit Facility (8-9 years) and Offering (10 years).
(e) Reflects the adjustment of the provision for the income tax benefit
to an effective rate of 38.87% before the amortization of goodwill created
from the acquisitions which is not deductible for income tax purposes.
(f) Reflects the prepayment penalty of the early extinguishment of debt
of $852,946 (net of income taxes).
(g) Reflects the write-off of loan origination costs relating to the
early extinguishment of debt of $1,822,524 (net of income taxes).
(h) Reflects the elimination of corporate expenses related to
specifically identified duplicative employees' salaries and related
benefits of $1,215,000 for the reduction of employees at Utilities and
specifically identified cost savings of $641,000 for the elimination of
directors fees and management fees at Utilities.
(i) Reflects the amortization of goodwill created from the acquisition of
Utilities over the estimated useful life of 40 years.
(j) Reflects the amortization of the non-compete agreement over the
estimated useful life of 4.5 years.
(k) Reflects interest expense on the New Credit Facility using an
interest rate of 9.25 percent and the elimination of historical interest
expense due to the retirement of Utilities debt assumed from the purchase.
P-4
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
MJD COMPLETED
COMMUNICATIONS INC. PRO FORMA ACQUISITIONS
HISTORICAL ELLENSBURG CHOUTEAU ADJUSTMENTS AND OFFERING(1)
------------------- ---------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash $ 9,871,035 377,828 306,392 15,000,000 (a) 4,816,952
equivalents........... 86,763,000 (b)
(104,186,000) (c)
193,075,000 (d)
(196,390,303)(e)
Temporary investments.. -- 6,441,152 -- -- 6,441,152
Accounts receivable,
net of allowance for
doubtful accounts..... 12,246,512 1,499,729 926,185 -- 14,672,426
Prepaid and other
assets................ 3,086,923 311,911 422,082 -- 3,820,916
Income tax
recoverable........... 1,161,964 -- -- -- 1,161,964
------------ ---------- --------- ------------- -----------
Total current assets.... 26,366,434 8,630,620 1,654,659 (5,738,303) 30,913,410
------------ ---------- --------- ------------- -----------
Property, plant and
equipment, net......... 88,021,413 30,071,458 4,404,128 -- 122,496,999
------------ ---------- --------- ------------- -----------
Other assets
Investments............ 13,573,632 4,312,075 2,056,265 -- 19,941,972
Goodwill, net of
amortization.......... 96,260,765 -- -- 73,230,125 (c) 169,490,890
Loan origination costs,
net of amortization... 9,007,351 -- -- 6,925,000 (d) 15,932,351
Covenant not to
compete, net of
amortization.......... 931,250 -- -- -- 931,250
Other.................. 1,382,104 -- 69,184 -- 1,451,288
------------ ---------- --------- ------------- -----------
Total other assets...... 121,155,102 4,312,075 2,125,449 80,155,125 207,747,751
------------ ---------- --------- ------------- -----------
Total assets............ $235,542,949 43,014,153 8,184,236 74,416,822 361,158,160
============ ========== ========= ============= ===========
</TABLE>
P-5
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR COMPLETED
PRO FORMA ACQUISITIONS,
FOR COMPLETED OFFERING AND
ACQUISITIONS PRO FORMA PENDING
ASSETS AND OFFERING(1) UTILITIES ADJUSTMENTS ACQUISITION(2)
------ --------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents........... $ 4,816,952 4,797,204 57,995,000 (f) 6,777,057
(51,000,000)(g)
(9,832,099)(h)
Temporary investments.. 6,441,152 -- -- 6,441,152
Accounts receivable,
net of allowance for
doubtful accounts..... 14,672,426 2,904,730 -- 17,577,156
Prepaid and other
assets................ 3,820,916 122,442 -- 3,943,358
Income tax
recoverable........... 1,161,964 169,621 -- 1,331,585
------------ ---------- ----------- -----------
Total current assets.... 30,913,410 7,993,997 (2,837,099) 36,070,308
------------ ---------- ----------- -----------
Property, plant and
equipment, net......... 122,496,999 21,639,536 -- 144,136,535
------------ ---------- ----------- -----------
Other assets
Investments............ 19,941,972 1,871,091 -- 21,813,063
Goodwill, net of
amortization.......... 169,490,890 8,085,006 39,625,029 (g) 217,200,925
Loan origination costs,
net of amortization... 15,932,351 -- -- 15,932,351
Covenant not to
compete, net of
amortization.......... 931,250 -- 2,250,000 (g) 3,181,250
Other.................. 1,451,288 1,324,875 -- 2,776,163
------------ ---------- ----------- -----------
Total other assets...... 207,747,751 11,280,972 41,875,029 260,903,752
------------ ---------- ----------- -----------
Total assets............ $361,158,160 40,914,505 39,037,930 441,110,595
------------ ---------- ----------- -----------
</TABLE>
P-6
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
MJD COMPLETED
COMMUNICATIONS INC. PRO FORMA ACQUISITIONS
HISTORICAL ELLENSBURG CHOUTEAU ADJUSTMENTS AND OFFERING(1)
------------------- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable....... $ 7,390,249 1,000,135 251,854 -- 8,642,238
Current portion of
long-term debt........ 3,716,460 -- 224,682 (3,941,142)(e) 1,081,228
1,081,228 (b)
Demand notes payable... 829,500 -- 29,166 -- 858,666
Current portion of
capital lease
obligations........... 15,879 -- -- -- 15,879
Current portion of
early retirement
benefits.............. 14,283 -- -- -- 14,283
Current portion of
covenant not to
compete............... 256,250 -- -- -- 256,250
Accrued interest
payable............... 14,744 -- -- -- 14,744
Accrued property
taxes................. 1,047,546 -- 24,242 -- 1,071,788
Other accrued
liabilities........... 2,480,167 891,408 95,201 -- 3,466,776
Income taxes payable... -- 301,096 68,349 -- 369,445
Dividends payable...... -- -- -- -- --
------------ ---------- --------- ------------ -----------
Total current
liabilities............ 15,765,078 2,192,639 693,494 (2,859,914) 15,791,297
------------ ---------- --------- ------------ -----------
Long-term liabilities:
Long-term debt, net of 199,870,519 -- 2,709,641 85,681,772 (b) 302,812,771
current portion....... 7,000,000 (c)
200,000,000 (d)
(192,449,161)(e)
Long-term capital lease
obligation, net of
current portion....... 104,382 -- -- -- 104,382
Early retirement
benefits payable, net
of current portion.... 18,023 1,827,797 -- -- 1,845,820
Covenant not to
compete, net of
current portion....... 668,750 -- -- -- 668,750
Deferred income taxes.. 11,016,806 4,201,973 641,896 -- 15,860,675
Unamortized investment
tax credits........... 187,040 -- 103,871 -- 290,911
Other.................. -- 429,600 441,603 -- 871,203
------------ ---------- --------- ------------ -----------
Total long-term
liabilities............ 211,865,520 6,459,370 3,897,011 100,232,611 322,454,512
------------ ---------- --------- ------------ -----------
Minority interest....... 2,851,794 -- -- -- 2,851,794
------------ ---------- --------- ------------ -----------
Stockholders equity
(deficit):
Common stock........... 1,366 6,851,600 10,000 438 (a) 1,804
(6,861,600)(c)
Preferred stock........ -- -- 8,865 (8,865)(c) --
Treasury stock......... -- -- -- -- --
Additional paid-in 33,747,706 11,476,700 2,074 14,999,562 (a) 48,747,268
capital............... (11,478,774)(c)
Retained earnings
(deficit)............. (28,688,515) 16,033,844 3,766,531 (19,800,375)(c) (28,688,515)
Unrealized gain on
marketable
securities............ -- -- (193,739) 193,739 (c) --
------------ ---------- --------- ------------ -----------
Total stockholders'
equity (deficit)....... 5,060,557 34,362,144 3,593,731 (22,955,875) 20,060,557
------------ ---------- --------- ------------ -----------
Total liabilities and
stockholders' equity
(deficit).............. $235,542,949 43,014,153 8,184,236 74,416,822 361,158,160
============ ========== ========= ============ ===========
</TABLE>
P-7
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR COMPLETED
PRO FORMA ACQUISITIONS,
LIABILITIES AND FOR COMPLETED OFFERING AND
STOCKHOLDERS' EQUITY ACQUISITIONS PRO FORMA PENDING
(DEFICIT) AND OFFERING(1) UTILITIES ADJUSTMENTS ACQUISITION(2)
-------------------- --------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable....... $ 8,642,238 1,571,108 -- 10,213,346
Current portion of
long-term debt........ 1,081,228 1,611,839 959,595 (f) 3,652,662
Demand notes payable... 858,666 -- -- 858,666
Current portion of
capital lease
obligations........... 15,879 -- -- 15,879
Current portion of
early retirement
benefits.............. 14,283 -- -- 14,283
Current portion of
covenant not to
compete............... 256,250 -- 500,000 (g) 756,250
Accrued interest
payable............... 14,744 -- -- 14,744
Accrued property
taxes................. 1,071,788 -- -- 1,071,788
Other accrued
liabilities........... 3,466,776 1,047,759 -- 4,514,535
Income taxes payable... 369,445 -- -- 369,445
Dividends payable...... -- 82,522 -- 82,522
------------ ---------- ----------- -----------
Total current
liabilities............ 15,791,297 4,313,228 1,459,595 21,564,120
------------ ---------- ----------- -----------
Long-term liabilities
Long-term debt, net of
current portion....... 302,812,771 20,724,260 57,035,405 (f) 370,740,337
(9,832,099)(h)
Long-term capital lease
obligation, net of
current portion....... 104,382 -- -- 104,382
Early retirement
benefits payable, net
of current portion.... 1,845,820 -- -- 1,845,820
Covenant not to
compete, net of
current portion....... 668,750 -- 1,750,000 (g) 2,418,750
Deferred income taxes.. 15,860,675 3,287,190 -- 19,147,865
Unamortized investment
tax credits........... 290,911 131,540 -- 422,451
Other.................. 871,203 1,045,816 -- 1,917,019
------------ ---------- ----------- -----------
Total long-term
liabilities............ 322,454,512 25,188,806 48,953,306 396,596,624
------------ ---------- ----------- -----------
Minority interest....... 2,851,794 37,500 -- 2,889,294
------------ ---------- ----------- -----------
Stockholders' equity
(deficit):
Common stock........... 1,804 815,205 (815,205)(g) 1,804
Preferred stock........ -- -- -- --
Treasury stock......... -- (72,470) 72,470 (g) --
Additional paid-in
capital............... 48,747,268 -- -- 48,747,268
Retained earnings
(deficit)............. (28,688,515) 10,632,236 (10,632,236)(g) (28,688,515)
Unrealized gain on
marketable
securities............ -- -- -- --
------------ ---------- ----------- -----------
Total stockholders'
equity (deficit)....... 20,060,557 11,374,971 (11,374,971) 20,060,557
------------ ---------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit).............. $361,158,160 40,914,505 39,037,930 441,110,595
------------ ---------- ----------- -----------
</TABLE>
P-8
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
COMPLETED
MJD ACQUISITIONS,
COMMUNICATIONS INC. PRO FORMA NEW CREDIT FACILITY
HISTORICAL TACONIC ELLENSBURG CHOUTEAU ADJUSTMENTS AND OFFERING(3)
------------------- --------- ---------- --------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Switched services...... $11,652,916 3,927,404 3,151,208 1,044,251 -- 19,775,779
Other.................. 1,879,745 1,437,315 357,055 29,488 -- 3,703,603
----------- --------- --------- --------- ---------- ----------
Total operating
revenues.............. 13,532,661 5,364,719 3,508,263 1,073,739 -- 23,479,382
----------- --------- --------- --------- ---------- ----------
Operating expenses:
Plant operations....... 2,289,605 887,812 528,671 246,311 -- 3,952,399
Corporate and customer
services.............. 3,412,748 1,864,205 528,631 523,754 (505,000)(i) 5,824,338
Depreciation and
amortization.......... 2,632,200 748,323 843,853 134,831 747,347 (j) 5,106,554
Other.................. 1,158,926 923,731 566,202 24,242 -- 2,673,101
----------- --------- --------- --------- ---------- ----------
Total operating
expenses.............. 9,493,479 4,424,071 2,467,357 929,138 242,347 17,556,392
----------- --------- --------- --------- ---------- ----------
Income from operations.. 4,039,182 940,648 1,040,906 144,601 (242,347) 5,922,990
----------- --------- --------- --------- ---------- ----------
Other income (expense):
Net gain (loss) on sale
of investments and
other assets.......... 6,756 -- -- 31,371 -- 38,127
Interest income........ 37,161 -- 72,882 10,290 -- 120,333
Dividend income........ 29,152 -- -- 2,368 -- 31,520
Interest expense....... (2,775,145) (209,067) -- (43,529) 3,027,741 (k) (7,645,946)
(7,213,687)(k)
(432,259)(l)
Other nonoperating,
net................... (3,192) (295,444) 155,332 45,078 -- (98,226)
----------- --------- --------- --------- ---------- ----------
Total other income
(expense)............. (2,705,268) (504,511) 228,214 45,578 (4,618,205) (7,554,192)
----------- --------- --------- --------- ---------- ----------
Earnings (loss) before
income taxes and
extraordinary item..... 1,333,914 436,137 1,269,120 190,179 (4,860,552) (1,631,202)
Income tax (expense)
benefit................ (615,183) (141,601) (411,365) (58,813) 1,570,516 (m) 343,554
----------- --------- --------- --------- ---------- ----------
Earnings (loss) before
extraordinary item..... 718,731 294,536 857,755 131,366 (3,290,036) (1,287,648)
Extraordinary item...... (2,520,943) -- -- -- -- (2,520,943)
----------- --------- --------- --------- ---------- ----------
Earnings (loss) before
minority interest...... (1,802,212) 294,536 857,755 131,366 (3,290,036) (3,808,591)
Minority interest in
income of
subsidiaries........... (24,785) -- -- -- -- (24,785)
----------- --------- --------- --------- ---------- ----------
Net earnings (loss).... $(1,826,997) 294,536 857,755 131,366 (3,290,036) (3,833,376)
=========== ========= ========= ========= ========== ==========
</TABLE>
P-9
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA FOR COMPLETED
COMPLETED ACQUISITIONS,
ACQUISITIONS, NEW CREDIT FACILITY
NEW CREDIT FACILITY, PRO FORMA OFFERING AND
AND OFFERING(3) UTILITIES ADJUSTMENTS PENDING ACQUISITION(4)
-------------------- --------- ----------- ----------------------
<S> <C> <C> <C> <C>
Operating revenues:
Switched services..... $ 19,775,779 3,781,354 -- 23,557,133
Other................. 3,703,603 300,742 -- 4,004,345
------------ --------- ---------- ----------
Total operating
revenues............... 23,479,382 4,082,096 -- 27,561,478
------------ --------- ---------- ----------
Operating expenses:
Plant operations...... 3,952,399 1,589,984 -- 5,542,383
Corporate and customer
services............. 5,824,338 767,094 (464,000)(n) 6,127,432
Depreciation and
amortization......... 5,106,554 942,704 247,656 (o) 6,421,914
125,000 (p)
Other................. 2,673,101 174,420 -- 2,847,521
------------ --------- ---------- ----------
Total operating
expenses............... 17,556,392 3,474,202 (91,344) 20,939,250
------------ --------- ---------- ----------
Income from operations.. 5,922,990 607,894 91,344 6,622,228
------------ --------- ---------- ----------
Other income (expense):
Net gain (loss) on
sale of investments
and other assets..... 38,127 -- -- 38,127
Interest income....... 120,333 -- -- 120,333
Dividend income....... 31,520 75,646 -- 107,166
Interest expense...... (7,645,946) (451,307) 232,487 (q) (9,205,901)
(1,341,135)(q)
Other nonoperating,
net.................... (98,226) 74,447 -- (23,779)
------------ --------- ---------- ----------
Total other income
(expense).............. (7,554,192) (301,214) (1,108,648) (8,964,054)
------------ --------- ---------- ----------
Earnings (loss) before
income taxes and
extraordinary item..... (1,631,202) 306,680 (1,017,304) (2,341,826)
Income tax (expense)
benefit................ 343,554 (121,921) 301,877 (m) 523,510
------------ --------- ---------- ----------
Earnings (loss) before
extraordinary item..... (1,287,648) 184,759 (715,427) (1,818,316)
Extraordinary item...... (2,520,943) -- -- (2,520,943)
------------ --------- ---------- ----------
Earnings (loss) before
minority interest...... (3,808,591) 184,759 (715,427) (4,339,259)
Minority interest in
income of
subsidiaries........... (24,785) (750) -- (25,535)
------------ --------- ---------- ----------
Net earnings (loss)..... $ (3,833,376) 184,009 (715,427) (4,364,794)
============ ========= ========== ==========
</TABLE>
P-10
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
The unaudited pro forma consolidated balance sheet and statement of
operations reflect various stages of pro forma information as follows:
FOR PURPOSES OF THE PRO FORMA CONSOLIDATED BALANCE SHEET:
(1) The "Pro Forma for Completed Acquisitions and Offering" column
reflects the historical financial position of the Company at March 31,
1998, with pro forma adjustments as if the purchase of Ellensburg and
Chouteau was consummated and the net proceeds were received from the sale
of notes from the Offering on March 31, 1998.
(2) The "Pro Forma for Completed Acquisitions, Offering and Pending
Acquisition" column reflects the financial position of the "Pro Forma for
Completed Acquisitions and Offering" column at March 31, 1998, with further
pro forma adjustments as if the purchase of Utilities was consummated on
March 31, 1998.
FOR PURPOSES OF THE PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS:
(3) The "Pro Forma for Completed Acquisitions, New Credit Facility and
Offering" column reflects the historical results of operations of the
Company for the three months ended March 31, 1998, with pro forma
adjustments as if the purchase of the Completed Acquisitions, the
refinancing of debt utilizing the New Credit Facility and the sale of notes
from the Offering were consummated on January 1, 1998.
(4) The "Pro Forma for Completed Acquisitions, New Credit Facility,
Offering and Pending Acquisition" column reflects the results of operations
of the "Pro Forma for Completed Acquisitions, New Credit Facility and
Offering" column for the three months ended March 31, 1998 with further pro
forma adjustments as of the purchase of Utilities was consummated on
January 1, 1998.
THE PRO FORMA ADJUSTMENTS ARE AS FOLLOWS:
(a) Reflects the proceeds of $15,000,000 received from the issuance of
common stock in connection with the acquisition of Ellensburg. Proceeds used
in connection with the purchase of Ellensburg.
(b) Reflects the proceeds of $86,763,000 received from the New Credit
Facility in connection with the acquisitions of Ellensburg and Chouteau.
Proceeds used in connection with the purchase of Ellensburg and Chouteau.
(c) Reflects the acquisitions of Ellensburg and Chouteau as follows and the
elimination of $37,955,875 historical equity.
<TABLE>
<CAPTION>
ELLENSBURG CHOUTEAU TOTAL
----------- ----------- ------------
<S> <C> <C> <C>
Purchase price:
Cash............................. $91,015,000 $12,021,000 $103,036,000
Subordinated notes issued........ -- 7,000,000 7,000,000
----------- ----------- ------------
Total consideration............ 91,015,000 19,021,000 110,036,000
Acquisition costs................ 800,000 350,000 1,150,000
Fair value of net assets
acquired........................ (34,362,144) (3,593,731) (37,955,875)
----------- ----------- ------------
Excess of cost over fair value... $57,452,856 15,777,269 73,230,125
=========== =========== ============
</TABLE>
(d) Reflects the proceeds of $194,000,000 received from the Offering, net of
initial purchasers' origination fees of $6,000,000. Also reflects payment of
$925,000 related to closing costs paid out from existing cash.
P-11
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Reflects the payment of $196,390,303 for the retirement of existing
Company debt and debt assumed from the completed acquisitions.
(f) Reflects the proceeds of $57,995,000 received from the New Credit
Facility in connection with the acquisition of Utilities. Proceeds used in
connection with the purchase of Utilities.
(g) Reflects the acquisition of Utilities as follows and the elimination of
$11,374,971 historical equity.
<TABLE>
<S> <C>
Purchase Price:
Cash......................................................... $ 50,000,000
Covenant not to compete...................................... 2,250,000
------------
Total consideration........................................ 52,250,000
Acquisition costs............................................ 1,000,000
Covenant not to compete...................................... (2,250,000)
Fair value of net assets acquired............................ (11,374,971)
------------
Excess of cost over fair value............................... $ 39,625,029
============
</TABLE>
(h) Reflects the payment of $9,832,099 for the retirement of Utilities debt
assumed from the purchase.
(i) Reflects the elimination of corporate expenses related to specifically
identified duplicative employees' salaries and related benefits as a result of
the acquisition of Taconic, Ellensburg and Chouteau.
(j) Reflects the amortization of goodwill created from the acquisition of
Taconic, Ellensburg and Chouteau over the estimated useful life of 40 years.
(k) Reflects the interest expense on the New Credit Facility using an
interest rate of 9.5 percent, the interest expense on the Offering using an
interest rate of 9.5 percent for the $125 million Fixed Rate Notes and an
interest rate of 10.0 percent for the $75 million Floating Rate Notes and the
elimination of historical interest expense due to the retirement of
substantially all of the existing debt obligations.
(l) Reflects the amortization of respective loan origination costs over the
term of the New Credit Facility (8-9 years) and Offering (10 years).
(m) Reflects the adjustment of the provision for the income tax benefit to
an effective rate of 38.87 percent before the amortization of goodwill created
from the acquisitions which is not deductible for income tax purposes.
(n) Reflects the elimination of corporate expenses related to specifically
identified duplicative employees' salaries and related benefits of $303,750
and specifically identified expenses of $160,250 for the elimination of
directors fees and management fees as a result of the acquisition of
Utilities.
(o) Reflects the amortization of goodwill created from the acquisition of
Utilities over the estimated useful life of 40 years.
(p) Reflects the amortization of the non-compete agreement over the
estimated useful life of 4.5 years.
(q) Reflects interest expense on the New Credit Facility using an interest
rate of 9.25 percent and the elimination of historical interest expense due to
the retirement of Utilities debt assumed from the purchase.
P-12
<PAGE>
APPENDIX A
TRANSFEREE LETTER OF REPRESENTATION
MJD Communications, Inc.
521 East Morehead Street
Suite 250
Charlotte, NC 28202
Ladies and Gentlemen:
In connection with the proposed transfer of $ aggregate principal
amount of 9 1/2% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes")
and $ aggregate principal amount of Floating Rate Callable Securities (the
"Floating Rate Notes" and, together with the Fixed Rate Notes, the "Notes"),
each of MJD Communications, Inc., a Delaware corporation (the "Company"), we
confirm that:
I. We understand that the Notes have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and may not be
sold except as permitted in the following sentence. We understand and
agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we decide to resell, pledge or
otherwise transfer such Notes within two years after the later of the date
of the original issuance of the Notes and the last date on which the
Company or any affiliate of the Company was the owner of such Notes (or any
predecessor of such Notes), or within three months after we cease to be an
affiliate (within the meaning of Rule 144 under the Securities act) of the
Company, such Notes may be resold, pledged or transferred only (i) to the
Company, (ii) so long as the Notes are eligible for resale pursuant to Rule
144A under the Securities Act ("Rule 144A"), to a person whom we reasonably
believe is a "qualified institutional buyer" (as defined in Rule 144A)
("QIB") that purchases for its own account or for the account of a QIB to
whom notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A (as indicated by the box checked by the transferor on
the Certificate of Transfer on the reverse of the certificate for the
Notes), (iii) in an offshore transaction in accordance with Regulation S
under the Securities Act (as indicated by the box checked by the transferor
on the Certificate of Transfer on the reverse of the certificate for the
Notes), (iv) to an institution that is an "accredited investor" as defined
in Rule 501(a)(1), (a)(2), (a)(3) or (a)(7) of Regulation D under the
Securities Act ("Institutional Accredited Investor") (as indicated by the
box checked by the transferor on the Certificate of Transfer on the reverse
of the certificate of the Notes) which has certified to the Company and the
Trustee that it is such an accredited investor and is acquiring the Notes
for investment purposes and not for distribution, (v) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
(if applicable) under the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States, and
we will notify any purchaser of the Notes from us of the above resale
restriction, if then applicable. We further understand that in connection
with any transfer of the Notes by us that the Company and the Trustee may
request, and if so requested we will furnish, such certificates, legal
opinions and other information as they may reasonably require to confirm
that any such transfer complies with the foregoing restrictions.
II. We are able to fend for ourselves in the transactions contemplated by
the Offering Memorandum dated April 30, 1998, we have knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of our investment in the Notes, and we and any
accounts for which we are acting are each able to bear the economic risk of
our or its investment and can afford the complete loss of such investment.
III. We understand that the minimum principal amount of Notes that may be
purchased by an Institutional Accredited Investor is $100,000.
A-1
<PAGE>
IV. We are acquiring the Notes transferred to us for investment purposes,
and not for distribution, for our own account or for one or more accounts
as to each of which we exercise sole investment discretion and we are or
such account is an Institutional Accredited Investor.
V. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
(Name of Trustee)
By:
Date:
Upon transfer the Notes would be registered in the name of the new
beneficial owner as follows:
NAME ADDRESS TAXPAYER ID NUMBER
---- ------- ------------------
A-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................................
Special Note Regarding Forward Looking Statements........................
Summary.................................................................. 1
Risk Factors............................................................. 14
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Selected Consolidated Financial and Operating Data....................... 25
The Exchange Offer....................................................... 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 34
Business................................................................. 40
Regulation............................................................... 52
Management............................................................... 59
Security Ownership of Certain Beneficial Owners and Management........... 63
Certain Relationships and Related Transactions........................... 65
Description of New Credit Facility....................................... 67
Description of the Notes................................................. 70
Certain Federal Tax Consequences......................................... 102
Plan of Distribution..................................................... 103
Legal Matters............................................................ 103
Experts.................................................................. 104
Glossary................................................................. 105
Index to Financial Statements............................................ F-1
Unaudited Pro Forma Consolidated Financial Statements.................... P-1
</TABLE>
UNTIL , 1998 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$200,000,000
MJD
COMMUNICATIONS, INC.
OFFER TO EXCHANGE ITS 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B AND
FLOATING RATE CALLABLE SECURITIES DUE 2008, SERIES B, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS
OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 AND FLOATING RATE
CALLABLE SECURITIES DUE 2008, RESPECTIVELY
[LOGO OF MJD COMMUNICATIONS, INC.]
-------
PROSPECTUS
DATED , 1998
-------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
MJD Communications, Inc.'s Certificate of Incorporation, as amended and
restated, indemnifies its officers and directors to the fullest extent
permitted by the Delaware General Corporation Law (the "DGCL"). Under Section
145 of the DGCL, a corporation may indemnify its directors, officers,
employees and agents and its former directors, officers, employees and agents
and those who serve, at the corporation's request, in such capacities with
another enterprise, against expenses (including attorneys' fees), as well as
judgments, fines and settlements in nonderivative lawsuits, actually and
reasonably incurred in connection with the defense of any action, suit or
proceeding in which they or any of them were or are made parties or are
threatened to be made parties by reason of their serving or having served in
such capacity. The DGCL provides, however, that such person must have acted in
good faith and in a manner such person reasonably believed to be in (or not
opposed to) the best interests of the corporation and, in the case of a
criminal action, such person must have had no reasonable cause to be believe
his or her conduct was unlawful. In addition, the DGCL does not permit
indemnification in an action or suit by or in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and
only to the extent that, a court determines that such person fairly and
reasonably is entitled to indemnity for costs the court deems proper in light
of liability adjudication. Indemnity is mandatory to the extent a claim, issue
or matter has been successfully defended. The Certificate of Incorporation, as
amended and restated, and the DGCL also prohibit limitations on officer or
director liability for acts or omissions which resulted in a violation of a
statute prohibiting certain dividend declarations, certain payments to
stockholders after dissolution and particular types of loans. The effect of
these provisions is to eliminate the rights of MJD Communications, Inc. and
its stockholders (through stockholders' derivative suits on behalf of MJD
Communications, Inc. to recover monetary damages against an officer or
director for breach of fiduciary duty as an officer or director (including
breaches resulting from grossly negligent behavior), except in the situations
described above. These provisions will not limit the liability of directors or
officers under the federal securities laws of the United States. The foregoing
summary of MJD Communications, Inc.'s Certificate of Incorporation, as amended
and restated, is qualified in its entirety by reference to the relevant
provisions thereof (incorporated as Exhibit 3.1).
See Item 22 for a statement of the Company's undertaking as to the
Commission's position respecting indemnification arising under the Securities
Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Amended and Restated By-Laws of the Company
4.1 Indenture, dated as of May 5, 1998, between the Company and United
States Trust Company of New York, as trustee, relating to the
Company's $125,000,000 9 1/2% Senior Subordinated Notes due 2008 and
$75,000,000 Floating Rate Callable Securities due 2008
4.2 Form of Initial Fixed Rate Security
4.3 Form of Initial Floating Rate Security
4.4 Form of Exchange Fixed Rate Security
4.5 Form of Exchange Floating Rate Security
4.6 Form of Purchase Agreement dated as of April 30, 1998 between the
Company and the Initial Purchasers named therein
4.7 Registration Agreement dated as of April 30, 1998 between the Company
and the Initial Purchasers named therein
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP
10.1 Credit Agreement dated as of March 30, 1998 among the Company, various
lending institutions, NationsBanc of Texas, N.A. and Bankers Trust
Company
10.2 Form of B Term Note
10.3 Form of C Term Note--Floating Rate
10.4 Form of C Term Note--Fixed Rate
10.5 Form of RF Note
10.6 Form of AF Note
10.7 Subsidiary Guarantee, dated as of March 30, 1998, by MJD Holdings
Corp., MJD Ventures, Inc., MJD Services Corp., ST Enterprises, Ltd.
for the benefit of Bankers Trust Company
10.8 Pledge Agreement, dated as of March 30, 1998 among MJD Communications,
Inc., ST Enterprises, Ltd., MJD Holdings Corp., MJD Services Corp.,
MJD Ventures, Inc., C-R Communications, Inc., as pledgors, and Bankers
Trust Company, as collateral agent and pledgee
10.9 Capital Contribution Agreement, dated as of March 27, 1998 among Kelso
Investment Associates V, L.P., Kelso Equity Partners V, L.P., Carousel
Capital Partners, L.P., MJD Communications, Inc. and Bankers Trust
Company
10.10 Stock Purchase Agreement, dated March 6, 1997 among the Company, MJD
Partners, L.P. Carousel Capital Partners, L.P., Kelso Investment
Associates V, L.P. and Kelso Equity Partners, V, L.P., as amended
10.11 Stockholder's Agreement, dated as of July 31, 1997 among Kelso
Investment Associates V, L.P., Kelso Equity Partners V, L.P., Carousel
Capital Partners V, L.P., the Company and MJD Partners, L.P.
10.12 Registration Rights Agreement, dated as of July 31, 1997 among Kelso
Investment Associates V, L.P., Kelso Equity Partners, L.P., the
Company and MJD Partners, L.P.
10.13 Financial Advisory Agreements, dated as of July 31, 1997 among the
Company, MJD Holdings Corp. and affiliates of each of Kelso Investment
Associates V, L.P., Kelso Equity Partners, L.P. and Carousel Capital
Partners, L.P.
10.14 Share Exchange Agreement, dated as of July 31, 1997 between the
Company and MJD Partners, L.P.
10.15 Contribution Agreement, dated as of July 31, 1997 between Meyer
Haberman, Jack H. Thomas, Eugene R. Johnson and Bugger Associates,
Inc. and MJD Partners, L.P.
10.16 Contribution Agreement, dated as of July 31, 1997 between MJD
Partners, L.P. and the Company
10.17 Amended and Restated Class A Voting Common Stock Purchase Warrants of
the Company
10.18 Consulting Agreement, dated as of July 31, 1997 between MJD Partners,
Inc. and Bugger Associates, Inc.
10.19 Stock Purchase Agreement dated as of March 28, 1996 among MJD Services
Corp., Rick A. Moore, Tom D. Moore, Penta-Gen Investments, Inc., and
Odin Telephone Exchange, Inc.
10.20 Agreement and Plan of Merger dated as of March 27, 1998 by and among
MJD Ventures, Inc., Utilities Acquisition Corp. and Utilities, Inc.*
10.21 Agreement and Plan of Merger, dated as of August 6, 1996 among MJD
Holdings Corp., C&E Acquisitions Corp. and Chatauqua and Erie
Telephone Corporation
10.22 Stock Purchase Agreement, dated as of September 24, 1996 among MJD
Holdings Corp., Kadoka Telephone Co., Bruce G. Conlee and Virginia L.
Conlee
10.23 Stock Purchase Agreement, dated as of June 24, 1997 among MJD
Ventures, Inc., Gary Porter, Virginia M. Porter, Renee Porter, C-R
Communications, Inc., C-R Telephone Company and certain stockholders
10.24 Agreement and Plan of Merger, dated as of September 2, 1997 among MJD
Holdings Corp., Taconic Acquisition Corp. and Taconic Telephone Corp.
10.25 Agreement and Plan of Merger, dated December 31, 1997 among MJD
Ventures, Inc., Ellensburg Acquisition Corp. and Ellensburg Telephone
Company.
10.26 Agreement and Plan of Merger, dated as of March 12, 1998 among MJD
Communications, Inc., Chouteau Acquisitions Corp., Chouteau Telephone
Company and certain shareholders of Chouteau Telephone Company
</TABLE>
- --------
*The material has been omitted pursuant to a request for confidential
treatment and has been filed separately.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.27 Severance Agreement, dated as of July 31, 1997 between ST Enterprises,
LTD and John P. Duda
10.28 Severance Agreement, dated as of July 31, 1997 among the Company, MJD
Partners, Inc. and Eugene B. Johnson
10.29 Severance Agreement, dated as of July 31, 1997 between the Company and
Walter E. Leach, Jr.
10.30 Severance Agreement, dated as of July 31, 1997 among the Company, MJD
Partners, Inc. and Jack H. Thomas
12 Ratio of Earnings to fixed charges calculation (filed herewith)
21 Subsidiaries of the Company
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit
5.1)
23.2 Consent of Moss Adams, LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Independent Auditors
23.4 Consent of Kiesling Associates LLP
23.5 Consent of Berry, Dunn, McNeil & Parker
23.6 Consent of KPMG Peat Marwick
24.1 Power of Attorney (included in Part II of this Registration Statement)
25.1 Statement of Eligibility of United States Trust Company of New York,
as Trustee, on Form T-1
27 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
B. FINANCIAL STATEMENT SCHEDULES
Schedule II Opinion to Schedule III
Schedule III Valuation and Qualifying Accounts
</TABLE>
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes:
a. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
c. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
II-3
<PAGE>
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(b) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrants hereby undertake to file an application for
the purpose of determining eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Securities and Exchange Commission under Section
305(b)(2) of the Trust Indenture Act.
(4) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(5) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHARLOTTE, STATE OF
NORTH CAROLINA ON THE 1ST DAY OF JUNE, 1998.
MJD Communications, Inc.
/s/ Walter E. Leach, Jr.
By: _________________________________
WALTER E. LEACH, JR.
SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Walter E. Leach, Jr., and Eugene B. Johnson, or any one or more of them, his
true and lawful attorney-in-fact, for him and in his name, place and stead, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement and to cause the same to be filed with the Securities
and Exchange Commission, hereby granting to said attorneys-in-fact full power
and authority to do and perform all and every act and thing whatsoever
requisite or desirable to be done in and about the premises as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all acts and things that said attorneys-in-fact may
do or cause to be done by virtue of these presents.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Daniel G. Bergstein Director and June 1, 1998
- ------------------------------------- Chairman of the
DANIEL G. BERGSTEIN Board of Directors
/s/ Meyer Haberman Director, and Vice June 1, 1998
- ------------------------------------- Chairman of the
MEYER HABERMAN Board of Directors
/s/ Jack H. Thomas Director, President June 1, 998
- ------------------------------------- and Chief Executive
JACK H. THOMAS Officer
/s/ Eugene B. Johnson Director, Executive June 1, 1998
- ------------------------------------- Vice President and
EUGENE B. JOHNSON Assistant Secretary
/s/ George E. Matelich Director June 1, 1998
- -------------------------------------
GEORGE E. MATELICH
/s/ Reid G. Leggett Director June 1, 1998
- -------------------------------------
REID G. LEGGETT
/s/ Nelson Schwab, III Director June 1, 1998
- -------------------------------------
NELSON SCHWAB, III
/s/ Frank K. Bynum, Jr. Director June 1, 1998
- -------------------------------------
FRANK K. BYNUM, JR.
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
MJD Communications, Inc.:
Under date of February 27, 1998, except the last two paragraphs of note 2
and note 16 which are as of April 2, 1998 and note 17 which is as of April 8,
1998, we reported on the consolidated balance sheets of MJD Communications,
Inc. as of December 31, 1996 and 1997, and the related consolidated statements
of operations, shareholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1997, which are included in
the Registration Statement on Form S-4. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement schedule in the Registration Statement on Form S-4. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Lincoln, Nebraska
February 27, 1998
<PAGE>
MID COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT WRITE-OFFS, BALANCE
BEGINNING BAD DEBT NET-OF AT END
OF YEAR EXPENSE RECOVERIES OF YEAR
---------- -------- ----------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995......... $735,598 165,167 646,912 253,853
======== ======= ======= =======
Year ended December 31, 1996......... $253,853 4,812 200,931 57,734
======== ======= ======= =======
Year ended December 31, 1997......... $ 57,734 -- 8,530 49,204
======== ======= ======= =======
</TABLE>
See accompanying independent auditors' report.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MJD COMMUNICATIONS, INC.
MJD Communications, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
-----------
follows:
1. The name of the Corporation is MJD Communications, Inc.
2. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on June 30,
1993.
3. This Amended and Restated Certificate of Incorporation (the
"Amended Certificate") has been duly adopted by the Board of Directors and
-------------------
the stockholders of the Corporation in accordance with the provisions of
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware. The text of the Amended and Restated Certificate of Incorporation
as amended and restated shall read in full as follows:
"FIRST: The name of the Corporation is MJD Communications, Inc.
-----
SECOND: The address of its registered office in the State of Delaware
------
is The Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, New Castle County, Delaware 19801. The name of the registered
agent of the Corporation at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
------
Corporation shall have authority to issue is Two Hundred Sixty-Eight
Thousand Five Hundred (268,500) shares, of which (i) Thirteen Thousand Five
Hundred (13,500) shares shall be designated as Series C 14% Cumulative
Redeemable Nonvoting Preferred Stock, par value $.01 per share (the "Series
------
C Preferred Stock"), and (ii) Two Hundred and Fifty-Five Thousand (255,000)
-----------------
shares of Common Stock, par value $.01 per share (the "Common Stock"), of
------------
which Two Hundred and Fifty-Five Thousand (255,000) shares shall be
designated as Class A Voting common stock, par value $.01 per share (the
"Class A Common Stock").
--------------------
<PAGE>
A. COMMON STOCK
------------
1. Voting Rights of Class A Common Stock. The holders of Class A Common
-------------------------------------
Stock shall be entitled to one vote per share on all matters with respect
to which they have the right to vote.
2. Dividend Rights of Common Stock. Holders of Class A Common Stock
-------------------------------
shall be entitled to receive, ratably based on the number of shares of
Common Stock held by them, such dividends and other distributions in cash,
in property or in shares of capital stock of the Corporation as may be
declared thereon by the Board of Directors of the Corporation from time to
time out of assets or funds of the Corporation legally available therefor.
B. SERIES C PREFERRED STOCK
------------------------
1. Dividends. (a) The holders of shares of Series C Preferred Stock
---------
shall be entitled to receive when, as and if declared by the Board of
Directors out of funds legally available for the purpose, cumulative
dividends as provided in this Section 1. Until the dividends payable
---------
pursuant to this Section 1 shall have been paid in full, dividends on each
---------
share of Series C Preferred Stock shall accrue on a daily basis at the rate
of 14% per annum, on the sum of (i) the Liquidation Value and (ii) all
accumulated and unpaid dividends thereon. Such dividends will be calculated
and compounded annually and payable in arrears on December 30 of each year
(a "dividend payment date") in respect of the prior twelve (12) month
---------------------
period. Such dividends shall commence to accrue on each share of Series C
Preferred Stock from the date of issuance thereof whether or not declared
by the Board of Directors, and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of
dividends, and shall continue to accrue thereon until the date the
Liquidation Value of such share (plus all accrued and unpaid dividends
thereon) is paid.
(b) Except as otherwise provided herein, if at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Series C Preferred Stock, such payment shall be distributed
ratably among the holders thereof based upon the aggregate accrued but
unpaid dividends on the Series C Preferred Stock held by each holder.
2. Liquidation Preference. (a) In the event of any liquidation,
----------------------
dissolution or winding up of the affairs of the Corporation, either
voluntary or involuntarily, each holder of Series C Preferred Stock shall
be entitled, after provision for the payment of the Corporation's debts and
other liabilities, to be paid in cash by wire transfer of immediately
available federal funds the aggregate Liquidation Value of all shares of
Series C Preferred Stock held by such holder plus an amount equal to the
sum of all accrued and unpaid dividends thereon, whether or not declared to
the date of such payment, before any distribution is made on any Junior
Securities. If, upon any such liquidation, dissolution or other winding up
of the affairs of the Corporation, the net assets of the Corporation
distributable among the holders of all outstanding shares of
-2-
<PAGE>
the Series C Preferred Stock shall be insufficient to permit the payment in
full to such holders of the preferential amounts to which they are
entitled, then the entire net assets of the Corporation remaining after the
provision for the payment of the Corporation's debts and other liabilities
shall be distributed among the holders of the Series C Preferred Stock
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled.
(b) Holders of Series C Preferred Stock shall not be entitled to any
additional distribution in the event of any liquidation, dissolution or
winding up to the affairs of the Corporation in excess of the preferential
amount referred to in Section 2(a) above.
3. Voting Rights. The holders of Series C Preferred Stock shall not have
-------------
or be entitled to any voting rights or powers, either general or special,
except as required by law.
4. Optional Redemption. (a) The Series C Preferred Stock then
-------------------
outstanding shall, at the option of the Corporation, be redeemed in whole
or in part upon the occurrence of (i) an Investor Sale, (ii) the Sale of
the Corporation, or (iii) an IPO (each an "Optional Redemption"). The
-------------------
Corporation shall give each holder of Series C Preferred Stock not less
than ten (10) nor more than twenty (20) days notice of any such redemption
contemplated by this Section 4 (the date set forth in such notice shall
---------
hereinafter be referred to as the "Optional Redemption Date"). The
------------------------
Corporation shall redeem on the Optional Redemption Date all or any portion
of the shares of Series C Preferred Stock held by the holders of Series C
Preferred Stock in cash by wire transfer of immediately available funds at
the Liquidation Value plus an amount equal to the sum of all accrued and
unpaid dividends (whether or not declared by the Board of Directors) on the
Series C Preferred Stock to be redeemed as of the Optional Redemption Date.
(b) On and after any Optional Redemption Date dividends will cease to
accumulate on shares of Series C Preferred Stock to be redeemed and the
holders of the Series C Preferred Stock shall cease to have any rights as
stockholders of the Corporation except the right to receive, without
interest, the Liquidation Value thereof and an amount equal to the sum of
all accrued and unpaid dividends, upon the surrender of the certificate(s)
representing the Series C Preferred Stock to the Corporation; provided,
however, that in the event any holder of Series C Preferred Stock tenders
its shares to the Corporation on any Optional Redemption Date the
Corporation shall be obligated to pay interest on the Liquidation Value at
the rate of sixteen percent (16%) per annum or the maximum rate allowable
under applicable law, whichever is lower, in the event the Corporation
defaults in its obligations to pay the Liquidation Value on any such
Optional Redemption Date.
(c) The redemption by the Corporation of all or any part of the
Series C Preferred Stock pursuant to this Section 4 is subject to the
---------
provisions of applicable corporate law and to the applicable terms,
conditions and restrictions contained in any financing agreement to which
the Corporation is a party.
-3-
<PAGE>
5. Redemption Notice. The notice described in Section 4 hereof shall be
----------------- ---------
sent by the Corporation to the holders of the Series C Preferred Stock at
their respective addresses as shall then appear on the records of the
Corporation, by first class mail, postage prepaid, and shall notify such
recipient of the redemption, the date of such redemption, the number of
shares of Series C Preferred Stock to be redeemed, and the redemption price
therefor.
6. Status of Reacquired Shares. Shares of Series C Preferred Stock which
---------------------------
have been issued and reacquired in any manner shall (upon compliance with
any applicable provisions of the laws of the State of Delaware) have the
status of authorized and unissued shares of Series C Preferred Stock
issuable in series undesignated as to Series C and may be redesignated and
reissued.
7. Exclusion of Other Rights. Except as may otherwise be required by
-------------------------
law, the shares of Series C Preferred Stock shall not have any preferences
or relative, participating, optional or other special rights, other than
those specifically set forth in this Amended Certificate. The shares of
Series C Preferred Stock shall have no preemptive or subscription rights.
8. Rank. The Series C Preferred Stock shall rank senior as to rights
----
upon liquidation, dissolution or winding up to all Junior Securities,
whenever issued.
9. Identical Rights. Each share of the Series C Preferred Stock shall
----------------
have the same relative rights and preferences as, and shall be identical in
all respects with, all other shares of the Series C Preferred Stock.
10. Certificates. So long as any shares of the Series C Preferred Stock
------------
are outstanding, there shall be set forth on the face and back of each
stock certificate issued by the Corporation a statement that the
Corporation shall furnish without charge to each shareholder who so
requests, a full statement of the designation and relative rights,
preferences and limitations of each class of stock or series thereof that
the Corporation is authorized to issue and of the authority of the Board of
Directors to designate and fix the relative rights, preferences and
limitations of each series.
11. Definitions.
-----------
"Investor Sale" means a sale of all or substantially all of the shares
of Common Stock then owned by Carousel Capital Partners, L.P., Kelso
Investment Associates V, L.P. and Kelso Equity Partners V, L.P.
"IPO" means the sale of shares of the Corporation to the public
pursuant to an effective registration statement filed under the Securities Act
of 1933, which results in an active trading market (it being understood that
such an active trading market shall automatically be deemed to exist if shares
are listed on a national securities exchange or on NASDAQ).
-4-
<PAGE>
"Junior Securities" means the Common Stock and any other equity
interests (including, without limitation, warrants, stock appreciation
rights, phantom stock rights, profit participation rights in debt
instruments or other rights with equity features, calls or options)
exercisable for or convertible into the Common Stock or other equity
interests.
"Liquidation Value" of any share of Series C Preferred Stock shall be
$10.00.
"Person" means an individual, partnership, limited liability company,
corporation, association, trust, joint venture, unincorporated organization
and any government, governmental department or agency or political
subdivision thereof.
"Sale of the Corporation" means the sale of the Corporation to a
Person or group of Persons in a single transaction or a series of
transactions pursuant to which such Person or Persons acquire (i) capital
stock of the Corporation possessing the voting power to elect a majority of
the Corporation's board of directors (whether by merger or consolidation or
by sale, other issuance or transfer of the Corporation's capital stock,
provided, however, that an initial public offering that results in such an
acquisition of voting power shall not be a Sale of the Corporation unless
it otherwise constitutes an IPO) or (ii) all or substantially all of the
Corporation's assets determined on a consolidated basis.
FIFTH: The Corporation is to have perpetual existence.
-----
SIXTH: The number of directors which shall constitute the whole Board
-----
of Directors shall be fixed by and in the manner provided in the Bylaws of
the Corporation.
SEVENTH: In furtherance and not in limitation of the powers conferred
-------
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind the Bylaws of the Corporation.
EIGHTH: Election of directors at an annual or special meeting of the
------
Stockholders need not be by written ballot unless the Bylaws of the
Corporation shall so provide.
NINTH: No director of the Corporation shall be personally liable to
-----
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that this paragraph shall
-------- -------
not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware or (iv) for any
transaction from which the director derives an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended after
the date of filing of this Amended Certificate to authorize corporate
action further
-5-
<PAGE>
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the General Corporation Law of the State
of Delaware as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing in respect of any act
or omission occurring prior to the time of such repeal or modification.
TENTH: The Corporation shall, to the fullest extent now or hereafter
-----
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
ELEVENTH: If any right, preference or limitation of the Common Stock
--------
or the Series C Preferred Stock set forth in this Amended Certificate is
invalid, unlawful or incapable of being enforced by reason of any rule, law
or public policy, all other rights, preferences and limitations set forth
in this Amended Certificate (as so amended) which can be given effect
without invalid, unlawful or unenforceable right preference or limitation
shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon
any other right, preference or limitation unless so expressed herein.
TWELFTH: The Corporation reserves the right to amend, alter, change
-------
or repeal any provision contained in this Amended Certificate in the manner
now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation."
-6-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed on this ___ day of March, 1998.
By:___________________________________
Name: Eugene B. Johnson
Title: Executive Vice President
Attest:
By:______________________________
Name: Walter E. Leach, Jr.
Title: Senior Vice President &
Chief Financial Officer
-7-
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
MJD COMMUNICATIONS, INC.
MJD Communications, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
-----------
follows:
1. The name of the Corporation is MJD Communications, Inc.
2. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on June 30,
1993.
3. This Amended and Restated Certificate of Incorporation (the
"Amended Certificate") has been duly adopted by the Board of Directors and
-------------------
the stockholders of the Corporation in accordance with the provisions of
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware. The text of the Amended Certificate of Incorporation as amended
and restated shall read in full as follows:
"FIRST: The name of the Corporation is MJD Communications, Inc.
-----
SECOND: The address of its registered office in the State of
------
Delaware is The Corporation Trust Company, 1209 Orange Street, in the
City of Wilmington, New Castle County, Delaware 19801. The name of
the registered agent of the Corporation at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
-----
act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which
------
the Corporation shall have authority to issue is Two Hundred Sixty-
Eight Thousand Five Hundred (268,500) shares, of which (i) Thirteen
Thousand Five Hundred (13,500) shares shall be designated as Series C
14% Cumulative Redeemable Nonvoting Preferred Stock, par value $.01
per share (the "Series C Preferred Stock"), and (ii) Two Hundred and
------------------------
Fifty-Five Thousand (255,000) shares of Common Stock, par value $.01
per share (the "Common Stock"), of which One Hundred Thirty Thousand
------------
(130,000) shares shall be designated as Class A Voting common stock,
par value $.01 per share (the "Class A Common Stock"), and One Hundred
--------------------
Twenty-Five Thousand (125,000) shares shall be designated as Class B
Nonvoting common stock (the "Class B Common Stock").
--------------------
<PAGE>
A. COMMON STOCK
------------
1. Ranking. Except with respect to voting rights and certain stock
-------
dividend rights as provided in the proviso to Section 3, the Class A Common
Stock and the Class B Common Stock shall in all respects have the same
powers, preferences, rights and qualifications and shall rank pari passu
---- -----
with each other.
2. Voting Rights of Common Stock. (a) Except as may otherwise be required
-----------------------------
by law, the Class B Common Stock shall have no voting rights and the
holders of Class A Common Stock shall be entitled to one vote per
share on all matters with respect to which they have the right to
vote.
(b) Each share of Class A Common Stock shall, at the option of its
holder, be convertible into one (1) share of Class B Common Stock; and each
share of Class B Common Stock shall, at the option of its holder, be
convertible into one (1) share of Class A Common Stock; provided, however,
-------- -------
in no event shall any share of Class A Common Stock be converted into Class
B Common Stock unless, after giving effect thereto, there remains at least
one share of Class A Common Stock outstanding. Any conversion of Common
Stock in accordance with this paragraph shall be effected in accordance
with the provisions of Section 3 below.
---------
3. Dividend Rights of Common Stock. Holders of the Class A Common
-------------------------------
Stock and the Class B Common Stock shall be entitled to receive,
ratably based on the number of shares of Common Stock held by them,
such dividends and other distributions in cash, in property or in
shares of capital stock of the Corporation as may be declared thereon
by the Board of Directors of the Corporation from time to time out of
assets or funds of the Corporation legally available therefor;
provided, however, that if dividends are declared which are payable in
-------- -------
shares of any class of Common Stock, dividends will be declared which
are payable at the same rate on each class of Common Stock, and share
dividends payable to holders of each class will be payable only in
shares of such class.
4. Conversion of Class A Common Stock and Class B Common Stock Into One
--------------------------------------------------------------------
Another. (a) To exercise the conversion rights provided in Section 2(b)
------- ------------
above with respect to Class A Common Stock and Class B Common Stock, the
holder of certificates representing shares to be converted shall surrender
such certificates to the Corporation, duly endorsed in blank for transfer,
accompanied by written notice of election to convert those shares,
specifying the number of shares of Class A Common Stock or Class B Common
Stock into which shares are being converted. As soon as practicable after
surrender of the certificates, the Corporation shall issue and deliver a
certificate or certificates representing the number of shares of Class A
Common Stock or Class B Common Stock into which shares have been converted.
The conversion shall be deemed to have been effected, and the shares of
Class A Common Stock or Class B Common Stock into which
-2-
<PAGE>
surrendered shares have been converted shall be deemed to have been issued,
on the date notice of election of such conversion is given to the
Corporation. Until the certificates representing the class of Common Stock
being converted have been surrendered and new certificates representing
shares of the class of Common Stock into which shares are being converted
have been issued, the certificates representing the class of Common Stock
being converted shall serve as evidence of, and shall represent, shares of
the class of Common Stock into which shares are being converted. If less
than all of the shares represented by the surrendered certificates have
been converted, a new certificate shall be issued by the Corporation to
evidence the remaining shares.
(b) All shares of Class A Common Stock or Class B Common Stock
issued upon the conversion of shares shall be validly issued and, if the
shares from which the newly issued shares were converted were fully paid
and non-assessable, such new shares shall be fully paid and non-assessable.
The Corporation shall pay any taxes payable in respect of Class A Common
Stock or Class B Common Stock issued upon the conversion of shares. The
Corporation shall not be required, however, to pay any tax imposed in
connection with any transfer involved in the issuance and delivery of share
certificates in a name other than that of the holder of the capital stock
being converted.
(c) The Corporation shall take all steps necessary to reserve and
keep available a number of its authorized but unissued shares of Class A
Common Stock or Class B Common Stock sufficient for the issuance upon
conversion of all outstanding shares of Class A Common Stock or Class B
Common Stock.
B. SERIES C PREFERRED STOCK
------------------------
1. Dividends. (a) The holders of shares of Series C Preferred Stock shall
---------
be entitled to receive when, as and if declared by the Board of Directors
out of funds legally available for the purpose, cumulative dividends as
provided in this Section 1. Until the dividends payable pursuant to this
---------
Section 1 shall have been paid in full, dividends on each share of Series C
---------
Preferred Stock shall accrue on a daily basis at the rate of 14% per annum,
on the sum of (i) the Liquidation Value and (ii) all accumulated and unpaid
dividends thereon. Such dividends will be calculated and compounded
annually and payable in arrears on December 30 of each year (a "dividend
--------
payment date") in respect of the prior twelve (12) month period. Such
------------
dividends shall commence to accrue on each share of Series C Preferred
Stock from the date of issuance thereof whether or not declared by the
Board of Directors, and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of dividends,
and shall continue to accrue thereon until the date the Liquidation Value
of such share (plus all accrued and unpaid dividends thereon) is paid.
-3-
<PAGE>
(b) Except as otherwise provided herein, if at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Series C Preferred Stock, such payment shall be distributed
ratably among the holders thereof based upon the aggregate accrued but
unpaid dividends on the Series C Preferred Stock held by each holder.
2. Liquidation Preference. (a) In the event of any liquidation,
----------------------
dissolution or winding up of the affairs of the Corporation, either
voluntary or involuntarily, each holder of Series C Preferred Stock shall
be entitled, after provision for the payment of the Corporation's debts and
other liabilities, to be paid in cash by wire transfer of immediately
available federal funds the aggregate Liquidation Value of all shares of
Series C Preferred Stock held by such holder plus an amount equal to the
sum of all accrued and unpaid dividends thereon, whether or not declared to
the date of such payment, before any distribution is made on any Junior
Securities. If, upon any such liquidation, dissolution or other winding up
of the affairs of the Corporation, the net assets of the Corporation
distributable among the holders of all outstanding shares of the Series C
Preferred Stock shall be insufficient to permit the payment in full to such
holders of the preferential amounts to which they are entitled, then the
entire net assets of the Corporation remaining after the provision for the
payment of the Corporation's debts and other liabilities shall be
distributed among the holders of the Series C Preferred Stock ratably in
proportion to the full amounts to which they would otherwise be
respectively entitled.
(b) Holders of Series C Preferred Stock shall not be entitled to any
additional distribution in the event of any liquidation, dissolution or
winding up to the affairs of the Corporation in excess of the preferential
amount referred to in Section 2(a) above.
3. Voting Rights. The holders of Series C Preferred Stock shall not have
-------------
or be entitled to any voting rights or powers, either general or special,
except as required by law.
4. Optional Redemption. (a) The Series C Preferred Stock then
-------------------
outstanding shall, at the option of the Corporation, be redeemed in whole
or in part upon the occurrence of (i) an Investor Sale, (ii) the Sale of
the Corporation, or (iii) an IPO (each an "Optional Redemption"). The
-------------------
Corporation shall give each holder of Series C Preferred Stock not less
than ten (10) nor more than twenty (20) days notice of any such redemption
contemplated by this Section 4 (the date set forth in such notice shall
-------
hereinafter be referred to as the "Optional Redemption Date"). The
------------------------
Corporation shall redeem on the Optional Redemption Date all or any portion
of the shares of Series C Preferred Stock held by the holders of Series C
Preferred Stock in cash by wire transfer of immediately available funds at
the Liquidation Value plus an amount equal to the sum of all accrued and
unpaid dividends (whether or not declared by the Board of Directors) on the
Series C Preferred Stock to be redeemed as of the Optional Redemption Date.
-4-
<PAGE>
(b) On and after any Optional Redemption Date dividends will cease
to accumulate on shares of Series C Preferred Stock to be redeemed and the
holders of the Series C Preferred Stock shall cease to have any rights as
stockholders of the Corporation except the right to receive, without
interest, the Liquidation Value thereof and an amount equal to the sum of
all accrued and unpaid dividends, upon the surrender of the certificate(s)
representing the Series C Preferred Stock to the Corporation; provided,
however, that in the event any holder of Series C Preferred Stock tenders
its shares to the Corporation on any Optional Redemption Date the
Corporation shall be obligated to pay interest on the Liquidation Value at
the rate of sixteen percent (16%) per annum or the maximum rate allowable
under applicable law, whichever is lower, in the event the Corporation
defaults in its obligations to pay the Liquidation Value on any such
Optional Redemption Date.
(c) The redemption by the Corporation of all or any part of the
Series C Preferred Stock pursuant to this Section 4 is subject to the
---------
provisions of applicable corporate law and to the applicable terms,
conditions and restrictions contained in any financing agreement to which
the Corporation is a party.
5. Redemption Notice. The notice described in Section 4 hereof shall be
----------------- ---------
sent by the Corporation to the holders of the Series C Preferred Stock at
their respective addresses as shall then appear on the records of the
Corporation, by first class mail, postage prepaid, and shall notify such
recipient of the redemption, the date of such redemption, the number of
shares of Series C Preferred Stock to be redeemed, and the redemption price
therefor.
6. Status of Reacquired Shares. Shares of Series C Preferred Stock which
---------------------------
have been issued and reacquired in any manner shall (upon compliance with
any applicable provisions of the laws of the State of Delaware) have the
status of authorized and unissued shares of Series C Preferred Stock
issuable in series undesignated as to Series C and may be redesignated and
reissued.
7. Exclusion of Other Rights. Except as may otherwise be required by law,
-------------------------
the shares of Series C Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights, other than those
specifically set forth in this Amended Certificate. The shares of Series C
Preferred Stock shall have no preemptive or subscription rights.
8. Rank. The Series C Preferred Stock shall rank senior as to rights
----
upon liquidation, dissolution or winding up to all Junior Securities,
whenever issued.
9. Identical Rights. Each share of the Series C Preferred Stock shall
----------------
have the same relative rights and preferences as, and shall be identical in
all respects with, all other shares of the Series C Preferred Stock.
10. Certificates. So long as any shares of the Series C Preferred Stock
------------
are outstanding, there shall be set forth on the face and back of each
stock
-5-
<PAGE>
certificate issued by the Corporation a statement that the Corporation
shall furnish without charge to each shareholder who so requests, a full
statement of the designation and relative rights, preferences and
limitations of each class of stock or series thereof that the Corporation
is authorized to issue and of the authority of the Board of Directors to
designate and fix the relative rights, preferences and limitations of each
series.
11. Definitions.
-----------
"Investor Sale" means a sale of all or substantially all of the shares
of Common Stock then owned by Carousel Capital Partners, L.P., Kelso
Investment Associates V, L.P. and Kelso Equity Partners V, L.P.
"IPO" means the sale of shares of the Corporation to the public
pursuant to an effective registration statement filed under the Securities
Act of 1933, which results in an active trading market (it being understood
that such an active trading market shall automatically be deemed to exist
if shares are listed on a national securities exchange or on NASDAQ).
"Junior Securities" means the Common Stock and any other equity
interests (including, without limitation, warrants, stock appreciation
rights, phantom stock rights, profit participation rights in debt
instruments or other rights with equity features, calls or options)
exercisable for or convertible into the Common Stock or other equity
interests.
"Liquidation Value" of any share of Series C Preferred Stock shall be
$10.00.
"Person" means an individual, partnership, limited liability company,
corporation, association, trust, joint venture, unincorporated organization
and any government, governmental department or agency or political
subdivision thereof.
"Sale of the Corporation" means the sale of the Corporation to a
Person or group of Persons in a single transaction or a series of
transactions pursuant to which such Person or Persons acquire (i) capital
stock of the Corporation possessing the voting power to elect a majority of
the Corporation's board of directors (whether by merger or consolidation or
by sale, other issuance or transfer of the Corporation's capital stock,
provided, however, that an initial public offering that results in such an
acquisition of voting power shall not be a Sale of the Corporation unless
it otherwise constitutes an IPO) or (ii) all or substantially all of the
Corporation's assets determined on a consolidated basis.
FIFTH: The Corporation is to have perpetual existence.
-----
SIXTH: The number of directors which shall constitute the whole Board
-----
of Directors shall be fixed by and in the manner provided in the Bylaws of
the Corporation.
-6-
<PAGE>
SEVENTH: In furtherance and not in limitation of the powers conferred
-------
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind the Bylaws of the Corporation.
EIGHTH: Election of directors at an annual or special meeting of
------
the Stockholders need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
NINTH: No director of the Corporation shall be personally liable to
-----
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that this paragraph
-------- -------
shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derives
an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after the date of filing of this Amended
Certificate to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of the State
of Delaware as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing in respect of any act
or omission occurring prior to the time of such repeal or modification.
TENTH: The Corporation shall, to the fullest extent now or hereafter
-----
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
ELEVENTH: If any right, preference or limitation of the Common Stock
--------
or the Series C Preferred Stock set forth in this Amended Certificate is
invalid, unlawful or incapable of being enforced by reason of any rule, law
or public policy, all other rights, preferences and limitations set forth
in this Amended Certificate (as so amended) which can be given effect
without invalid, unlawful or unenforceable right preference or limitation
shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon
any other right, preference or limitation unless so expressed herein.
TWELFTH: The Corporation reserves the right to amend, alter, change or
-------
repeal any provision contained in this Amended Certificate in the manner
now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation."
-7-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed on this 31st day of July, 1997.
By:___________________________________
Name: Eugene B. Johnson
Title: Senior Vice President
Attest:
By:__________________________
Name: Walter E. Leach, Jr.
Title: Chief Financial Officer
& Treasurer
-8-
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
MJD COMMUNICATIONS, INC.
Pursuant to the provisions of Section 242 of the General Corporation
Law of the State of Delaware, MJD COMMUNICATIONS, INC., a corporation organized
and existing under and by virtue of the General Corporation Law of Delaware (the
"Corporation"), hereby certifies as follows:
FIRST: The following resolution declaring advisable the amendment of
the Certificate of Incorporation of the Corporation was duly adopted by the
Board of Directors of the Corporation. The resolution is as follows:
"RESOLVED that the amendment of the Certificate of Incorporation of the
Corporation is hereby declared advisable, and that Article Fourth of such
Certificate of Incorporation be, and it hereby is, amended as provided in
Exhibit A attached hereto."
---------
SECOND: The foregoing resolution was duly adopted by the holders of a
majority of the outstanding stock of the Corporation entitled to vote thereon,
by written consent pursuant to Section 228 of the General Corporation Law of the
State of Delaware, and has been duly adopted pursuant to the requirements of
Section 242 of said General Corporation Law.
* * * * * * * *
IN WITNESS WHEREOF, MJD COMMUNICATIONS, INC. has caused this
Certificate of Amendment to its Certificate of Incorporation to be signed by
_______________, its _________________, who hereby acknowledges under penalties
of perjury that the facts herein stated are true and this certificate is his act
and deed, and attested by _______________, its _____________________, as of the
____ day of _____, 1998.
MJD COMMUNICATIONS, INC.
By:_________________________________
Title:
Attest
____________________________________
Title:
<PAGE>
EXHIBIT A
TO
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
MJD COMMUNICATION, INC.
1. The first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation is amended to read as follows:
"FOURTH: The Corporation is authorized to issue a total of Six Hundred
------
Seventy Thousand (670,000) shares of capital stock, of which (i) Seventy
Thousand (70,000) shares shall be designated as "Series A 11% Cumulative
Redeemable Convertible Voting Preferred Stock" with a par value of $0.01
per share ("Series A Preferred Stock'), (ii) Fifty-Five Thousand (55,000)
share shall be designated as "Series B 11% Cumulative Redeemable
Convertible Nonvoting Preferred Stock" with a par value of $0.01 per share
("Series B Preferred Stock"), (iii) Two Hundred Ninety Thousand (290,000)
shares shall be designated as "Series C 14% Cumulative Redeemable Nonvoting
Preferred Stock" with a par value of $0.01 per share ("Series C Preferred
Stock, and together with the Series A Preferred Stock and the Series B
Preferred Stock, the "Preferred Stock") and (iv) Two Hundred fifty-Five
Thousand (255,000) shares shall be designated as Common Stock, with a par
value of $0.01 per share (the "Common Stock"), of which One Hundred Thirty
Thousand (130,000) are Class A Voting Common Stock ("voting Common Stock")
and One Hundred Twenty-Five Thousand (125,000) are Class B Nonvoting Common
Stock ("Nonvoting Common Stock".)"
2. Article FOURTH of the Certificate of Incorporation of the
Corporation is amended to include Section III below.
"III. Series C 15% cumulative Redeemable Nonvoting Preferred Stock
1. Designation. The designation of such series is "Series C 14%
-----------
cumulative Redeemable Nonvoting Preferred Stock" (hereinafter called the
"Series C Preferred Stock") and the number of shares constituting such
series shall be Two Hundred Ninety Thousand (290,000) which number may be
decreased (but not increased) by the Board of Directors without a vote of
stockholders; provided, however, that such number may not be decreased
below
<PAGE>
the number of then currently outstanding shares of Series C Preferred
Stock, plus then number of shares of Series C Preferred Stock required to
be issued in connection with the payment of dividends thereon. All
capitalized terms used in this Certificate of Designation and not otherwise
defined shall have the meanings given to such terms in Section 12 hereof.
2. Dividends. (a) The holders of shares of Series C Preferred
---------
Stock, in preference to the holders of the Junior Securities, shall be
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, cumulative dividends as
provided in this Section 2. Until the dividends payable pursuant to this
Section 2 shall have been paid in full, dividends on each share of Series C
Preferred Stock shall accrue on a daily basis at the rate of 14% per annum,
on the sum of (i) the Liquidation Value and (ii) all accumulated and unpaid
dividends thereon. Such dividends will be calculated and compounded
annually and payable in arrears on December 30 of each year (a "dividend
payment date") in respect of the prior 12-month period. Such dividends
shall commence to accrue on each share of Series C Preferred Stock from the
date of issuance thereof whether or not declared by the Board of Directors,
and whether or not there are profits, surplus or other funds of the
Corporation legally available from the payment of dividends, and shall
continue to accrue thereon until the date the Liquidation Value of such
share (plus all accrued and unpaid dividends thereon) is paid.
(b) Except as otherwise provided herein, if at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Series C Preferred Stock, such payment shall be distributed
ratably among the holders thereof based upon the aggregate accrued but
unpaid dividends on the Series C Preferred Stock held by each holder.
(c) Except as otherwise provided in this Certificate of Designation,
the Purchase Agreement or the Shareholders' Agreement, so long as any
shares of Series C Preferred Stock are outstanding, the Corporation will
not declare, pay or set apart for payment any dividends or make any other
distribution on or redeem any Junior Securities and will not permit any
subsidiary or other affiliate to redeem, purchase or otherwise acquire for
value, or set apart of any sinking or other analogous fund for the
redemption or repurchase of, any Junior Securities.
3. Liquidation Preference. (a) In the event of any liquidation,
----------------------
dissolution or winding up of the affairs of the Corporation, either
voluntarily or involuntarily, each holder of Series C Preferred Stock shall
be entitled, after provision for the payment of the Corporation's debts and
other liabilities, to be paid in cash by wire transfer of immediately
available federal funds the aggregate Liquidation Value of
-2-
<PAGE>
all shares of Series C Preferred Stock held by such holder plus an amount
equal to the sum of all accrued and unpaid dividends thereon, whether or
not declared to the date of such payment, before any distribution is made
on any Junior Securities. If, upon any such liquidation, dissolution or
other winding up of the affairs of the Corporation, the net assets of the
Corporation distributable among the holders of all outstanding shares of
the Series C Preferred Stock shall be insufficient to permit the payment in
full to such holders of the preferential amounts to which they are
entitled, then the entire net assets of the Corporation remaining after the
provision for the payment of the Corporation's debts and other liabilities
shall be distributed among the holders of the Series C Preferred Stock
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled.
(b) Holders of Series C preferred Stock shall not be entitled to any
additional distribution in the event of any liquidation, dissolution or
winding up of the affairs of the Corporation in excess of the preferential
amount referred to in Section 3(a) above.
4. Voting Rights. The holders of Series C Preferred Stock shall not
-------------
have or be entitled to any voting rights or powers, either general or
special, except as required by law.
5. Redemption. (a) The Series C Preferred Stock then outstanding
----------
shall be redeemed in whole on or after the earlier to occur of (i) June 30,
1999, (ii) the Sale of the Corporation, (iii) an IPO or (iv) an Event of
Default under Section 7.1 of the Purchase Agreement (each a "Mandatory
Redemption"), provided, however, that the Company shall use all of the
proceeds of equity financings and debt financings occurring after the
issuance of Series C Preferred Stock to redeem in whole or in part the
Series C Preferred Stock then outstanding. The Corporation shall give each
holder of Series C Preferred Stock not less than 10 nor more than 20 days
notice of any such redemption contemplated by this Section 5 (the date set
forth in such notice for the redemption of said shares of Series C
Preferred Stock shall hereinafter be referred to as the "Mandatory
Redemption Date"). The Corporation shall redeem on the Mandatory
Redemption Date all shares of Series C Preferred Stock (or, in the case of
a partial redemption pursuant to a future equity or debt financing, a
portion of Series C Preferred Stock) held by the holders of Series C
Preferred Stock in cash by wire transfer of immediately available funds at
the Liquidation Value plus an amount equal to the sum of all accrued and
unpaid dividends (whether or not declared by the Board of Directors) on the
Series C Preferred Stock to be redeemed as of the Mandatory Redemption
Date.
-3-
<PAGE>
(b) The Series C Preferred Stock may be redeemed at the option of the
Corporation at any time (the "Optional Redemption"). In any such case,
Corporation shall notify the holders of the Series C Preferred Stock in
writing of its intent to exercise the rights afforded by this Section 5(b)
and specify a date not less than 10 nor more than 60 days from the date of
such notice on which the Series C Preferred Stock shall be redeemed (the
"Optional Redemption Date"). The Corporation shall redeem on the Optional
Redemption Date all shares of Series C Preferred Stock in cash by wire
transfer of immediately available funds at the Liquidation Value plus an
----
amount equal to the sum of all accrued and unpaid dividends (whether or not
declared by the Board of Directors) on the Series C Preferred Stock to be
redeemed as of the Optional Redemption Date Notwithstanding the immediately
preceding sentence, in the event of the Series C Preferred Stock is
redeemed by the Company pursuant to this Section 5(b) at any time prior to
the first anniversary date of the issuance of such shares of Series C
Preferred Stock, the holders thereof shall be entitled to also receive a
prepayment premium in an amount equal to the amount of accrued dividends in
respect of the Series C Preferred Stock that the holders would have been
entitled to receive from the Optional Redemption Date to the first
anniversary date of the issuance of such shares of Series C Preferred Stock
being redeemed had the holders held such Series C Preferred Stock during
such period.
(c) On and after any Mandatory Redemption Date or any Optional
Redemption Date, dividends will cease to accumulate on shares of Series C
Preferred Stock to be redeemed and the holders of the Series C Preferred
Stock shall cease to have any rights as stockholders of the Corporation
except the right to receive, without interest, the Liquidation Value
thereof and an amount equal to the sum of all accrued and unpaid dividends,
upon the surrender of the certificate(s) representing the Series C
Preferred Stock to the Corporation, provided, however, that in the event
any holder of Series C Preferred Stock tenders its shares to the
Corporation on any Mandatory Redemption Date or any Optional Redemption
Date, the Corporation shall be obligated to pay interest on the Liquidation
Value at the maximum rate allowable under applicable law in the event the
Corporation defaults in its obligation to pay the Liquidation Value on any
such Mandatory Redemption Date or Optional Redemption Date.
(d) The redemption by the Corporation of all or any party of the
Series C Preferred Stock pursuant that Section 5 is subject the provisions
of applicable corporate law and to the applicable terms, conditions and
restrictions contained in any financing agreement to which the Corporation
a party.
6. Redemption Notice. The notice described in Section 5 hereof shall
-----------------
be sent, if by or on behalf of the Corporation to the holders of the Series
C preferred
-4-
<PAGE>
Stock at their respective addresses as shall then appear on the records of
the Corporation, or if by any holder of Series C Preferred Stock to the
Corporation at 5821 Fairview Road, Suite 409, Charlotte, North Carolina
28209. Attention: The President, by first class mail, postage prepaid, (i)
notifying such recipient of the redemption, the date of such redemption,
the number of shares of Series C Preferred Stock to be redeemed, and the
redemption price thereof and (ii) in the case of any notice by or on behalf
of the Corporation, stating the place or places at which the shares called
for redemption shall, upon presentation and surrender of such certificates
representing such shares, be redeemed.
7. Status of Required Shares. Shares of Series C Preferred Stock
-------------------------
which have been issued and reacquired in any manner shall (upon compliance
with any applicable provisions of the laws of the State of Delaware) have
the status of authorized and unissued shares of Series C Preferred Stock
issuable in series undesignated as to Series C and may be redesignated and
reissued.
8. Exclusion of Other Rights. Except as may otherwise be required
-------------------------
by law, the shares of Series C Preferred Stock shall not have any
preference or relative, participating, optional or other special rights,
other than those specifically set forth in this Certificate of Designation.
The shares of Series C Preferred Stock shall have no preemptive or
subscription rights pursuant to this Certificate of Designation.
9. Rank. The Series C Preferred Stock shall rank senior as to
----
dividend rights and rights upon liquidation, dissolution or winding up to
all Junior Securities, whenever issued.
10. Identical Rights. Each share of the Series C Preferred Stock
----------------
shall have the same relative rights and preferences as, and shall be
identical in all respects with, all other shares of the Series C Preferred
Stock.
11. Certificates. So long as any shares of the Series C Preferred
------------
Stock are outstanding, there shall be set forth on the face or back of each
stock certificate issued by the Corporation a statement that the
Corporation shall furnish without charge to each shareholder who so
requests, a full statement of designation and relative rights, preferences
and limitations of each class of stock or series thereof that the
Corporation is authorized to issue and of the authority of the Board of
Directors to designate and fix the relative rights, preferences and
limitations of each series.
-5-
<PAGE>
12. Definitions.
-----------
"IPO" means the first sale or distribution of securities of
the Corporation in one or more states of the United States pursuant to a
public offering registered under the Securities Act of 1933, as amended, in
which the net proceeds to the Corporation exceed $10 million.
"Junior Securities" means any of the Corporation's Series A
Preferred Stock, Common Stock and other equity interests (including,
without limitation, warrants, stock appreciation rights, phantom stock
rights, profit participation rights in debt instruments or other rights
with equity features, calls or options exercisable for or convertible into
such capital stock or equity interests).
"Liquidation Value" of any share of Series C Preferred Stock
shall be $10.
"Person" means an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization and any
government, government department or agency or political subdivision
thereof.
"Purchase Agreement" means that certain Securities Purchase
Agreement dated as of June 30, 1994, as amended, among the purchasers named
therein and the Corporation, as it may be amended form time to time.
"Sale of the Corporation" means the sale of the Corporation to
a Person or group of Persons in a single transaction or a series of
transactions pursuant to which such Person or Persons acquire (i) capital
stock of the Corporation possessing the voting power to elect a majority of
the Corporation's board of directors (whether by merger, consolidation or
sale of transfer of the Corporation's capital stock, provided, however,
that an IPO that results in an acquisition of voting power shall not be a
sale of the Corporation) or (ii) all or substantially all of the
Corporation's assets determined on a consolidated basis.
"Shareholders Agreement" means that certain Securityholders'
Agreement dated as of June 30, 1994, as amended, among certain of the
Corporation's shareholders, certain other parties and the Corporation, as
it may be amended form time to time.
13. Severability of Provisions. If any right, preference or
--------------------------
limitation of the Series C Preferred Stock set forth in this Resolution (as
such Certificate of Designation may be amended from time to time) is
invalid, unlawful or incapable
-6-
<PAGE>
of being enforced by reason of any rule, law or public policy, all other
rights preferences and limitations set forth in this Resolution (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right preference or limitation shall, nevertheless, remain in
full force and effect, and no right preference or limitation herein set
forth shall be deemed dependent upon any other right, preference or
limitation unless so expressed herein."
-7-
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
MJD COMMUNICATIONS, INC.
(A NEW YORK CORPORATION)
INTO
MJD COMMUNICATIONS, INC.
(A DELAWARE CORPORATION)
* * * * * * * *
It is hereby certified that:
FIRST: That MJD Communications, Inc. (hereinafter "MJD New York") is a
-----
corporation which was incorporated on the 26/th/ day of February, 1991, pursuant
to the Business Corporation Law of the State of New York, the provisions of
which permit the merger of a corporation of another state and a corporation
organized and existing under the laws of said state.
SECOND: That MJD New York owns all of the outstanding shares of common
------
stock (the sole class of stock) of MJD Communications, Inc. (hereinafter "MJD
Delaware"), a corporation incorporated on the 30/th/ day of June, 1993, pursuant
to the General Corporation Law of the State of Delaware and that MJD New York
hereby merges itself into MJD Delaware.
<PAGE>
THIRD: That MJD New York by the following resolutions of its Board of
-----
Directors, duly adopted by the unanimous written consent of its members, filed
with the minutes of the Board, on the ____ day of ________, 1998 did approve,
adopt and ratify the merger of itself into MJD Delaware.
RESOLVED, that this corporation (MJD New York), be reincorporated in the
State of Delaware by merging itself into MJD Delaware, pursuant to the laws of
the State of New York and the State of Delaware as hereinafter provided, so that
the separate existence of this corporation shall cease as soon as the merger
shall become effective, and thereupon this corporation, which shall continue to
exist under, and be governed by, the laws of the State of Delaware, and
FURTHER RESOLVED, that the terms and conditions of the proposed merger are
as follows:
(a) From and after the effective date of the merger, all the estate,
property, rights, privileges, powers and franchises of this corporation shall
become vested in and be held by MJD Delaware as fully and entirely and without
change or diminution as the same were before held and enjoyed by this
corporation, and MJD Delaware shall assume all of the obligations of this
corporation.
(b) The sole issued and outstanding share of stock of MJD Delaware, owned
by this corporation shall, in consideration for the approval of the merger by
the shareholders of both this corporation and MJD Delaware, be canceled and
returned to MJD Delaware and deemed to have the status of treasury stock.
(c) There shall be a pro rata issuance of the issued and outstanding shares
of stock of MJD Delaware to the shareholders of this corporation in the
following manner:
(i) Bugger Associates, Inc., a New York corporation shall receive
Four Hundred Thousand (400,000) shares;
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<PAGE>
(ii) Meyer Haberman shall receive Two Hundred Fifty Thousand
(250,000) shares;
(iii) Jack H. Thomas shall receive Two Hundred Twenty Thousand
(220,000) shares; and
(iv) Eugene B. Johnson shall receive Eighty Thousand (80,000) shares.
(d) Each share of common stock, without par value, of this corporation
which shall be issued and outstanding immediately prior to the effective time of
the merger shall be converted into One Hundred Thousand (100,000) issued and
outstanding shares of common stock, $.01 par value, of MJD Delaware, and, from
and after the effective time of the merger the holders of all of said issued
and outstanding shares of common stock of this corporation shall automatically
be and become holders of shares of MJD Delaware upon the basis above specified,
whether or not certificates representing said shares are then issued and
delivered.
(e) After the effective time of the merger, each holder of record of any
outstanding certificate or certificates theretofore representing common stock of
this corporation may surrender the same to MJD Delaware at its office in
Delaware and such holder shall be entitled upon such surrender to receive in
exchange therefor a certificate or certificates of MJD Delaware representing One
Hundred Thousand (100,000) multiplied by the number of shares he held in this
corporation. Until so surrendered, each outstanding certificate, which, prior
to the effective time of the merger, represented one or more shares of common
stock of this corporation, shall be deemed for all corporate purposes to
evidence ownership of the One Hundred Thousand to One distribution of shares of
common stock of MJD Delaware.
(f) From and after the effective time of the merger, the Certificate of
Incorporation and the By-Laws of MJD Delaware shall be the Certificate of
Incorporation and the By-Laws of MJD Delaware as in effect immediately prior to
such effective time.
(g) The members of the Board of Directors and officers of MJD Delaware
shall be the members of the Board of Directors and the corresponding officers of
MJD Delaware immediately before the effective time of the merger.
(h) From and after the effective time of the merger, the assets and
liabilities of this corporation and of MJD Delaware shall be entered on the
books of MJD Delaware at the amounts at which they shall be carried at such time
on the respective books of this corporation and of MJD Delaware, subject to the
inter-corporate adjustments or elimination, if any, as may be required to give
effect to the merger; and, subject to such action as may be taken by the Board
of Directors of MJD Delaware, in accordance with generally-accepted accounting
principles, the capital and suplus of MJD Delaware shall be equal to the capital
and surplus of this corporation and of MJD Delaware.
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<PAGE>
FOURTH: That the proposed merger has been adopted, approved, certified,
------
executed and acknowledged by MJD New York, in accordance with the laws of the
State of New York, under which the corporation was organized.
FIFTH: Anything herein or elsewhere to the contrary notwithstanding,
-----
this merger may be amended or terminated or abandoned by the Board of Directors
of MJD New York at any time prior to the date of filing the merger with the
Secretary of State.
IN WITNESS WHEREOF, said MJD New York, has caused this Certificate to be
signed by Meyer Haberman, its President and attested by Daniel G. Bergstein, its
Secretary, this ____ day of __________, 1998.
MJD COMMUNICATIONS, INC.
(New York)
By:________________________________
Meyer Haberman
President
ATTESTED BY:
By:_________________________________
Daniel G. Bergstein
Secretary
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
MJD COMMUNICATIONS, INC.
----------------------------------------------------
I, the undersigned, for the purpose of organizing a corporation under the
laws of the State of Delaware, hereby certify as follows:
FIRST: The name of the corporation is: MJD COMMUNICATIONS, INC.
-----
SECOND: The address of the registered office of the corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its registered agent of the
corporation at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
-----
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
------
have the authority to issue is one million five hundred thousand (1,500,000).
The par value of
<PAGE>
each such share is one cent ($.01). All such shares are of one class and are
shares of common stock.
FIFTH: The name of mailing address of the incorporator are as follows:
-----
NAME MAILING ADDRESS
---- ---------------
Christopher J. Gulotta 425 Park Avenue, 29/th/ Floor
New York, NY 10022
SIXTH: The corporation is to have perpetual existence.
-----
SEVENTH: Whenever a compromise or arrangement is proposed between this
-------
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
Section 279 of Title 8 of the Delaware Code, order or meeting of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
the corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to
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<PAGE>
any compromise or arrangement and to any reorganization of this corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
------
the General Corporation Law of the State of Delaware, the board of directors is
expressly authorized to make, alter, amend or repeal the by-laws of the
corporation.
NINTH: Election of directors need not be by written ballot unless the by-
-----
laws of the corporation shall so provide.
TENTH: No director shall have any personal liability to the corporation
-----
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which the director derived an improper personal benefit.
-3-
<PAGE>
ELEVENTH: The corporation shall, to the fullest extent permitted by
--------
Section 145 of the General Corporation Law of the State of Delaware, as that
section may be amended and supplemented from time to time, indemnify any and all
persons whom it shall have the power to indemnify under that section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by that section. The indemnification provided for herein shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
TWELFTH: The corporation reserves the right to amend, alter, change or
-------
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Signed this 30/th/ day of June, 1993.
___________________________________
Christopher J. Gulotta
Sole Incorporator
-4-
<PAGE>
EXHIBIT 3.2
MJD COMMUNICATIONS, INC.
A NEW YORK CORPORATION
BY-LAWS
_____________________________________________________
ARTICLE I
SHAREHOLDERS
SECTION 1.1 ANNUAL MEETING.
An annual meeting of shareholders for the purpose of electing directors
and of transacting such other business as may come before it shall be held each
year at such date, time and place, either within or without the State of New
York, as may be specified by the Board of Directors.
SECTION 1.2 SPECIAL MEETINGS.
Special meetings of shareholders shall be held at such time and place;
within or without the State of New York, as may be designated in the notice of
meeting, whenever called by the President, the Secretary or a majority of the
Board of Directors, subject to any special statutory provisions. A special
meeting of shareholders shall be called by the President upon the written
request, stating time, place and purpose or purposes of the meeting, of
shareholders who together own of record a majority of the outstanding stock of
any class entitled to vote at such meeting.
SECTION 1.3 NOTICE OF MEETING.
Written notice of shareholder meetings, stating the place, date, hour
and purpose thereof and, unless it is the annual meeting, indicating that it is
being issued by or at the direction of the person or persons calling the
meeting, shall be given by the President or the Secretary to each shareholder of
record entitled to vote thereat not less than ten (10) nor more than fifty (50)
days before the date of the meeting.
SECTION 1.4 QUORUM.
Except as otherwise provided by law or in the certificate of
incorporation or these By-Laws, at any meeting of shareholders, the holders of a
majority of the outstanding shares the holders of which are entitled to vote
thereat shall be present in person or represented by proxy in order to
constitute a quorum for the transaction of any business.
<PAGE>
SECTION 1.5 ORGANIZATION.
The President shall call to order meetings of shareholders and shall act
as chairman of such meetings. The Board of Directors or the shareholders may
appoint any shareholder or any director or officer of the Corporation to act as
chairman of any meeting in the absence of the President.
The Secretary of the Corporation shall act as secretary of all meetings
of shareholders, but in the absence of the Corporation, the chairman of the
meeting may appoint any other person to act as secretary of any meeting.
SECTION 1.6 VOTING.
Except as otherwise provided by law, the certificate of incorporation or
these By-Laws and except for the election of directors, at any meeting duly
called and held at which a quorum is present, a majority of the votes cast at
such meeting upon a given question by the holders of outstanding shares of stock
of all classes of stock of the Corporation entitled to vote thereon who are
present in person or by proxy shall decide such question. At any election of
directors at which a quorum is present, the directors shall be elected by a
plurality of the votes cast at such election.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 NUMBER AND TERM OF OFFICE.
The business, property and affairs of the Corporation shall be managed
and controlled by a Board of three (3) directors; provided, however, that the
Board, by resolution adopted by a vote of a majority of the then authorized
number of directors, may increase and thereafter decrease the number of
directors. The directors shall be elected at the annual meeting of shareholders
and serve (subject to the provisions of Article IV) until the next succeeding
annual of shareholders and until the election and qualification of their
respective successors.
SECTION 2.2 CHAIRMAN OF THE BOARD.
The directors may elect one of their members to be Chairman of the Board
of Directors. The Chairman shall be subject to the control of and may be
removed by the Board of Directors. He shall perform such duties as may from
time to time be assigned to him by the Board.
SECTION 2.3 MEETINGS.
The annual meeting of the Board of Directors for the election of
officers and the transaction of such other business as may come before the
meeting shall be held at the same place as, and immediately following, the
annual meeting of shareholders.
2
<PAGE>
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board.
Special meetings of the Board of Directors shall be held at such time
and place as shall be designated in the notice of meeting whenever called by the
Chairman of the Board, the President or by a majority of the directors then in
office.
SECTION 2.4 NOTICE OF SPECIAL MEETINGS.
The Secretary, or in his absence any other officer of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least two (2) days before the
meeting, or by telegram, cable or radiogram or personal service at least one (1)
day before the meeting. Unless otherwise stated in the notice thereof, any and
all business may be transacted at any meeting without specification of such
business in the notice.
SECTION 2.5 QUORUM AND ORGANIZATION OF MEETINGS.
A majority of the entire Board of Directors as constituted from time to
time shall constitute a quorum for the transaction of business, but if any
meeting of the Board of Directors there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice or waiver. Except as
otherwise provided by law or by these By-Laws, a majority of directors present
at any meeting at which a quorum is present may decide any question brought
before such meeting. Meetings shall be presided over by the Chairman of the
Board or in his absence by the President, or in the absence of both by such
other person as may be selected by the directors. The Secretary of the
Corporation shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 2.6 COMMITTEES.
The Board of Directors, by resolution adopted by a majority of the
entire Board, may designate from among its members one or more committees, each
consisting of one or more directors, and each of which, to the extent provided
in such resolution, shall have all the authority of the Board (except as
otherwise provided by law, the certificate of incorporation, or these By-laws).
However, no such committee shall have the authority as to any of the following
matters:
(a) the submission to shareholders of any action as to which
shareholders' authorization or approval is required by law, the certificate
of incorporation, or these By-Laws;
(b) the filling of vacancies in the Board of Directors or in any
committee;
3
<PAGE>
(c) the fixing of compensation of the directors for serving on the
Board or on any committee;
(d) the amendment or repeal of these By-Laws, or adoption of new By-
Laws; and
(e) the amendment or repeal of any resolution of the Board of
Directors which by its term shall not so amendable or repealable.
The Board may designate one or more directors as alternative members of
any such committee, who may replace any absent member or members at any meeting
of such committee.
Each such committee shall serve at the pleasure of and be responsible to
the Board. It shall. keep minutes of its meetings and report the same to the
Board.
SECTION 2.7 ACTION WITHOUT A MEETING.
Any action required or permitted to be taken by the Board or any
committee thereof may be taken without a meeting, if all members of the Board or
the committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
Board or committee shall be filed with the minutes of the proceedings of the
Board or committee.
SECTION 2.8 ACTION BY CONFERENCE TELEPHONE.
Any one or more members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a President and a
Secretary, each of whom shall be elected by the Board of Directors. The Board
of Directors may elect or appoint such other officers (including a Chairman of
the Board, one or more Vice Presidents, a Treasurer and one or more Assistant
Treasurers and an Assistant Secretaries) as it may deem necessary or desirable,
each of whom shall have such authority, shall perform such duties and shall hold
office for such term as may be prescribed by the Board of Directors from time to
time. Any person may hold at one time two or more offices, except if the stock
of the Corporation is held by more than one person, no person may hold at one
time the offices of President and Secretary.
4
<PAGE>
SECTION 3.2 POWERS AND DUTIES.
The President shall preside at all meetings of the shareholders and of
the Board of Directors. The President shall be the chief executive officer of
the Corporation. In the absence of the Corporation, the Secretary shall perform
all the duties of the President. The officers and agents of the Corporation
shall each have the powers and perform such duties in the management of the
business and affairs of the Corporation as generally pertain to their respective
offices, as well as such powers and duties as from time to time may be
prescribed by the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
SECTION 4.1 RESIGNATIONS.
Any director or officer of the Corporation, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time be not specified therein,
then upon receipt thereof. The acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4.2 REMOVALS.
The Board of Directors, at any meeting thereof, or by written consent,
may, to the extent permitted by law and by separate agreement between the
shareholders, at any time, remove with or without cause from office or terminate
the employment of any officer or member of any committee, and may remove with
cause any director.
The shareholders entitled to vote for the election of directors may,
upon the concurrence of the holders of a majority of all shares then entitled to
vote, remove any director with or without cause.
SECTION 4.3 VACANCIES.
Any vacancy occurring for any reason (including removal without cause)
in the office of any director or officer, and any additional directorship
resulting from increase in the number of directors, may be filled at any time by
a majority of the directors then in office (even though less than a quorum
remains) or by the shareholders and, subject to the provisions of this Article,
the person so chosen shall hold office until his successor shall have been
chosen and qualifies; or if the person so chosen is a director elected to fill a
vacancy, he shall hold office for the unexpired term of his predecessor.
5
<PAGE>
ARTICLE V
CERTIFICATES REPRESENTING SHARES
SECTION 5.1 FORM OF CERTIFICATES.
The shares of the Corporation shall be represented by certificates which
shall be in such form as prescribed by law and approved from time to time by the
Board of Directors.
SECTION 5.2 TRANSFER OF SHARES.
Shares of capital stock of the Corporation may be transferred on the
books of the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer agent
of the certificates of such shares properly endorsed.
SECTION 5.3 FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof or to express
consent to or dissent from any proposal without a meeting, or for the purpose of
determining the shareholders entitled to receive payment of any dividend or the
allotment of any right, or for the purpose of any other action the Board of
Directors may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty (50) or
less than ten (10) days before the date of any meeting nor more than fifty (50)
days prior to any action taken without a meeting, the payment of any dividend or
the allotment of any right, or any other action.
SECTION 5.4 LOST CERTIFICATES.
The Board of Directors or any transfer agent of the Corporation may
direct a new share certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation, alleged to
have been lost, stolen or destroyed. When authorizing such issues of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal representa
tive, to give the Corporation a bond in such sum as the Board of Directors shall
direct to indemnify the Corporation against any claim that may be made against
the Corporation with respect to the certificates alleged to have been lost,
stolen or destroyed or the issuance of such new certificates, and such
requirement may be general or confined to specific instances.
SECTION 5.5 REGULATIONS.
The Board of Directors shall have the power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer, registration, cancellation and replacement or certificates for shares
of the stock of the Corporation.
6
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.1 CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal" and
"New York".
SECTION 6.2 FISCAL YEAR.
The fiscal year of the Corporation shall be determined from time to
time by resolution of the Board of Directors.
SECTION 6.3 NOTICES AND WAIVERS THEREOF.
Whenever any notice is required by these By-Laws or by the certificate
of incorporation, or by any law to be given to any shareholder, director or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors and officers, by telegram,
cable or radiogram, addressed to such address as appears on the books of the
Corporation. Any notice given by telegram, cable or radiogram shall be deemed
to have been given when it shall have been delivered for transmission and any
notice given by mail shall be deemed to have been given when it shall have been
deposited in the United States mail with postage thereo prepaid.
Whenever a notice is required to be given by an statute, the certificate
incorporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons to such notice, whether before or after the meeting or the
time stated therein, shall be deemed equivalent in all respects to such notice.
SECTION 6.4 SECURITIES OF OTHER CORPORATION OR OTHER INTERESTS.
Unless otherwise ordered by the Board of Directors, the President, the
Secretary and such attorneys or agents of the corporation as may from time to
time be authorized by the Board of Directors shall have the full power and
authority on behalf of this Corporation to attend and to act and vote in person
or by proxy at any meeting of the holders of securities of any corporation or
other entity in which this Corporation may own or hold shares or other
securities, and at such meetings shall possess and may exercise all the rights
and powers incident to the ownership of such shares or other securities which
this Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The President, the Secretary or such attorney. or agents
may also execute and deliver on behalf of the Corporation powers of attorneys,
proxies, consents, waivers and other instruments relating to the shares or
securities owned or held by this Corporation.
7
<PAGE>
SECTION 6.5 INDEMNIFICATION OF DIRECTORS. OFFICERS, EMPLOYEES AND
AGENTS.
Any person made or threatened to be made a party to an action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate then is or was a director, officer, employee or agent of
the Corporation, or then serves or has served any other Corporation, shall be
indemnified by the Corporation against expenses, judg ments, fines and amount
paid in settlement to the full extent that officers are permitted to be
indemnified by the laws of the State of New York.
ARTICLE VII
AMENDMENTS
The holders of shares entitled to vote for the election of directors
shall have the power to adopt, alter, amend or repeal the By-Laws of the
Corporation by vote of not less than a majority of the entire Board shall have
power equal in all respects to that of the shareholders to adopt, alter, amend
or repeal the By-Laws. However, any By-Law adopted by the Board may be amended
or repealed by vote of the holders of a majority of the shares entitled at the
time to vote for the election of directors.
If any By-Law regulating an impending election of directors is adopted,
amended or repealed by the Board of Directors, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the By-
Laws so adopted, amended or repealed, together with a concise statement of the
changes made.
8
<PAGE>
MJD COMMUNICATIONS, INC.
A NEW YORK CORPORATION
BY-LAWS
________________________________________________________________________________
ARTICLE I
SHAREHOLDERS
SECTION 1.1 ANNUAL MEETING.
An annual meeting of shareholders for the purpose of electing
directors and of transacting such other business as may come before it shall be
held each year at such date, time and place, either within or without the State
of New York, as may be specified by the Board of Directors.
SECTION 1.2 SPECIAL MEETINGS.
Special meetings of shareholders shall be held at such time and place;
within or without the State of New York, as may be designated in the notice of
meeting, whenever called by the President, the Secretary or a majority of the
Board of Directors, subject to any special statutory provisions. A special
meeting of shareholders shall be called by the President upon the written
request, stating time, place and purpose or purposes of the meeting, of
shareholders who together own of record a majority of the outstanding stock of
any class entitled to vote at such meeting.
SECTION 1.3 NOTICE OF MEETING.
Written notice of shareholder meetings, stating the place, date, hour
and purpose thereof and, unless it is the annual meeting, indicating that it is
being issued by or at the direction of the person or persons calling the
meeting, shall be given by the President or the Secretary to each shareholder of
record entitled to vote thereat not less than ten (10) nor more than fifty (50)
days before the date of the meeting.
SECTION 1.4 QUORUM.
Except as otherwise provided by law or in the certificate of
incorporation or these By-Laws, at any meeting of shareholders, the holders of a
majority of the outstanding shares the holders of which are entitled to vote
thereat shall be present in person or represented by proxy in order to
constitute a quorum for the transaction of any business.
SECTION 1.5 ORGANIZATION.
The President shall call to order meetings of shareholders and shall
act as chairman of such meetings. The Board of Directors or the shareholders may
appoint any shareholder or any director or officer of the Corporation to act as
chairman of any meeting in the absence of the President.
The Secretary of the Corporation shall act as secretary of all
meetings of shareholders, but in the absence of the Corporation, the chairman of
the meeting may appoint any other person to act as secretary of any meeting.
SECTION 1.6 VOTING.
Except as otherwise provided by law, the certificate of incorporation
or these By-Laws and except for the election of directors, at any meeting duly
called and held at which a quorum is present, a majority of the votes cast at
such meeting upon a given question by the holders of outstanding shares of stock
of all classes of stock of the Corporation entitled to vote thereon who are
present in person or by proxy shall decide such question. At any election of
directors at which a quorum is present, the directors shall be elected by a
plurality of the votes cast at such election.
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<PAGE>
MJD COMMUNICATIONS, INC.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 NUMBER AND TERM OF OFFICE.
The business, property and affairs of the Corporation shall be managed
and controlled by a Board of three (3) directors; provided, however, that the
Board, by resolution adopted by a vote of a majority of the then authorized
number of directors, may increase and thereafter decrease the number of
directors. The directors shall be elected at the annual meeting of shareholders
and serve (subject to the provisions of Article IV) until the next succeeding
annual of shareholders and until the election and qualification of their
respective successors.
SECTION 2.2 CHAIRMAN OF THE BOARD.
The directors may elect one of their members to be Chairman of the
Board of Directors. The Chairman shall be subject to the control of and may be
removed by the Board of Directors. He shall perform such duties as may from time
to time be assigned to him by the Board.
SECTION 2.3 MEETINGS.
The annual meeting of the Board of Directors for the election of
officers and the transaction of such other business as may come before the
meeting shall be held at the same place as, and immediately following, the
annual meeting of shareholders.
Regular meetings of the Board of Directors may be held without notice
at such time and place as shall from time to time be determined by the Board.
Special meetings of the Board of Directors shall be held at such time
and place as shall be designated in the notice of meeting whenever called by the
Chairman of the Board, the President or by a majority of the directors then in
office.
SECTION 2.4 NOTICE OF SPECIAL MEETINGS.
The Secretary, or in his absence any other officer of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least two (2) days before the
meeting, or by telegram, cable or radiogram or personal service at least one (1)
day before the meeting. Unless otherwise stated in the notice thereof, any and
all business may be transacted at any meeting without specification of such
business in the notice.
SECTION 2.5 QUORUM AND ORGANIZATION OF MEETINGS.
A majority of the entire Board of Directors as constituted from time
to time shall constitute a quorum for the transaction of business, but if any
meeting of the Board of Directors there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice or waiver. Except as
otherwise provided by law or by these By-Laws, a majority of directors present
at any meeting at which a quorum is present may decide any question brought
before such meeting. Meetings shall be presided over by the Chairman of the
Board or in his absence by the President, or in the absence of both by such
other person as may be selected by the directors. The Secretary of the
Corporation shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 2.6 COMMITTEES.
The Board of Directors, by resolution adopted by a majority of the
entire Board, may designate from among its members one or more committees, each
consisting of one or more directors, and each of which, to the extent provided
in such resolution, shall have all the authority of
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<PAGE>
MJD COMMUNICATIONS, INC.
the Board (except as otherwise provided by law, the certificate of
incorporation, or these By-laws). However, no such committee shall have the
authority as to any of the following matters:
(a) the submission to shareholders of any action as to which
shareholders' authorization or approval is required by law, the certificate of
incorporation, or these By-Laws;
(b) the filling of vacancies in the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee;
(d) the amendment or repeal of these By-Laws, or adoption of new By-Laws;
and
(e) the amendment or repeal of any resolution of the Board of Directors
which by its term shall not so amendable or repealable.
The Board may designate one or more directors as alternative members
of any such committee, who may replace any absent member or members at any
meeting of such committee.
Each such committee shall serve at the pleasure of and be responsible
to the Board. It shall. keep minutes of its meetings and report the same to the
Board.
SECTION 2.7 ACTION WITHOUT A MEETING.
Any action required or permitted to be taken by the Board or any
committee thereof may be taken without a meeting, if all members of the Board or
the committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
Board or committee shall be filed with the minutes of the proceedings of the
Board or committee.
SECTION 2.8 ACTION BY CONFERENCE TELEPHONE.
Any one or more members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a President and a
Secretary, each of whom shall be elected by the Board of Directors. The Board
of Directors may elect or appoint such other officers (including a Chairman of
the Board, one or more Vice Presidents, a Treasurer and one or more Assistant
Treasurers and an Assistant Secretaries) as it may deem necessary or desirable,
each of whom shall have such authority, shall perform such duties and shall hold
office for such term as may be prescribed by the Board of Directors from time to
time. Any person may hold at one time two or more offices, except if the stock
of the Corporation is held by more than one person, no person may hold at one
time the offices of President and Secretary.
SECTION 3.2 POWERS AND DUTIES.
The President shall preside at all meetings of the shareholders and of
the Board of Directors. The President shall be the chief executive officer of
the Corporation. In the absence of the Corporation, the Secretary shall perform
all the duties of the President. The officers and agents of the Corporation
shall each have the powers and perform such duties in the management of the
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<PAGE>
MJD COMMUNICATIONS, INC.
business and affairs of the Corporation as generally pertain to their respective
offices, as well as such powers and duties as from time to time may be
prescribed by the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
SECTION 4.1 RESIGNATIONS.
Any director or officer of the Corporation, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time be not specified therein,
then upon receipt thereof. The acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4.2 REMOVALS.
The Board of Directors, at any meeting thereof, or by written consent,
may, to the extent permitted by law and by separate agreement between the
shareholders, at any time, remove with or without cause from office or terminate
the employment of any officer or member of any committee, and may remove with
cause any director.
The shareholders entitled to vote for the election of directors may,
upon the concurrence of the holders of a majority of all shares then entitled to
vote, remove any director with or without cause.
SECTION 4.3 VACANCIES.
Any vacancy occurring for any reason (including removal without cause)
in the office of any director or officer, and any additional directorship
resulting from increase in the number of directors, may be filled at any time by
a majority of the directors then in office (even though less than a quorum
remains) or by the shareholders and, subject to the provisions of this Article,
the person so chosen shall hold office until his successor shall have been
chosen and qualifies; or if the person so chosen is a director elected to fill a
vacancy, he shall hold office for the unexpired term of his predecessor.
ARTICLE V
CERTIFICATES REPRESENTING SHARES
SECTION 5.1 FORM OF CERTIFICATES.
The shares of the Corporation shall be represented by certificates
which shall be in such form as prescribed by law and approved from time to time
by the Board of Directors.
SECTION 5.2 TRANSFER OF SHARES.
Shares of capital stock of the Corporation may be transferred on the
books of the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer agent
of the certificates of such shares properly endorsed.
SECTION 5.3 FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining the shareholders entitled to receive payment of any
dividend or the allotment of any right, or for the purpose of any other action,
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<PAGE>
MJD COMMUNICATIONS, INC.
the Board of Directors may fix, in advance, a date as the record date for any
such determination of shareholders. Such date shall not be more than fifty (50)
or less than ten (10) days before the date of any meeting nor more than fifty
(50) days prior to any action taken without a meeting, the payment of any
dividend or the allotment of any right, or any other action.
SECTION 5.4 LOST CERTIFICATES.
The Board of Directors or any transfer agent of the Corporation may
direct a new share certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation, alleged to
have been lost, stolen or destroyed. When authorizing such issues of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum as the Board of
Directors shall direct to indemnify the Corporation against any claim that may
be made against the Corporation with respect to the certificates alleged to have
been lost, stolen or destroyed or the issuance of such new certificates, and
such requirement may be general or confined to specific instances.
SECTION 5.5 REGULATIONS.
The Board of Directors shall have the power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer, registration, cancellation and replacement or certificates for shares
of the stock of the Corporation.
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.1 CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal" and
"New York".
SECTION 6.2 FISCAL YEAR.
The fiscal year of the Corporation shall be determined from time to
time by resolution of the Board of Directors.
SECTION 6.3 NOTICES AND WAIVERS THEREOF.
Whenever any notice is required by these By-Laws or by the certificate
of incorporation, or by any law to be given to any shareholder, director or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors and officers, by telegram,
cable or radiogram, addressed to such address as appears on the books of the
Corporation. Any notice given by telegram, cable or radiogram shall be deemed to
have been given when it shall have been delivered for transmission and any
notice given by mail shall be deemed to have been given when it shall have been
deposited in the United States mail with postage thereon prepaid.
Whenever a notice is required to be given by an statute, the
certificate incorporation or these By-Laws, a waiver thereof in writing, signed
by the person or persons to such notice, whether before or after the meeting or
the time stated therein, shall be deemed equivalent in all respects to such
notice.
SECTION 6.4 SECURITIES OF OTHER CORPORATION OR OTHER INTERESTS.
Unless otherwise ordered by the Board of Directors, the President, the
Secretary and such attorneys or agents of the corporation as may from time to
time be authorized by the Board of Directors shall have the full power and
authority on behalf of this Corporation to attend
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<PAGE>
MJD COMMUNICATIONS, INC.
and to act and vote in person or by proxy at any meeting of the holders of
securities of any corporation or other entity in which this Corporation may own
or hold shares or other securities, and at such meetings shall possess and may
exercise all the rights and powers incident to the ownership of such shares or
other securities which this Corporation, as the owner or holder thereof, might
have possessed and exercised if present. The President, the Secretary or such
attorney. or agents may also execute and deliver on behalf of the Corporation
powers of attorneys, proxies, consents, waivers and other instruments relating
to the shares or securities owned or held by this Corporation.
SECTION 6.5 INDEMNIFICATION OF DIRECTORS. OFFICERS, EMPLOYEES AND
AGENTS.
Any person made or threatened to be made a party to an action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate then is or was a director, officer, employee or agent of
the Corporation, or then serves or has served any other Corporation, shall be
indemnified by the Corporation against expenses, judgments, fines and amount
paid in settlement to the full extent that officers are permitted to be
indemnified by the laws of the State of New York.
ARTICLE VII
AMENDMENTS
The holders of shares entitled to vote for the election of directors
shall have the power to adopt, alter, amend or repeal the By-Laws of the
Corporation by vote of not less than a majority of the entire Board shall have
power equal in all respects to that of the shareholders to adopt, alter, amend
or repeal the By-Laws. However, any By-Law adopted by the Board may be amended
or repealed by vote of the holders of a majority of the shares entitled at the
time to vote for the election of directors.
If any By-Law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors
the By-Laws so adopted, amended or repealed, together with a concise statement
of the changes made.
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<PAGE>
EXHIBIT 4.1
================================================================================
MJD COMMUNICATIONS, INC.
$125,000,000 9-1/2% Senior Subordinated Notes due 2008
$75,000,000 Floating Rate Callable Securities due 2008
-------------------------------------------
INDENTURE
Dated as of May 5, 1998
-------------------------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions and Incorporation by Reference
- ------------------------------------------
SECTION 1.01. Definitions.................................................... 1
SECTION 1.02. Other Definitions.............................................. 31
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act.................................................. 32
SECTION 1.04. Rules of Construction.......................................... 32
ARTICLE II
The Securities
- --------------
SECTION 2.01. Amount of Securities; Issuable in Series....................... 33
SECTION 2.02. Form and Dating................................................ 35
SECTION 2.03. Execution and Authentication................................... 35
SECTION 2.04. Registrar and Paying Agent..................................... 36
SECTION 2.05. Paying Agent To Hold Money in Trust............................ 36
SECTION 2.06. Securityholder Lists........................................... 37
SECTION 2.07. Replacement Securities......................................... 37
SECTION 2.08. Outstanding Securities......................................... 37
SECTION 2.09. Temporary Securities........................................... 38
SECTION 2.10. Cancelation.................................................... 38
SECTION 2.11. Defaulted Interest............................................. 38
SECTION 2.12. CUSIP Numbers.................................................. 38
ARTICLE III
Redemption
- ----------
SECTION 3.01. Notices to Trustee............................................. 39
SECTION 3.02. Selection of Securities To Be Redeemed......................... 39
SECTION 3.03. Notice of Redemption........................................... 40
SECTION 3.04. Effect of Notice of Redemption................................. 40
SECTION 3.05. Deposit of Redemption Price.................................... 41
SECTION 3.06. Securities Redeemed in Part.................................... 41
</TABLE>
<PAGE>
Contents, p.2
<TABLE>
ARTICLE IV
<S> <C>
Covenants
- ---------
SECTION 4.01. Payment of Securities.......................................... 41
SECTION 4.02. SEC Reports.................................................... 42
SECTION 4.03. Limitation on Debt............................................. 42
SECTION 4.04. Limitation on Restricted Payments.............................. 43
SECTION 4.05. Limitation on Liens............................................ 47
SECTION 4.06. Limitation on Issuance or Sale of Capital
Stock of Restricted Subsidiaries............................... 47
SECTION 4.07. Limitation on Asset Sales...................................... 47
SECTION 4.08. Limitation on Restrictions on Distributions
from Restricted Subsidiaries................................... 51
SECTION 4.09. Limitation on Transactions with Affiliates..................... 52
SECTION 4.10. Limitation on Layered Debt..................................... 54
SECTION 4.11. Designation of Restricted and Unrestricted
Subsidiaries................................................... 54
SECTION 4.12. Limitation on Sale and Leaseback
Transactions................................................... 55
SECTION 4.13. Limitation on Company's Business............................... 55
SECTION 4.14. Change of Control.............................................. 55
SECTION 4.15. Ellensburg Put Option.......................................... 57
SECTION 4.16. Compliance Certificate......................................... 59
SECTION 4.17. Further Instruments and Acts................................... 59
ARTICLE V
Successor Company
- -----------------
ARTICLE VI
Defaults and Remedies
- ---------------------
SECTION 6.01. Events of Default.............................................. 61
SECTION 6.02. Acceleration................................................... 63
SECTION 6.03. Other Remedies................................................. 64
SECTION 6.04. Waiver of Past Defaults........................................ 64
SECTION 6.05. Control by Majority............................................ 64
SECTION 6.06. Limitation on Suits............................................ 64
SECTION 6.07. Rights of Holders to Receive Payment........................... 65
SECTION 6.08. Collection Suit by Trustee..................................... 65
SECTION 6.09. Trustee May File Proofs of Claim............................... 65
SECTION 6.10. Priorities..................................................... 66
SECTION 6.11. Undertaking for Costs.......................................... 66
SECTION 6.12. Waiver of Stay or Extension Laws............................... 67
</TABLE>
<PAGE>
Contents, p.3
<TABLE>
ARTICLE VII
<S> <C>
Trustee
- -------
SECTION 7.01. Duties of Trustee............................................... 67
SECTION 7.02. Rights of Trustee............................................... 69
SECTION 7.03. Individual Rights of Trustee.................................... 69
SECTION 7.04. Trustee's Disclaimer............................................ 70
SECTION 7.05. Notice of Defaults.............................................. 70
SECTION 7.06. Reports by Trustee to Holders................................... 70
SECTION 7.07. Compensation and Indemnity...................................... 70
SECTION 7.08. Replacement of Trustee.......................................... 71
SECTION 7.09. Successor Trustee by Merger..................................... 72
SECTION 7.10. Eligibility; Disqualification................................... 73
SECTION 7.11. Preferential Collection of Claims Against
Company......................................................... 73
ARTICLE VIII
Discharge of Indenture; Defeasance
- ----------------------------------
SECTION 8.01. Discharge of Liability on Securities;
Defeasance...................................................... 73
SECTION 8.02. Conditions to Defeasance........................................ 75
SECTION 8.03. Application of Trust Money...................................... 76
SECTION 8.04. Repayment to Company............................................ 76
SECTION 8.05. Indemnity for Government Obligations............................ 76
SECTION 8.06. Reinstatement................................................... 77
ARTICLE IX
Amendments
- ----------
SECTION 9.01. Without Consent of Holders...................................... 77
SECTION 9.02. With Consent of Holders......................................... 78
SECTION 9.03. Compliance with Trust Indenture Act............................. 80
SECTION 9.04. Revocation and Effect of Consents and
Waivers......................................................... 80
SECTION 9.05. Notation on or Exchange of Securities........................... 80
SECTION 9.06. Trustee To Sign Amendments...................................... 80
SECTION 9.07. Payment for Consent............................................. 81
ARTICLE X
Subordination
- -------------
</TABLE>
<PAGE>
Contents, p.4
<TABLE>
<S> <C>
SECTION 10.01. Agreement To Subordinate....................................... 81
SECTION 10.02. Liquidation, Dissolution, Bankruptcy........................... 81
SECTION 10.03. Default on Senior Debt......................................... 82
SECTION 10.04. Acceleration of Payment of Securities.......................... 83
SECTION 10.05. When Distribution Must Be Paid Over............................ 83
SECTION 10.06. Subrogation.................................................... 83
SECTION 10.07. Relative Rights................................................ 83
SECTION 10.08. Subordination May Not Be Impaired by
Company........................................................ 84
SECTION 10.09. Rights of Trustee and Paying Agent............................. 84
SECTION 10.10. Distribution or Notice to Representative....................... 84
SECTION 10.11. Article X Not To Prevent Events of Default
or Limit Right To Accelerate................................... 84
SECTION 10.12. Trust Moneys Not Subordinated.................................. 84
SECTION 10.13. Trustee Entitled To Rely....................................... 85
SECTION 10.14. Trustee To Effectuate Subordination............................ 85
SECTION 10.15. Trustee Not Fiduciary for Holders of
Senior Debt.................................................... 86
SECTION 10.16. Reliance by Holders of Senior Debt on
Subordination Provisions....................................... 86
ARTICLE XI
Miscellaneous
- -------------
SECTION 11.01. Trust Indenture Act Controls................................... 86
SECTION 11.02. Notices........................................................ 86
SECTION 11.03. Communication by Holders with Other
Holders........................................................ 87
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent...................................................... 87
SECTION 11.05. Statements Required in Certificate or
Opinion........................................................ 88
SECTION 11.06. When Securities Disregarded.................................... 88
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar...................................................... 88
SECTION 11.08. Legal Holidays................................................. 88
SECTION 11.09. Governing Law.................................................. 89
SECTION 11.10. No Recourse Against Others..................................... 89
SECTION 11.11. Successors..................................................... 89
SECTION 11.12. Multiple Originals............................................. 89
SECTION 11.13. Table of Contents; Headings.................................... 89
Appendix A Provisions Relating to Initial
Securities and Exchange Securities
Exhibit 1 to
Appendix A Form of Initial Security
Exhibit A Form of Exchange Security
</TABLE>
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C>
310 (a)(1) ............................................ 7.10
(a)(2) ............................................ 7.10
(a)(3) ............................................ N.A.
(a)(4) ............................................ N.A.
(b) ............................................ 7.08;
7.10
(c) ............................................ N.A.
311 (a) ............................................ 7.11
(b) ............................................ 7.11
(c) ............................................ N.A.
312 (a) ............................................ 2.06
(b) ............................................ 11.03
(c) ............................................ 11.03
313 (a) ............................................ 7.06
(b) ............................................ N.A.
(b)(2) ............................................ 7.06
(c) ............................................ 11.02
(d) ............................................ 7.06
314 (a) ............................................ 4.02;
4.11;
11.02
(b) ............................................ N.A.
(c)(1) ............................................ 11.04
(c)(2) ............................................ 11.04
(c)(3) ............................................ N.A.
(d) ............................................ N.A.
(e) ............................................ 11.05
(f) ............................................ 4.11
315 (a) ............................................ 7.01
(b) ............................................ 7.05;
11.02
(c) ............................................ 7.01
(d) ............................................ 7.01
(e) ............................................ 6.11
316 (a)
(last
sentence) ............................................ 11.06
(a)(1)(A) .......................................... 6.05
(a)(1)(B) .......................................... 6.04
(a)(2) ............................................ N.A.
(b) ............................................ 6.07
317 (a)(1) ............................................ 6.08
(a)(2) ............................................ 6.09
(b) ............................................ 2.05
318 (a) ............................................ 11.01
</TABLE>
N.A. Means Not Applicable.
- --------------------------------------------------------------------------------
Note: This Cross-Reference Table shall not, for any purposes, be deemed to be
part of this Indenture.
<PAGE>
INDENTURE dated as of May 5, 1998, between MJD
COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and
UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking
corporation, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 9-1/2% Senior
Subordinated Notes due 2008 (the "Initial Fixed Rate Notes") and Floating Rate
Callable Securities (the "Initial Floating Rate Notes" and, together with the
Initial Fixed Rate Notes, the "Initial Securities"), to be issued, from time to
time, in one or more series as in this Indenture provided and, if and when
issued pursuant to a registered or private exchange for the Initial Securities,
the Company's 9-1/2% Senior Subordinated Notes due 2008 (the "Exchange Fixed
Rate Notes") and Floating Rate Callable Securities due 2008 (the "Exchange
Floating Rate Notes" and, together with the Exchange Fixed Rate Notes, the
"Exchange Securities"). (The Initial Fixed Rate Notes, together with the
Exchange Fixed Rate Notes, shall be referred to herein as the "Fixed Rate
Securities." The Floating Rate Notes, together with the Exchange Floating Rate
Notes shall be referred to herein as the "Floating Rate Securities". The
Initial Fixed Rate Securities, together with the Floating Rate Securities shall
be referred to herein as the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.
------------
"Additional Assets" means (a) any Property (other than cash, cash
-----------------
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Telecommunications Business; or (b) Capital Stock of a
Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary from any
Person other than an Affiliate of the Company; provided, however, that, in the
-------- -------
case of clause (b), such Restricted Subsidiary is primarily engaged in a
Telecommunications Business.
"Affiliate" of any specified Person means (a) any other Person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control
<PAGE>
2
with such specified Person or (b) any other Person who is a director or officer
of (i) such specified Person, (ii) any Subsidiary of such specified Person or
(iii) any Person described in clause (a) above. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Sections 4.07 and 4.09 and the definition of
"Additional Assets" only, "Affiliate" shall also mean any beneficial owner of
shares representing 10.0% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Company or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Sale" means any sale, lease, transfer, issuance or other
----------
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) for purposes of Section
4.07 only, (x) any disposition that constitutes a Permitted Investment or
Restricted Payment permitted under Section 4.04 and (y) contemporaneous
exchanges by the Company or any Restricted Subsidiary of Telecommunications
Assets for other Telecommunications Assets in the ordinary course of business;
provided that the applicable Telecommunications Assets received by the Company
- --------
or such Restricted Subsidiary have at least substantially equal Fair Market
Value to the Company or such Restricted Subsidiary (as evidenced by a Resolution
of the Board of Directors of the Company) and (iii) any disposition effected in
compliance with Article V).
"Attributable Debt" in respect of a Sale and Leaseback Transaction
-----------------
means, at any date of determination, (a) if such Sale and Leaseback Transaction
is a Capital Lease Obligation, the amount of Debt represented thereby
<PAGE>
3
according to the definition of "Capital Lease Obligation" and (b) in all other
instances, the greater of (i) the Fair Market Value of the Property subject to
such Sale and Leaseback Transaction and (ii) the present value (discounted at
the interest rate borne by the Fixed Rate Securities, compounded annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of any date of determination, with respect to
------------
any Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one-twelfth of one
year) from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"Board of Directors" means the Board of Directors of the Company (or,
------------------
in the case of Section 4.09(3), the applicable Restricted Subsidiary) or any
committee thereof duly authorized to act on behalf of such Board.
"Board Resolution" means a copy of a resolution certified by the
----------------
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means each day that is not a Legal Holiday.
------------
"Capital Lease Obligations" means any obligation under a lease that is
-------------------------
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
Section 4.05, a Capital Lease Obligation shall be deemed secured by a Lien on
the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
-------------
equivalents (however designated) of any class of corporate stock or partnership
interests or any other participations, rights, warrants, options or other
<PAGE>
4
interests in the nature of an equity interest in such Person, including
Preferred Stock, but excluding any debt security convertible or exchangeable
into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds
---------------------------
received by the Company from the issuance or sale (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any such Subsidiary for the benefit of their employees) by the
Company of its Capital Stock (other than Disqualified Stock) after the Issue
Date, net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
actually incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.
"Change of Control" means the occurrence of any of the following
-----------------
events:
(a) prior to the first Public Equity Offering that results in a Public
Market, the Permitted Holders cease to be the "beneficial owners" (as
defined in Rule 13d-3 under the Exchange Act, except that a Person will be
deemed to have "beneficial ownership" of all shares that any such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of a majority of
the total voting power of the Voting Stock of the Company, whether as a
result of the issuance of securities of the Company, any merger,
consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities by the Permitted Holders or otherwise (for
purposes of this clause (a), the Permitted Holders will be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation so long as the Permitted Holders beneficially own,
directly or indirectly, in the aggregate a majority of the total voting
power of the Voting Stock of such parent corporation); or
(b) on or after the first Public Equity Offering that results in a
Public Market, if any "Person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act, other than any one or more of the
Permitted Holders, becomes the "beneficial
<PAGE>
5
owner" (as defined in Rule 13d-3 under the Exchange Act, except that a
Person will be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
35.0% or more of the total voting power of the Voting Stock of the Company;
provided, however, that the Permitted Holders are the "beneficial owners"
-------- -------
(as defined in Rule 13d-3 under the Exchange Act, except that a Person will
be deemed to have "beneficial ownership" of all shares that any such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, in the aggregate
of a lesser percentage of the total voting power of the Voting Stock of the
Company than such other Person or group (for purposes of this clause (b),
such Person or group shall be deemed to beneficially own any Voting Stock
of a corporation (the "specified corporation") held by any other
corporation (the "parent corporation") so long as such Person or group
beneficially owns, directly or indirectly, in the aggregate a majority of
the total voting power of the Voting Stock of such parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
<PAGE>
6
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment or whose nomination for
election by the shareholders of the Company (i) was approved by a vote of a
majority of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved or (ii) was pursuant to agreements among
shareholders in effect on the Issue Date) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"CLEC Subsidiary" means (i) an Unrestricted Subsidiary engaged
---------------
primarily in providing telecommunications services as a competitive local
exchange carrier in areas within the United States where neither the Company nor
any of its other Subsidiaries provides such services as the incumbent local
exchange carrier and (ii) MJD TeleChoice Corp. to the extent it engages in no
business other than the business described in clause (i) and the ownership of
Capital Stock of Unrestricted Subsidiaries described in clause (i).
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Commodity Price Protection Agreement" means, in respect of a Person,
------------------------------------
any forward contract, commodity swap agreement, commodity option agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Company" means the party named as such in this Indenture until a
-------
successor replaces it pursuant to the applicable provisions hereof and,
thereafter, means the successor and, for purposes of any provision contained
herein and required by the TIA, each other obligor on the indenture securities.
"Consolidated Current Liabilities" means, as of any date of
--------------------------------
determination, the aggregate amount of liabilities of the Company and its
consolidated Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), after eliminating (a) all
intercompany items between the Company
<PAGE>
7
and any Restricted Subsidiary or between Restricted Subsidiaries and (b) all
current maturities of long-term Debt.
"Consolidated Interest Expense" means, for any period, the total
-----------------------------
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent Incurred by the Company or its Restricted Subsidiaries, without
duplication, (a) interest expense attributable to leases constituting part of a
Sale and Leaseback Transaction and to capital leases, (b) amortization of debt
discount and debt issuance cost, including commitment fees, (c) capitalized
interest, (d) non-cash interest expenses, (e) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Stock Dividends, (h) Preferred Stock
Dividends, (i) interest Incurred in connection with Investments in discontinued
operations, (j) interest accruing on any Debt of any other Person to the extent
such Debt is Guaranteed by the Company or any Restricted Subsidiary and (k) the
lesser of (i) cash contributions to any employee stock ownership plan or similar
trust and (ii) the interest or fees paid by such plan or trust to any Person
(other than the Company) in connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss)
-----------------------
of the Company and its consolidated Subsidiaries; provided, however, that there
-------- -------
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, there shall be included in such Consolidated Net Income up to the
aggregate amount of cash distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution, whether
or not reflected on the Company's income statement (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (c) below and excluding any such cash dividends or other
distributions made by Financing Cooperatives that are reinvested in such
Financing Cooperatives) and (ii) the Company's equity in a net loss of any such
Person other than an Unrestricted Subsidiary for such period shall be included
in determining such Consolidated Net Income, (b) for purposes of Section 4.04
only, any net income (loss) of any Person acquired by the Company or any of its
consolidated
<PAGE>
8
Subsidiaries in a pooling of interests transaction for any period prior to the
date of such acquisition, (c) any net income (but not loss) of any Restricted
Subsidiary, if such Restricted Subsidiary is subject to restrictions, directly
or indirectly, on the payment of dividends or the making of distributions,
directly or indirectly, to the Company, except that, subject to the exclusion
contained in clause (d) below, the Company's equity in the net income of any
such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution, plus the amount of income
accrued during such period in excess of such distributed cash to the extent such
excess income could be distributed on the date of determination (subject, in the
case of a dividend or other distribution to another Restricted Subsidiary, to
the limitation contained in this clause), (d) any gain (but not loss) realized
upon the sale or other disposition of any Property of the Company or any of its
consolidated Subsidiaries (including pursuant to any Sale and Leaseback
Transaction) that is not sold or otherwise disposed of in the ordinary course of
business, provided that, in the event of such a sale or other disposition
--------
of all or a portion of the Capital Stock of a Financing Cooperative, any gain
therefrom shall be included in Consolidated Net Income in an amount not to
exceed the amount of dividends or other distributions from such Financing
Cooperative previously excluded from Consolidated Net Income pursuant to the
parenthetical in clause (a)(i) above, (e) any extraordinary gain or loss, (f)
the cumulative effect of a change in accounting principles and (g) any non-cash
compensation expense realized for grants of performance shares, stock options or
other stock awards to officers, directors and employees of the Company or any
Restricted Subsidiary. Notwithstanding the foregoing, for purposes of Section
4.04 only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted pursuant to Section 4.04(c)(iv).
"Consolidated Net Tangible Assets" means, as of any date of
--------------------------------
determination, the sum of the amounts that would appear on a consolidated
balance sheet of the Company and its consolidated Restricted Subsidiaries as the
total assets (less accumulated depreciation and amortization, allowances for
doubtful receivables, other applicable reserves and other properly deductible
items) of the Company and its
<PAGE>
9
Restricted Subsidiaries, after giving effect to purchase accounting and after
deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of (without duplication): (a) the excess of cost
over fair market value of assets or businesses acquired; (b) any revaluation or
other write-up in book value of assets subsequent to the last day of the fiscal
quarter of the Company immediately preceding the Issue Date as a result of a
change in the method of valuation in accordance with GAAP; (c) unamortized debt
discount and expenses and other unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, licenses, organization or
developmental expenses and other intangible items; (d) minority interests in
consolidated Subsidiaries held by Persons other than the Company or any
Restricted Subsidiary; (e) treasury stock; (f) cash or securities set aside and
held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of Capital Stock to the extent such obligation is
not reflected in Consolidated Current Liabilities; and (g) Investments in and
assets of Unrestricted Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the
----------------------
consolidated balance sheet of the Company and its Restricted Subsidiaries as of
the end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (a) the par or stated value of all outstanding Capital Stock of
the Company plus (b) paid-in capital or capital surplus relating to such Capital
Stock plus (c) any retained earnings or earned surplus less (i) any accumulated
deficit and (ii) any amounts attributable to Disqualified Stock.
"Credit Facility" means, the credit agreement, dated as of March 30,
---------------
1998, among the Company, the lenders party thereto in their capacities as
lenders thereunder, NationsBank of Texas, N.A., as syndication agent and Bankers
Trust Company, as administrative agent, together with the related documents
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended, restated,
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder, provided
--------
that such increase in borrowings is permitted by clause (b) of the definition of
"Permitted Debt", or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the debt under such
agreement or any successor or
<PAGE>
10
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Exchange Protection Agreement" means, in respect of a
--------------------------------------
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
----
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (e) the amount of all obligations of such Person with respect
to the Repayment of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (f) all obligations of the type referred to in clauses (a) through
(e) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; (g) all obligations of the type referred to in clauses (a) through
(f) of other Persons secured by any Lien on any Property of such Person (whether
or not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such Property or the amount of the
obligation so secured; and (h) to the extent not otherwise included in this
definition, Hedging Obligations of such Person. The amount of Debt of any
Person at any date shall
<PAGE>
11
be the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date. The amount of Debt represented by a Hedging Obligation shall be equal to
(i) zero if such Hedging Obligation has been Incurred pursuant to clause (e) of
the definition of "Permitted Debt" or (ii) the notional amount of such Hedging
Obligation if not Incurred pursuant to such clause.
"Default" means any event which is, or after notice or passage of time
-------
or both would be, an Event of Default.
"Designated Senior Debt" means (a) any Senior Debt that has, at the
----------------------
time of determination, an aggregate principal amount outstanding of at least
$25.0 million (including the amount of all undrawn commitments and matured and
contingent reimbursement obligations pursuant to letters of credit thereunder)
that is specifically designated in the instrument evidencing such Senior Debt
and is designated in a notice delivered by the Company to the holders or a
Representative of the holders of such Senior Debt and in an Officers'
Certificate delivered to the Trustee as "Designated Senior Debt" of the Company
for purposes of this Indenture and (b) the Credit Facility.
"Disqualified Stock" means, with respect to any Person, any Capital
------------------
Stock that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at the option of the
holder thereof) or otherwise (a) matures or is mandatorily redeemable pursuant
to a sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable at the option of the holder thereof for Debt or
Disqualified Stock, on or prior to, in the case of clause (a), (b) or (c), the
first anniversary of the Stated Maturity of the Securities.
"Disqualified Stock Dividends" means all dividends with respect to
----------------------------
Disqualified Stock of the Company held by Persons other than a Wholly Owned
Subsidiary. The amount of any such dividend shall be equal to the quotient of
such dividend divided by the difference between one and the maximum statutory
federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the Company.
"EBITDA" means, for any period, an amount equal to, for the Company
------
and its consolidated Restricted
<PAGE>
12
Subsidiaries, (a) the sum of Consolidated Net Income for such period, plus the
following to the extent reducing Consolidated Net Income for such period: (i)
the provision for taxes based on income or profits or utilized in computing net
loss, (ii) Consolidated Interest Expense, (iii) depreciation, (iv) amortization
of intangibles and (v) any other non-cash items (other than any such non-cash
item to the extent that it represents an accrual of or reserve for cash
expenditures in any future period) minus (b) all non-cash items increasing
Consolidated Net Income for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Restricted Subsidiary shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its shareholders.
"Equity Investors" means Carousel Capital Partners, L.P., Kelso
----------------
Investment Associates V., L.P. and Kelso Equity Partners V, L.P.
"Equity Sale" means (i) a Public Equity Offering following which a
-----------
Public Market exists or (ii) a Strategic Equity Investment.
"Event of Default" has the meaning set forth under "--Events of
----------------
Default".
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fair Market Value" means, with respect to any Property, the price
-----------------
that could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value equal to or less than $5.0 million, by any Officer of the Company or (b)
if such Property has a Fair Market Value in excess of $5.0 million, by a
majority of the Board of Directors and evidenced by a Board Resolution, dated
within 30 days of the relevant transaction, delivered to the Trustee.
<PAGE>
13
"Financing Cooperative" means CoBank ACB and Rural Telephone Finance
---------------------
Cooperative.
"GAAP" means United States generally accepted accounting principles as
----
in effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
in the rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
---------
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include (i) endorsements
- -------- -------
for collection or deposit in the ordinary course of business or (ii) a
contractual commitment by one Person to invest in another Person for so long as
such Investment is reasonably expected to constitute a Permitted Investment
under clause (c) of the definition of Permitted Investments. The term
"Guarantee" used as a verb has a corresponding meaning. The term "Guarantor"
shall mean any Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
------------------
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement,
Commodity Price Protection Agreement or any other similar agreement or
arrangement.
"Holder" or "Securityholder" means the Person in whose name a Security
------ --------------
is registered on the Security register described in Section 2.04.
<PAGE>
14
"Incur" means, with respect to any Debt or other obligation of any
-----
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
--------
however, that a change in GAAP that results in an obligation of such Person that
- -------
exists at such time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided further, however, that
-------- ------- -------
solely for purposes of determining compliance with Section 4.03, amortization of
debt discount shall not be deemed to be the Incurrence of Debt, provided that in
--------
the case of Debt sold at a discount, the amount of such Debt Incurred shall at
all times be the accreted value of such Debt.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Independent Appraiser" means an investment banking firm of national
---------------------
standing or any third party appraiser of national standing, provided that such
--------
firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate
-----------------------
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan (other
----------
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of Sections 4.04 and 4.11 and the definition of "Restricted Payment,"
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
-------- -------
<PAGE>
15
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary of an amount (if
positive) equal to (a) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (b) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the Fair Market Value of the net assets
of such Subsidiary at the time of such redesignation. In determining the amount
of any Investment made by transfer of any Property other than cash, such
Property shall be valued at its Fair Market Value at the time of such
Investment.
"Issue Date" means the date on which the Original Securities are
----------
initially issued.
"Leverage Ratio" means the ratio of (a) the outstanding Debt of the
--------------
Company and the Restricted Subsidiaries on a consolidated basis to (b) the Pro
Forma EBITDA for the last four full fiscal quarters preceding the date on which
such calculation is made.
"Lien" means, with respect to any Property of any Person, any mortgage
----
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Moody's" means Moody's Investors Service, Inc. or any successor to
-------
the rating agency business thereof.
"Net Available Cash" from any Asset Sale means cash payments received
------------------
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other non-
cash form), in each case net of (a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Sale, (b) all payments made on any Debt
that is
<PAGE>
16
secured by any Property subject to such Asset Sale, in accordance with the terms
of any Lien upon or other security agreement of any kind with respect to such
Property, or which must by its terms, or in order to obtain a necessary consent
to such Asset Sale, or by applicable law, be repaid out of the proceeds from
such Asset Sale, (c) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Sale and (d) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the Property disposed in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
"net cash proceeds" means, with respect to any issuance or sale of
-----------------
Capital Stock, the cash proceeds of such issuance or sale, net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
com-missions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chief Executive Officer, the President, the Chief
-------
Financial Officer or any Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers of
---------------------
the Company, at least one of whom shall be the principal executive officer,
principal financial officer or principal accounting officer of the Company, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Debt" means:
--------------
(a) Debt of the Company evidenced by the Original Securities;
(b) Debt under the Credit Facility, provided that the aggregate
--------
principal amount of all such Debt under the Credit Facility at any one time
outstanding shall not exceed $315.0 million, which amount shall be
permanently reduced by the amount of Net Available Cash used to
Repay Debt under the Credit Facility, and not subsequently reinvested in
Additional Assets or used to
<PAGE>
17
purchase Securities or Repay other Debt, pursuant to Section 4.07;
(c) Debt of the Company or a Restricted Subsidiary in respect of
Capital Lease Obligations and Purchase Money Debt, provided that (i) the
--------
aggregate principal amount of such Debt does not exceed the Fair Market
Value (on the date of the Incurrence thereof) of the Property acquired,
constructed or leased and (ii) the aggregate principal amount of all Debt
Incurred and then outstanding pursuant to this clause (c) (together with
all Permitted Refinancing Debt Incurred in respect of Debt previously
Incurred pursuant to this clause (c)) does not exceed $30.0 million;
(d) Debt of the Company owing to and held by any Restricted Subsidiary
and Debt of a Restricted Subsidiary owing to and held by the Company or any
Restricted Subsidiary; provided, however, that any subsequent issue or
-------- -------
transfer of Capital Stock or other event that results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Debt (except to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Debt by the issuer thereof;
(e) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
--------
obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of Section 4.03;
(f) Debt in connection with one or more standby letters of credit or
performance bonds issued by the Company or a Restricted Subsidiary in the
ordinary course of business or pursuant to self-insurance obligations and
not in connection with the borrowing of money or the obtaining of advances
or credit;
(g) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (f) above;
(h) Debt in an aggregate principal amount outstanding at any one time
not to exceed $10.0 million;
<PAGE>
18
(i) if (x) the acquisition of Chouteau Telephone Company ("Chouteau")
is consummated, up to $7.0 million of Debt Incurred by the Company in
connection with such consummation and/or (y) the acquisition of Utilities,
Inc. ("Utilities") is consummated, up to $12.51 million of Debt of
Utilities Incurred in connection with such consummation, less the aggregate
amount of all repayments of principal made thereon; and
(j) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to Section 4.03(a)(i) and clauses (a), (c), (g) and (i) above.
"Permitted Holders" means Daniel G. Bergstein, JED Associates, Inc.,
-----------------
Meyer Haberman, Jack H. Thomas, Eugene B. Johnson, Walter E. Leach, Jr., John P.
Duda, Carousel Capital Partners, L.P., Kelso Investment Associates V, L.P. and
Kelso Equity Partners V, L.P. (or any successor entity of the Equity Investors
controlled by the current principals of the Equity Investors or any entity
controlled by, or under common control with, the Equity Investors) and their
respective estates, spouses, ancestors and lineal descendants, the legal
representatives of any of the foregoing and the trustees of any bona fide trusts
of which the foregoing are the sole beneficiaries or the grantors, or any Person
of which the foregoing "beneficially owns" (as defined in Rule 13d-3 under the
Exchange Act), individually or collectively with any of the foregoing, at least
a majority of the total voting power of the Voting Stock of such Person.
"Permitted Investment" means any Investment by the Company or a
--------------------
Restricted Subsidiary in (a) any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary, provided
--------
that the primary business of such Restricted Subsidiary is a Telecommunications
Business; (b) a CLEC Subsidiary in an aggregate amount, together with the
aggregate amount of all other such Investments made in CLEC Subsidiaries
pursuant to this clause (b), not to exceed $65.0 million; provided, however,
-------- -------
that (i) in the first year following the Issue Date, the aggregate amount of
such Investments made during such year shall not exceed $5.0 million and (ii) in
each of the second, third, fourth and fifth years following the Issue Date, the
aggregate amount of such Investments made during such year shall not exceed
$15.0 million (each such Investment a "Permitted CLEC Investment," and each such
amount set forth in clauses (i) and (ii) a "Permitted CLEC Investment Amount");
provided further, however, that any excess Permitted CLEC Investment Amount over
- -------- ------- -------
the total Permitted CLEC Investments made in any given year may be
<PAGE>
19
added to the Permitted CLEC Investment Amount for any subsequent year; (c) any
Person if as a result of such Investment such Person is merged or consolidated
with or into, or transfers or conveys all or substantially all its Property to,
the Company or a Restricted Subsidiary, provided that such Person's primary
--------
business is a Telecommunications Business; (d) Temporary Cash Investments; (e)
receivables owing to the Company or a Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
-------- -------
may include such concessionary trade terms as the Company or such Restricted
Subsidiary deems reasonable under the circumstances; (f) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (g) loans and advances to employees made in
the ordinary course of business consistent with past practices of the Company or
a Restricted Subsidiary, as the case may be, provided that such loans and
--------
advances do not exceed $1.0 million at any one time outstanding; (h) stock,
obligations or other securities received in settlement of debts created in the
ordinary course of business and owing to the Company or a Restricted Subsidiary
or in satisfaction of judgments; (i) Capital Stock of a Financing Cooperative
made through the reinvestment of dividends or other distributions received from
such Financing Cooperative; (j) any Person to the extent such Investment
represents the non-cash portion of the consideration received in connection with
an Asset Sale consummated in compliance with Section 4.07; and (k) other
Investments made for Fair Market Value that do not exceed $5.0 million
outstanding at any one time in the aggregate.
"Permitted Liens" means:
---------------
(a) Liens to secure Debt permitted to be Incurred under clause (b) of
the definition of "Permitted Debt";
(b) Liens to secure Debt permitted to be Incurred under clause (c) of
the definition of "Permitted Debt", provided that any such Lien may not
--------
extend to any Property of the Company or any Restricted Subsidiary, other
than the Property acquired, constructed or leased with the proceeds of such
Debt and any improvements or accessions to such Property;
(c) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time
<PAGE>
20
be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings promptly instituted
and diligently concluded, provided that any reserve or other appropriate
--------
provision that shall be required in conformity with GAAP shall have been
made therefor;
(d) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens, on the Property of the Company or
any Restricted Subsidiary arising in the ordinary course of business and
securing payment of obligations that are not more than 60 days past due or
are being contested in good faith and by appropriate proceedings;
(e) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of
a like nature and Incurred in a manner consistent with industry practice,
in each case which are not Incurred in connection with the borrowing of
money, the obtaining of advances or credit or the payment of the deferred
purchase price of Property and which do not in the aggregate impair in any
material respect the use of Property in the operation of the business of
the Company and the Restricted Subsidiaries taken as a whole;
(f) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
-------- -------
other Property of the Company or any Restricted Subsidiary; provided
--------
further, however, that such Liens shall not have been Incurred in
------- -------
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(g) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not
-------- -------
extend to any other Property of the Company or any other Restricted
Subsidiary that is not a direct Subsidiary of such Person; provided
--------
further, however, that any such Lien was not Incurred in anticipation of or
------- -------
in connection
<PAGE>
21
with the transaction or series of transactions pursuant to which such
Person became a Restricted Subsidiary;
(h) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company, or deposits for the payment of
rent, in each case Incurred in the ordinary course of business;
(i) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(j) Liens existing on the Issue Date not otherwise described in
clauses (a) through (i) above;
(k) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (b), (f), (g) or (j) above; provided, however,
-------- -------
that any such Lien shall be limited to all or part of the same Property
that secured the original Lien (together with improvements and accessions
to such Property) and the aggregate principal amount of Debt that is
secured by such Lien shall not be increased to an amount greater than the
sum of (i) the outstanding principal amount, or, if greater, the committed
amount, of the Debt secured by Liens described under clause (b), (f), (g)
or (j) above, as the case may be, at the time the original Lien became a
Permitted Lien under this Indenture and (ii) an amount necessary to pay any
fees and expenses, including premiums and defeasance costs, incurred by the
Company or such Restricted Subsidiary in connection with such Refinancing;
and
(l) Liens not otherwise permitted by clauses (a) through (k) above
encumbering assets having an aggregate Fair Market Value not in excess of
5.0% of Consolidated Net Tangible Assets, as determined based on the
consolidated balance sheet of the Company as of the end of the most recent
fiscal quarter ending at least 45 days prior to the date any such Lien
shall be Incurred.
<PAGE>
22
"Permitted Refinancing Debt" means any Debt that Refinances any other
--------------------------
Debt, including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced, (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced and (d) the new Debt shall not be senior in right of payment to the
Debt that is being Refinanced; provided, however, that Permitted Refinancing
-------- -------
Debt shall not include (x) Debt of a Subsidiary that Refinances Debt of the
Company or (y) Debt of the Company or a Restricted Subsidiary that Refinances
Debt of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any
------
limited liability company), association, partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however
---------------
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
"Preferred Stock Dividends" means all dividends with respect to
-------------------------
Preferred Stock of Restricted Subsidiaries held by Persons other than the
Company or a Wholly Owned Subsidiary. The amount of any such dividend shall be
equal to the quotient of such dividend divided by the difference between one and
the maximum statutory federal income rate (expressed as a decimal number between
1 and 0) then applicable to the issuer of such Preferred Stock.
"principal" of any Indebtedness (including the Securities) means the
---------
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"pro forma" means, with respect to any calculation made or required to
---------
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of
<PAGE>
23
Regulation S-X promulgated under the Securities Act, as interpreted in good
faith by the Board of Directors after consultation with the independent
certified public accountants of the Company, or otherwise a calculation made in
good faith by the Board of Directors after consultation with the independent
certified public accountants of the Company, as the case may be.
"Pro Forma EBITDA" means, for any period, the EBITDA of the Company
----------------
and its consolidated Restricted Subsidiaries, after giving effect to the
following: if (a) since the beginning of such period, the Company or any
Restricted Subsidiary shall have made any Asset Sale, Investment (by merger or
otherwise) in any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of Property, (b) the transaction giving rise to
the need to calculate Pro Forma EBITDA is such an Asset Sale, Investment or
acquisition or (c) since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made such an Asset Sale, Investment or acquisition, EBITDA for such period
shall be calculated after giving pro forma effect to such Asset Sale, Investment
or acquisition as if such Asset Sale, Investment or acquisition occurred on the
first day of such period.
For purposes of this definition, notwithstanding the definition of
"pro forma," EBITDA shall be calculated on a pro forma basis after giving effect
to cost savings resulting from employee terminations, facilities consolidations
and closings, standardization of employee benefits and compensation practices,
consolidation of property, casualty and other insurance coverage and policies,
standardization of sales representation commissions and other contract rates,
and reductions in taxes other than income taxes (collectively, "Cost Savings
Measures"), which cost savings the Company reasonably believes in good faith
would have been achieved during the period for which such calculation is being
made as a result of acquisitions of Property (regardless of whether such Cost
Savings Measures could then be reflected in pro forma financial statements under
GAAP, Regulation S-X promulgated by the SEC or any other regulation or policy of
the SEC), provided that both (i) such cost savings and Cost Savings Measures
--------
were identified and such cost savings were quantified in an Officers'
Certificate delivered to the Trustee at the time of the consummation of an
acquisition of Property and such Officers' Certificate states that such officers
believe in good faith that actions will be
<PAGE>
24
commenced or initiated within 90 days of such acquisition of Property to effect
such Cost Savings Measures and (ii) with respect to each acquisition of Property
completed prior to the 90th day preceding such date of determination, actions
were commenced or initiated by the Company or any of its Restricted Subsidiaries
within 90 days of such acquisition of Property to effect the Cost Savings
Measures identified in such Officers' Certificate (regardless, however, of
whether the corresponding cost savings have been achieved).
"Property" means, with respect to any Person, any interest of such
--------
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person. For purposes of any calculation required pursuant to this
Indenture, the value of any Property shall be its Fair Market Value.
"Public Equity Offering" means an underwritten public offering of
----------------------
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (a) a Public Equity Offering has
-------------
been consummated and (b) at least 15.0% of the total issued and outstanding
common stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Purchase Money Debt" means Debt (a) consisting of the deferred
-------------------
purchase price of property, conditional sale obligations, obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the Property being financed,
and (b) Incurred to finance the acquisition, construction or lease by the
Company or a Restricted Subsidiary of such Property, including additions and
improvements thereto; provided, however, that such Debt is Incurred within 180
-------- -------
days after the acquisition, construction or lease of such Property by the
Company or such Restricted Subsidiary.
"Refinance" means, in respect of any Debt, to refinance, extend,
---------
renew, refund, repay, prepay, repurchase, redeem, defease or retire, or to issue
other Debt, in exchange or replacement for, such Debt. "Refinanced" and
"Refinancing" shall have correlative meanings.
<PAGE>
25
"Repay" means, in respect of any Debt, to repay, prepay, repurchase,
-----
redeem, legally defease or otherwise retire such Debt. "Repayment" and "Repaid"
shall have correlative meanings. For purposes of Section 4.07 and clause (b) of
the definition of "Permitted Debt", Debt shall be considered to have been Repaid
only to the extent the related loan commitment, if any, shall have been
permanently reduced in connection therewith, without the right on the part of
the Company or any of its Subsidiaries, pursuant to an agreement in effect at
the time of such Repayment, to cause such commitment to be reinstated or
replaced with a substantially similar commitment.
"Representative" means the trustee, agent or representative expressly
--------------
authorized to act in such capacity, if any, for an issue of Senior Debt.
"Restricted Payment" means (a) any dividend or distribution (whether
------------------
made in cash, securities or other Property) declared or paid on or with respect
to any shares of Capital Stock of the Company or any Restricted Subsidiary
(including any payment in connection with any merger or consolidation with or
into the Company or any Restricted Subsidiary), except for any dividend or
distribution that is made solely to the Company or a Restricted Subsidiary (and,
if such Restricted Subsidiary is not a Wholly Owned Subsidiary, to the other
shareholders of such Restricted Subsidiary on a pro rata basis or on a basis
that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro rata
basis) or any dividend or distribution payable solely in shares of Capital Stock
(other than Disqualified Stock) of the Company; (b) the purchase, repurchase,
redemption, acquisition or retirement for value of any Capital Stock of the
Company or any Affiliate of the Company (other than from the Company or a
Restricted Subsidiary) or any securities exchangeable for or convertible into
any such Capital Stock, including the exercise of any option to exchange any
Capital Stock (other than for or into Capital Stock of the Company that is not
Disqualified Stock); (c) the purchase, repurchase, redemption, acquisition or
retirement for value, prior to the date for any scheduled maturity, sinking fund
or amortization or other installment payment, of any Subordinated Obligation
(other than the purchase, repurchase or other acquisition of any Subordinated
Obligation purchased in anticipation of satisfying a scheduled maturity, sinking
fund or amortization or other installment obligation, in each case due within
one year of the date of acquisition); (d) any Investment (other than Permitted
Investments) in any Person; or (e) the issuance, sale or
<PAGE>
26
other disposition of Capital Stock of any Restricted Subsidiary to a Person
other than the Company or another Restricted Subsidiary if the result thereof is
that such Restricted Subsidiary shall cease to be a Restricted Subsidiary, in
which event the amount of such "Restricted Payment" shall be the Fair Market
Value of the remaining interest, if any, in such former Restricted Subsidiary
held by the Company and the other Restricted Subsidiaries.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless
---------------------
such Subsidiary shall have been designated an Unrestricted Subsidiary as
permitted or required pursuant to Section 4.11 and (b) an Unrestricted
Subsidiary that is redesignated as a Restricted Subsidiary as permitted pursuant
to Section 4.11.
"S&P" means Standard & Poor's Ratings Service or any successor to the
---
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to
------------------------------
Property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to another Person and the Company or a
Restricted Subsidiary, within two years of such transfer, leases it from such
Person.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Senior Debt" means (a) all obligations consisting of the principal,
-----------
premium, if any, and accrued and unpaid interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to the Company whether or not post-filing interest is allowed in such
proceeding) in respect of (i) Debt of the Company for borrowed money (including
all monetary obligations of the Company under the Credit Facility) and (ii) Debt
of the Company evidenced by notes, debentures, bonds or other similar
instruments permitted under this Indenture for the payment of which the Company
is responsible or liable; (b) all Capital Lease Obligations of the Company and
all Attributable Debt in respect of Sale and Leaseback Transactions entered into
by the Company; (c) all obligations of the Company (i) for the reimbursement of
any obligor on any letter of credit, bankers' acceptance or similar credit
transaction, (ii) under Hedging Obligations or (iii) issued or assumed as the
deferred purchase price of Property and all conditional sale obligations of the
Company
<PAGE>
27
and all obligations under any title retention agreement permitted under this
Indenture; and (d) all obligations of other Persons of the type referred to in
clauses (a), (b) and (c) for the payment of which the Company is responsible or
liable as Guarantor; provided, however, that Senior Debt shall not include
-------- -------
(A) Debt of the Company that is by its terms expressly subordinate or pari passu
---- -----
in right of payment to the Securities, including any Senior Subordinated Debt or
any Subordinated Obligations; (B) any Debt Incurred in violation of the
provisions of this Indenture (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (B) if the holders of such
obligation or their representative and the Trustee shall have received an
Officers' Certificate of the Company to the effect that the Incurrence of such
Debt does not (or, in the case of revolving credit indebtedness (including
revolving credit indebtedness under the Acquisition Facility), that the
Incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of this
Indenture); (C) accounts payable or any other obligations of the Company to
trade creditors created or assumed by the Company in the ordinary course of
business in connection with the obtaining of materials or services (including
Guarantees thereof or instruments evidencing such liabilities); (D) any
liability for Federal, state, local or other taxes owed or owing by the Company;
(E) any obligation of the Company to any Subsidiary; or (F) any obligations with
respect to any Capital Stock of the Company.
"Senior Subordinated Debt" means the Securities and any other
------------------------
subordinated Debt of the Company that specifically provides that such Debt is to
rank pari passu with the Securities and is not subordinated by its terms to any
---- -----
other subordinated Debt or other obligation of the Company which is not Senior
Debt.
"Significant Subsidiary" means any Subsidiary that would be a
----------------------
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
---------------
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
<PAGE>
28
"Strategic Equity Investment" means an equity investment made by a
---------------------------
Strategic Investor in the Company in an aggregate amount of at least $25.0
million and that results in such Strategic Investor's becoming the owner of at
least 15.0% of the total issued and outstanding common stock of the Company.
"Strategic Investor" means a corporation, partnership or other entity
------------------
engaged in one or more Telecommunications Businesses that has, or 80.0% or more
of the Voting Stock of which is owned by a Person that has, an equity market
capitalization, at the time of its initial investment in the Company, in excess
of $2.0 billion.
"Subordinated Obligation" means any Debt of the Company (whether
-----------------------
outstanding on the Issue Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Securities pursuant to a written agreement to
that effect (which shall include the subordination section of any document
governing such Debt).
"Subsidiary" means, in respect of any Person, any corporation, company
----------
(including any limited liability company), association, partnership, joint
venture or other business entity of which a majority of the total voting power
of the Voting Stock is at the time owned or controlled, directly or indirectly,
by (a) such Person, (b) such Person and one or more Subsidiaries of such Person
or (c) one or more Subsidiaries of such Person.
"Telecommunications Assets" means any Property, including licenses and
-------------------------
applications, bids and agreements to acquire licenses, or other authority to
provide telecommunications services, previously granted, or to be granted, by
the Federal Communications Commission, used or intended for use primarily in
connection with a Telecommunications Business.
"Telecommunications Business" means any business substantially all the
---------------------------
revenues of which are derived from (a) transmitting, or providing services
relating to the transmission of, voice, video or data through owned or leased
wireline or wireless facilities, (b) the sale or provision of phone cards, "800"
services, voice mail, switching, enhanced telecommunications services, telephone
directory or telephone number information services or telecommunications network
intelligence or (c) any business ancillary or directly related to the businesses
referred to in clause (a) or (b), provided that the determination of what
--------
constitutes a Telecommunications Business shall be made in good faith by the
Board of Directors.
<PAGE>
29
"Temporary Cash Investments" means any of the following: (a)
--------------------------
Investments in U.S. Government Obligations maturing within one year of such
Investment; (b) Investments in time deposit accounts, certificates of deposit
and money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company organized under the laws of the United
States of America or any state thereof having capital, surplus and undivided
profits aggregating in excess of $500.0 million and whose long-term debt is
rated "A-3" or "A-" or higher according to Moody's or S&P (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (c) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (a) entered into with a bank meeting the
qualifications described in clause (b) above; (d) Investments in commercial
paper, maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized and in existence
under the laws of the United States of America with a rating at the time as of
which any Investment therein is made of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined in
Rule 436 under the Securities Act)); and (e) direct obligations (or certificates
representing an ownership interest in such obligations) of any state of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of such state is pledged and
which are not callable or redeemable at the issuer's option, provided that (i)
--------
the long-term debt of such state is rated "A-3" or "A-" or higher according to
Moody's or S&P (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act)) and (ii) such obligations mature within 180 days of the date of
acquisition thereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
--- ------
77bbbb) as in effect on the date of this Indenture; provided, however, that, in
-------- -------
the event the TIA is amended after such date, "Trust Indenture Act" means, to
the extent required by any such amendments, the Trust Indenture Act of 1939 as
so amended.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it and, thereafter, means the successor.
<PAGE>
30
"Trust Officer" means any officer within the Corporate Trust
-------------
Administration department of the Trustee (or any successor group of the trustee)
with direct responsibility for the administration of this Indenture and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Uniform Commercial Code" means the New York Uniform Commercial Code
-----------------------
as in effect from time to time.
"Unrestricted Subsidiary" means (a) MJD TeleChoice Corp.; (b) any
-----------------------
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to Section 4.11 and not thereafter redesignated
as a Restricted Subsidiary as permitted pursuant thereto.
"U.S. Government Obligations" means direct obligations (or
---------------------------
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of any Person means all classes of Capital Stock or
------------
other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary
-----------------------
all the Voting Stock of which (except directors' qualifying shares) is at such
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
SECTION 1.02. Other Definitions.
------------------
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction"................................. 4.09
"Bankruptcy Law"........................................ 6.01
"Change of Control Offer"............................... 4.14
"Change of Control Payment Date"........................ 4.14
</TABLE>
<PAGE>
31
<TABLE>
<S> <C>
"Change of Control Purchase Price"...................... 4.14
"covenant defeasance option"............................ 8.01
"Custodian"............................................. 6.01
"Event of Default"...................................... 6.01
"Exchange Security"..................................... Appendix A
"Global Security"....................................... Appendix A
"legal defeasance option"............................... 8.01
"Legal Holiday"......................................... 11.08
"Offer Amount".......................................... 4.07
"Offer Period".......................................... 4.07
"OID"................................................... 2.01
"Original Securities"................................... 2.01
"pay the Securities".................................... 10.03
"Paying Agent".......................................... 2.04
"Payment Blockage Notice"............................... 10.03
"Payment Blockage Period"............................... 10.03
"Prepayment Offer"...................................... 4.07
"Prepayment Offer Notice"............................... 4.07
"Purchase Date"......................................... 4.07
"Registered Exchange Offer.............................. Appendix A
"Registrar"............................................. 2.04
"Shelf Registration statement".......................... Appendix A
"Securities Custodian".................................. Appendix A
"Surviving Person"...................................... Article V
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
<PAGE>
32
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
----------------------
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Debt shall not be deemed to be subordinate or junior to
secured Debt merely by virtue of its nature as unsecured Debt;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be the greater
of (i) the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with respect to
such Preferred Stock.
ARTICLE II
The Securities
--------------
SECTION 2.01. Amount of Securities; Issuable in Series. The
-----------------------------------------
aggregate principal amount of Securities that may be authenticated and delivered
under this Indenture is $300,000,000. Except as otherwise set forth herein, the
terms of the Fixed Rate Securities and the Floating Rate Securities will be
identical. The Securities may be issued
<PAGE>
33
in one or more series; provided, however, that any Securities issued with
-------- -------
original issue discount ("OID") for Federal income tax purposes shall not be
issued as part of the same series as any Securities that are issued with a
different amount of OID or are not issued with OID.
Subject to Section 2.03, the Trustee shall authenticate Securities for
original issue on the Issue Date in the aggregate principal amount of
$200,000,000, which shall be comprised of $125,000,000 aggregate principal
amount of Fixed Rate Securities (the "Original Fixed Rate Securities") and
$75,000,000 aggregate principal amount of Floating Rate Securities (the
"Original Floating Rate Securities", and, together with the Original Fixed Rate
Securities, the "Original Securities"). With respect to any Securities issued
after the Issue Date (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, Original
Securities pursuant to Section 2.07, 2.08, 2.09 or 3.06 or Appendix A), there
shall be established in or pursuant to a resolution of the Board of Directors,
and subject to Section 2.03, set forth, or determined in the manner provided in
an Officers' Certificate, or established in one or more indentures supplemental
hereto, prior to the issuance of such Securities:
(1) whether such Securities shall be issued as part of a new or
existing series of Securities and the title of such Securities (which shall
distinguish the Securities of the series from Securities of any other
series);
(2) the aggregate principal amount of such Securities that may be
authenticated and delivered under this Indenture;
(3) the issue price and issuance date of such Securities, including
the date from which interest on such Securities shall accrue;
(4) if applicable, that such Securities shall be issuable in whole or
in part in the form of one or more Global Securities and, in such case, the
respective depositories for such Global Securities, the form of any legend
or legends that shall be borne by any such Global Security in addition to
or in lieu of that set forth in Exhibit 1 to Appendix A and any
circumstances in addition to or in lieu of those set forth in Section 2.3
of Appendix A in which any such Global Security may be exchanged in whole
or in part for Securities registered, and any transfer of such Global
<PAGE>
34
Security in whole or in part may be registered, in the name or names of
Persons other than the depository for such Global Security or a nominee
thereof; and
(5) if applicable, that such Securities shall not be issued in the
form of Initial Securities subject to Appendix A, but shall be issued in
the form of Exchange Securities as set forth in Exhibit A.
If any of the terms of any series are established by action taken
pursuant to a resolution of the Board of Directors, a copy of an appropriate
record of such action shall be certified by the Secretary or any Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officers' Certificate or the trust indenture supplementary
hereto setting forth the terms of the series.
SECTION 2.02. Form and Dating. Provisions relating to the Initial
----------------
Securities of each series and the Exchange Securities are set forth in Appendix
A, which is hereby incorporated in and expressly made part of this Indenture.
The Initial Securities of each series and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to Appendix A,
which is hereby incorporated in and expressly made a part of this Indenture.
The Exchange Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Indenture. The Securities of each series may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject, if any, or usage, provided that any
--------
such notation, legend or endorsement is in a form reasonably acceptable to the
Company. Each Security shall be dated the date of its authentication. The
terms of the Securities of each series set forth in Exhibit 1 to Appendix A and
Exhibit A are part of the terms of this Indenture.
SECTION 2.03. Execution and Authentication. Two Officers shall sign
-----------------------------
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities and
may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
<PAGE>
35
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a written order of the
Company in the form of an Officers' Certificate for the authentication and
delivery of such Securities, and the Trustee in accordance with such written
order of the Company shall authenticate and deliver such Securities.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain
---------------------------
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
<PAGE>
36
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.05. Paying Agent To Hold Money in Trust. Prior to 12:00
------------------------------------
p.m., New York City time, on each due date of the principal and interest on any
Security, the Company shall deposit with the Paying Agent a sum sufficient to
pay such principal and interest when so becoming due. The Company shall require
each Paying Agent (other than the Trustee) to agree in writing that the Paying
Agent shall hold in trust for the benefit of Securityholders or the Trustee all
money held by the Paying Agent for the payment of principal of or interest on
the Securities and shall notify the Trustee of any default by the Company in
making any such payment. If the Company or a Wholly Owned Subsidiary acts as
Paying Agent, it shall segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Company at any time may require a Paying Agent
to pay all money held by it to the Trustee and to account for any funds
disbursed by the Paying Agent. Upon complying with this Section, the Paying
Agent shall have no further liability for the money delivered to the Trustee.
SECTION 2.06. Securityholder Lists. The Trustee shall preserve in as
---------------------
current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.07. Replacement Securities. If a mutilated Security is
-----------------------
surrendered to the Registrar or if the Holder of a Security claims that such
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss that any of them
may suffer if a Security is replaced. The Company and the Trustee may charge
the Holder for their expenses in replacing a Security.
<PAGE>
37
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities. Securities outstanding at any
-----------------------
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancelation and those described in this Section
as not outstanding. A Security does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture, then on and after that date
such Securities (or portions thereof) cease to be outstanding and interest on
them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are
---------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.10. Cancelation. The Company at any time may deliver
------------
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancelation and deliver a certificate of such destruction to the Company unless
the Company directs the Trustee to deliver canceled Securities to the Company.
The Company may not issue new Securities to replace Securities it has redeemed,
paid or delivered to the Trustee for cancelation.
<PAGE>
38
SECTION 2.11. Defaulted Interest. If the Company defaults in a
-------------------
payment of interest on the Securities, the Company shall pay defaulted interest
in any lawful manner. The Company may pay the defaulted interest to the persons
who are Securityholders on a subsequent special record date. The Company shall
fix or cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
--------------
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that neither the Company nor the Trustee shall have any
- -------- -------
responsibility for any defect in the "CUSIP" number that appears on any
Security, check, advice of payment or redemption notice, and any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE III
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
-------------------
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and that such redemption is being made pursuant to paragraph 5 of
the Securities.
The Company shall give each notice to the Trustee provided for in this
Section at least 45 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than
---------------------------------------
all the Fixed Rate Securities or all the Floating Rate Securities are to be
redeemed, the Trustee shall select the Fixed Rate Securities or the
<PAGE>
39
Floating Rate Securities, as the case may be, to be redeemed pro rata or by lot
or by a method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee considers fair and appropriate and in
accordance with methods generally used at the time of selection by fiduciaries
in similar circumstances. The Trustee shall make the selection from outstanding
Fixed Rate Securities or Floating Rate Securities, as the case may be, not
previously called for redemption. The Trustee may select for redemption portions
of the principal of Securities that have denominations larger than $1,000.
Securities and portions of them the Trustee selects shall be in amounts of
$1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption. The Trustee shall notify the Company promptly of the Securities or
portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more
---------------------
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, interest on Securities (or portion thereof)
called for redemption ceases to accrue on and after the redemption date;
and
(7) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
<PAGE>
40
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section at least 45 days before the redemption date.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
-------------------------------
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date that is on or prior to
the date of redemption). Failure to give notice or any defect in the notice to
any Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the redemption
----------------------------
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Wholly Owned Subsidiary is the Paying Agent, shall segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest (subject to
the right of Holders of record on the relevant record date to receive interest
due on the related interest payment date that is on or prior to the date of
redemption) on all Securities to be redeemed on that date other than Securities
or portions of Securities called for redemption that have been delivered by the
Company to the Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
----------------------------
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
Covenants
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay
----------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest
<PAGE>
41
then due and the Trustee or the Paying Agent, as the case may be, is not
prohibited from paying such money to the Securityholders on that date pursuant
to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the rate borne by the Securities to the extent
lawful.
SECTION 4.02. SEC Reports. Notwithstanding that the Company may not
------------
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and Holders of
Securities with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and reports to be so filed and provided at the times specified for the
filing of such information, documents and reports under such Sections; provided,
--------
however, that the Company shall not be so obligated to file such information,
- -------
documents and reports with the SEC if the SEC does not permit such filings. The
Company also shall comply with the other provisions of TIA (S) 314(a). So long
as any of the Securities are "restricted securities" within the meaning of Rule
144(a)(3) under the Securities Act, the Company will, during any period in which
it is not subject to or in compliance with Section 13 or 15(d) of the Exchange
Act, provide to each holder of such restricted securities and to each
prospective purchaser (as designated by such holder) of such restricted
securities, upon the request of such holder or prospective purchaser, any
information required to be provided by Rule 144A(d)(4) under the Securities Act.
SECTION 4.03. Limitation on Debt. (a) The Company shall not, and
-------------------
shall not permit any Restricted Subsidiary to, Incur, directly or indirectly,
any Debt unless, after giving effect to the application of the proceeds thereof,
no Default or Event of Default would occur as a consequence of such Incurrence
or be continuing following such Incurrence and either (i) after giving effect to
the Incurrence of such Debt and the receipt and application of the proceeds
thereof, the Leverage Ratio of the Company and the Restricted Subsidiaries (on a
consolidated basis) would not exceed 7.0 to 1.0 or (ii) such Debt is Permitted
Debt.
(b) Notwithstanding the foregoing, (i) the Company shall not Incur any
Debt pursuant to this Section 4.03 if
<PAGE>
42
the proceeds thereof are used, directly or indirectly, to Refinance (A) any
Subordinated Obligations unless such Debt shall be subordinated to the
Securities to at least the same extent as such Subordinated Obligations or (B)
any Senior Subordinated Debt unless such Debt shall be Senior Subordinated Debt
or shall be subordinated to the Securities, and (ii) the Company shall not
permit any Restricted Subsidiary to Incur any Debt pursuant to this Section 4.03
if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations or Senior Subordinated Debt of the Company.
(c) For purposes of determining compliance with this Section 4.03, (i)
in the event that an item of Debt (including Debt issued by the Company to the
lenders that are party to the Credit Facility) meets the criteria of more than
one of the types of Debt described in Section 4.03(a)(i) and in the definition
of "Permitted Debt", the Company, in its sole discretion, will classify such
item of Debt and only be required to include the amount and type of such Debt in
either Section 4.03(a)(i) or in one of the clauses in the definition of
"Permitted Debt" and (ii) an item of Debt (including Debt issued by the Company
to the lenders that are party to the Credit Facility) may be divided and
classified in more than one of the types of Debt described in the definition of
"Permitted Debt" and Section 4.03(a)(i).
SECTION 4.04. Limitation on Restricted Payments. The Company shall
----------------------------------
not make, and shall not permit any Restricted Subsidiary to make, directly or
indirectly, any Restricted Payment if at the time of, and after giving effect
to, such proposed Restricted Payment,
(a) a Default or Event of Default shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to Section 4.03(a)(i) or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(i) 50.0% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the
<PAGE>
43
Issue Date occurs to the end of the most recent fiscal quarter ending
at least 45 days prior to the date of such Restricted Payment (or if
the aggregate amount of Consolidated Net Income for such period shall
be a deficit, minus 100.0% of such deficit),
(ii) Capital Stock Sale Proceeds, excluding Capital Stock Sale
Proceeds from the sale of additional Capital Stock to the Permitted
Holders pursuant to contractual obligations in effect on the Issue
Date,
(iii) the sum of (A) the aggregate net cash proceeds received by
the Company or any Restricted Subsidiary from the issuance or sale
after the Issue Date of convertible or exchangeable Debt that has been
converted into or exchanged for Capital Stock (other than Disqualified
Stock) of the Company and (B) the aggregate amount by which Debt
(other than Subordinated Obligations) of the Company or any Restricted
Subsidiary is reduced on the Company's consolidated balance sheet on
or after the Issue Date upon the conversion or exchange of any Debt
issued or sold on or prior to the Issue Date that is convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the
Company (excluding, in the case of clause (A) or (B), (x) any such
Debt issued or sold to the Company or a Subsidiary of the Company or
an employee stock ownership plan or trust established by the Company
or any such Subsidiary for the benefit of their employees and (y) the
aggregate amount of any cash or other Property distributed by the
Company or any Restricted Subsidiary upon any such conversion or
exchange),
(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or advances
or other transfers of Property, in each case to the Company or any
Restricted Subsidiary from such Person, and (B) the portion
(proportionate to the Company's equity interest in an Unrestricted
Subsidiary) of the Fair Market Value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
-------- -------
foregoing sum shall not exceed, in the case of any Person, the amount
of Investments previously made
<PAGE>
44
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person, and
(v) $20.0 million.
Notwithstanding the foregoing limitation, the Company may:
(1) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this Indenture; provided, however, that at the
-------- -------
time of such payment of such dividend, no other Default or Event of Default
shall have occurred and be continuing (or result therefrom); provided
--------
further, however, that such dividend shall be included in the calculation
------- -------
of the amount of Restricted Payments;
(2) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or trust established by the Company or any
such Subsidiary for the benefit of their employees); provided, however,
-------- -------
that (i) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the
amount of Restricted Payments and (ii) the Capital Stock Sale Proceeds from
such exchange or sale shall be excluded from the calculation pursuant to
clause (c)(ii) above;
(3) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or out of the
proceeds of the substantially concurrent sale of, Permitted Refinancing
Debt; provided, however, that such purchase, repurchase, redemption, legal
-------- -------
defeasance, acquisition or retirement shall be excluded in the calculation
of the amount of Restricted Payments;
(4) repurchase shares of, or options to purchase shares of, common
stock of the Company or any of its Subsidiaries from current or former
officers, directors or employees of the Company or any of its Subsidiaries
(or permitted transferees of such current or former officers, directors or
employees), pursuant to the
<PAGE>
45
terms of agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell, or are granted the option to purchase or
sell, shares of such common stock; provided, however, that (i) the
-------- -------
aggregate amount of such repurchases shall not exceed $1.0 million in any
fiscal year, (ii) such repurchases shall be excluded in the calculation of
the amount of Restricted Payments and (iii) at the time of any such
repurchase, no other Default or Event of Default shall have occurred and be
continuing (or result therefrom);
(5) purchase up to (i) 12,500 shares of ST Enterprises, Ltd. and (ii)
7.69 shares of Sidney Telephone Company (in each case as adjusted for stock
splits and other similar events), outstanding on the Issue Date; provided,
--------
however, that such purchases or redemptions shall not be made from
-------
Affiliates of the Company (other than Persons who are Affiliates solely by
virtue of their ownership of such shares) and shall be included in the
calculation of the amount of Restricted Payments; provided further,
----------------
however, that at the time of any such purchase or redemption, no other
-------
Default or Event of Default shall have occurred and be continuing (or
result therefrom);
(6) pay the fees and expenses described in Section 4.09(5), provided,
--------
however, that any such fees or expenses paid in excess of $1.0 million per
-------
fiscal year shall be included in the calculation of the amount of
Restricted Payments; and
(7) following the first Public Equity Offering that results in a
Public Market, pay dividends on the common stock of the Company of up to
6.0% per annum of the cash proceeds (net of underwriters' fees, discounts
or commissions) of such first Public Equity Offering; provided, however,
-------- -------
that (i) such dividends shall be (x) paid pro rata to the holders of all
classes of common stock of the Company and (y) included in the calculation
of the amount of Restricted Payments and (ii) at the time of payment of any
such dividend, no other Default or Event of Default shall have occurred and
be continuing (or result therefrom).
In computing Consolidated Net Income of the Company under clauses (a),
(b) and (c) above, (x) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and
<PAGE>
46
unaudited financial statements and other current financial data based on the
books and records of the Company for the remaining portion of such period and
(y) the Company shall be permitted to rely in good faith on the financial
statements and other financial data derived from the books and records of the
Company that are available on the date of determination. If the Company makes a
Restricted Payment that, at the time of the making of such Restricted Payment,
would in the good faith determination of the Company be permitted under the
requirements of this Indenture, such Restricted Payment shall be deemed to have
been made in compliance with this Indenture notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements affecting
Consolidated Net Income of the Company for any period.
SECTION 4.05. Limitation on Liens. The Company shall not, and shall
--------------------
not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer
to exist, any Lien (other than Permitted Liens or Liens securing Senior Debt)
upon any of its Property (including Capital Stock of a Restricted Subsidiary),
whether owned at the Issue Date or thereafter acquired, or any interest therein
or any income or profits therefrom, unless (a) if such Lien secures Senior
Subordinated Debt, the Securities are secured on an equal and ratable basis with
such Debt and (b) if such Lien secures Subordinated Obligations, such Lien shall
be subordinated to a Lien securing the Securities in the same Property as that
securing such Subordinated Obligations to the same extent as such Subordinated
Obligations are subordinated to the Securities.
SECTION 4.06. Limitation on Issuance or Sale of Capital Stock of
--------------------------------------------------
Restricted Subsidiaries. The Company shall not (a) sell, pledge, hypothecate or
- ------------------------
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary or
(b) permit any Restricted Subsidiary to, directly or indirectly, issue or sell
or otherwise dispose of any shares of its Capital Stock, other than (i)
directors' qualifying shares, (ii) to the Company or a Wholly Owned Subsidiary,
or (iii) if, immediately after giving effect to such disposition, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary;
provided, however, that, in the case of this clause (iii), such issuance, sale
- -------- -------
or disposition is effected in compliance with Section 4.07.
SECTION 4.07. Limitation on Asset Sales. (a) The Company shall not,
--------------------------
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at
<PAGE>
47
least equal to the Fair Market Value of the Property subject to such Asset Sale;
(ii) at least 75.0% of the consideration paid to the Company or such Restricted
Subsidiary in connection with such Asset Sale is in the form of cash or cash
equivalents or the assumption by the purchaser of liabilities of the Company or
any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Securities) as a result of which the Company and the
Restricted Subsidiaries are no longer obligated with respect to such
liabilities; and (iii) the Company delivers an Officers' Certificate to the
Trustee certifying that such Asset Sale complies with the foregoing clauses (i)
and (ii).
(b) The Net Available Cash (or any portion thereof) from Asset Sales
may be applied by the Company or a Restricted Subsidiary, to the extent the
Company or such Restricted Subsidiary elects (or is required by the terms of any
Debt): (a) to Repay Senior Debt of the Company or Debt of any Restricted
Subsidiary (excluding any Debt owed to the Company or an Affiliate of the
Company); or (b) subject to Section 4.04, to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by the Company or another Restricted
Subsidiary). Pending such application, and subject in all respects to the
procedures set forth below, the Company may, to the extent such use would not
constitute a Repayment, use such Net Available Cash to temporarily reduce Debt.
(c) Any Net Available Cash from an Asset Sale not applied in
accordance with the preceding paragraph within 270 days from the date of the
receipt of such Net Available Cash or that is not (to the extent not used to
temporarily reduce Debt without reducing related loan commitments) segregated
from the general funds of the Company for investment in identified Additional
Assets in respect of a project that shall have been commenced, and for which
binding contractual commitments have been entered into, prior to the end of such
270-day period and that shall not have been completed or abandoned shall
constitute "Excess Proceeds"; provided, however, that the amount of any Net
-------- -------
Available Cash that ceases to be so segregated as contemplated above and any Net
Available Cash that is segregated in respect of a project that is abandoned or
completed shall also constitute "Excess Proceeds" at the time any such Net
Available Cash ceases to be so segregated or at the time the relevant project is
so abandoned or completed, as applicable. When the aggregate amount of Excess
Proceeds exceeds $5.0 million (taking into account income earned on such Excess
Proceeds, if any), the Company will be required to make an offer to purchase
(the
<PAGE>
48
"Prepayment Offer") the Securities which offer shall be in the amount of the
Allocable Excess Proceeds, on a pro rata basis according to principal amount, at
a purchase price equal to 100.0% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the purchase date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), in accordance with the procedures (including
prorating in the event of oversubscription) set forth herein. To the extent that
any portion of the amount of Net Available Cash remains after compliance with
the preceding sentence and provided that all Holders of Securities have been
given the opportunity to tender their Securities for purchase in accordance with
Section 4.07(d), the Company or such Restricted Subsidiary may use such
remaining amount for any purpose permitted by this Indenture and the amount of
Excess Proceeds will be reset to zero. The term "Allocable Excess Proceeds" will
mean the product of (i) the Excess Proceeds and (ii) a fraction, the numerator
of which is the aggregate principal amount of the Securities outstanding on the
date of the Prepayment Offer and the denominator of which is the sum of the
aggregate principal amount of the Securities outstanding on the date of the
Prepayment Offer and the aggregate principal amount of other Debt of the Company
outstanding on the date of the Prepayment Offer that is pari passu in right of
---- -----
payment with the Securities and subject to terms and conditions in respect of
Asset Sales similar in all material respects to this Section and requiring the
Company to make an offer to purchase such Debt at substantially the same time as
the Prepayment Offer.
(d)(1) Within five Business Days after the Company is obligated to
make a Prepayment Offer as described in Section 4.07(c), the Company shall send
a written notice, by first-class mail, to the Holders of Securities, accompanied
by such information regarding the Company and its Subsidiaries as the Company in
good faith believes will enable such Holders to make an informed decision with
respect to such Prepayment Offer. Such notice shall state, among other things,
the purchase price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a Business Day no earlier than 30 days
nor later than 60 days from the date such notice is mailed (the "Purchase
Date").
(2) Not later than the date upon which written notice of a Prepayment
Offer is delivered to the Trustee as provided above, the Company shall
deliver to the Trustee an Officers' Certificate as to (i) the amount of the
Prepayment Offer (the "Offer Amount"), (ii) the allocation of the Net
Available Cash from the
<PAGE>
49
Asset Sales pursuant to which such Prepayment Offer is being made and (iii)
the compliance of such allocation with the provisions of Section 4.07(b).
On or before the Purchase Date, the Company shall also irrevocably deposit
with the Trustee or with the Paying Agent (or, if the Company or a Wholly
Owned Subsidiary is the Paying Agent, shall segregate and hold in trust) in
Temporary Cash Investments (other than in those enumerated in clause (b) of
the definition of Temporary Cash Investments), maturing on the last day
prior to the Purchase Date or on the Purchase Date if funds are immediately
available by open of business, an amount equal to the Offer Amount to be
held for payment in accordance with the provisions of this Section. Upon
the expiration of the period for which the Prepayment Offer remains open
(the "Offer Period"), the Company shall deliver to the Trustee for
cancelation the Securities or portions thereof that have been properly
tendered to and are to be accepted by the Company. The Trustee or the
Paying Agent shall, on the Purchase Date, mail or deliver payment to each
tendering Holder in the amount of the purchase price. In the event that the
aggregate purchase price of the Securities delivered by the Company to the
Trustee is less than the Offer Amount, the Trustee or the Paying Agent
shall deliver the excess to the Company immediately after the expiration of
the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company or its agent at the address specified in the notice at least three
Business Days prior to the Purchase Date. Holders shall be entitled to
withdraw their election if the Trustee or the Company receives not later
than one Business Day prior to the Purchase Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security that was delivered for purchase by the
Holder and a statement that such Holder is withdrawing its election to have
such Security purchased. If at the expiration of the Offer Period the
aggregate principal amount of Securities surrendered by Holders exceeds the
Offer Amount, the Company shall select the Securities to be purchased on
pro rata basis for all Securities, without regard to whether the Securities
surrendered are Fixed Rate Securities or Floating Rate Securities (with
such adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof,
shall be
<PAGE>
50
purchased). Holders whose Securities are purchased only in part shall be
issued new Securities equal in principal amount to the unpurchased portion
of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee that
are to be accepted for purchase, the Company shall also deliver an
Officers' Certificate stating that such Securities are to be accepted by
the Company pursuant to and in accordance with the terms of this Section.
A Security shall be deemed to have been accepted for purchase at the time
the Trustee or the Paying Agent mails or delivers payment therefor to the
surrendering Holder.
(e) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.08. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
- ------------------------
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual restriction on the right of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any Debt or other
obligation owed, to the Company or any other Restricted Subsidiary, (b) make any
loans or advances to the Company or any other Restricted Subsidiary or (c)
transfer any of its Property to the Company or any other Restricted Subsidiary.
The foregoing limitations will not apply (i) with respect to clauses (a), (b)
and (c), to restrictions (A) arising under agreements that were in effect on the
Issue Date, (B) relating to Debt of a Restricted Subsidiary and existing at the
time it became a Restricted Subsidiary if such restriction was not created in
connection with or in anticipation of the transaction or series of transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Company or another Restricted Subsidiary, or (C) that result
from the Refinancing of Debt Incurred pursuant to an agreement referred to in
clause (i)(A) or (B) above or in clause (ii)(A) or (B) below, provided such
--------
restriction is no
<PAGE>
51
more restrictive than those under the agreement evidencing the Debt so
Refinanced, and (ii) with respect to clause (c) only, to restrictions (A)
relating to Debt that is permitted to be Incurred and secured without also
securing the Securities pursuant to Sections 4.03 and 4.05 that limit the right
of the debtor to dispose of the Property securing such Debt, (B) encumbering
Property at the time such Property was acquired by the Company or any Restricted
Subsidiary, so long as such restriction relates solely to the Property so
acquired and was not created in connection with or in anticipation of such
acquisition, (C) resulting from customary provisions restricting subletting or
assignment of leases or customary provisions in other agreements that restrict
assignment of such agreements or rights thereunder or (D) customary restrictions
contained in asset sale agreements limiting the transfer of such Property
pending the closing of such sale.
SECTION 4.09. Limitation on Transactions with Affiliates. The
-------------------------------------------
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, conduct any business or enter into or suffer to exist any
transaction or series of transactions (including the purchase, sale, transfer,
assignment, lease, conveyance or exchange of any Property or the rendering of
any service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction"), unless (a) the terms of such Affiliate Transaction are
(i) set forth in writing, (ii) in the best interest of the Company or such
Restricted Subsidiary, as the case may be, and (iii) no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than those that could
be obtained in a comparable arm's-length transaction with a Person that is not
an Affiliate of the Company, (b) if such Affiliate Transaction involves
aggregate payments or value in excess of $1.0 million, two Officers of the
Company approve such Affiliate Transaction, and in the good faith judgment of
such Officers, believe that such Affiliate Transaction complies with clauses
(a)(ii) and (iii) of this paragraph as evidenced by an Officers' Certificate
promptly delivered to the Trustee, (c) if such Affiliate Transaction involves
aggregate payments or value in excess of $5.0 million, the Board of Directors
(including a majority of the disinterested members of the Board of Directors)
approves such Affiliate Transaction, and in its good faith judgment, believes
that such Affiliate Transaction complies with clauses (a)(ii) and (iii) of this
paragraph as evidenced by a Board Resolution promptly delivered to the Trustee
and (d) if such Affiliate Transaction involves aggregate payments or value in
excess of $10.0 million, the Company obtains a written opinion from an
Independent Appraiser to
<PAGE>
52
the effect that the consideration to be paid or received in connection with such
Affiliate Transaction is fair, from a financial point of view, to the Company or
such Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may enter into or suffer to exist the following:
(1) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries, provided that no more than 5.0% of the total voting power of
--------
the Voting Stock (on a fully diluted basis) of any such Restricted
Subsidiary is owned by an Affiliate of the Company (other than a Restricted
Subsidiary);
(2) any Restricted Payment permitted to be made pursuant to Section
4.04;
(3) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as such payments are pursuant to a policy (i) established by the Board of
Directors in good faith and (ii) evidenced by a resolution of the Board of
Directors that establishes standards to ensure that the terms of such
compensation and the services theretofore or thereafter to be performed for
such compensation will be fair consideration therefor;
(4) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be, provided that such loans and
--------
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(5) the payment, in compliance with clause (a) of this Section 4.09,
of fees and expenses to the Equity Investors during any fiscal year not in
excess of 1.0% of EBITDA for such year, provided that no Default or Event
--------
of Default exists at the time of such payment;
(6) the payment of customary legal fees and expenses to Paul,
Hastings, Janofsky & Walker LLP; or
(7) any transaction or series of transactions, in the ordinary course
of business for a Person engaged in
<PAGE>
53
the CLEC business, with a CLEC Subsidiary, provided that any such
--------
transaction is undertaken pursuant to a policy adopted by the Board of
Directors, which policy shall be evidenced by a Board Resolution delivered
to the Trustee, that establishes adequate procedures to insure that any
such transaction is effected in accordance with clauses (a)(ii) and
(a)(iii) of this Section 4.09.
SECTION 4.10. Limitation on Layered Debt. The Company shall not
---------------------------
Incur, directly or indirectly, any Debt that is subordinate or junior in right
of payment to any Senior Debt unless such Debt is Senior Subordinated Debt or is
expressly subordinated in right of payment to Senior Subordinated Debt.
SECTION 4.11. Designation of Restricted and Unrestricted
------------------------------------------
Subsidiaries. The Board of Directors may designate any Subsidiary of the
- -------------
Company to be an Unrestricted Subsidiary if (a) the Subsidiary to be so
designated does not own any Capital Stock or Debt of, or own or hold any Lien on
any Property of, the Company or any other Restricted Subsidiary, (b) the
Subsidiary to be so designated is not obligated under any Debt, Lien or other
obligation that, if in default, would result (with the passage of time or notice
or otherwise) in a default on any Debt of the Company or of any Restricted
Subsidiary and (c) either (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) such designation is effective immediately upon
such entity becoming a Subsidiary of the Company. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
will be classified as a Restricted Subsidiary; provided, however, that such
-------- -------
Subsidiary shall not be designated a Restricted Subsidiary and shall be
automatically classified as an Unrestricted Subsidiary if either of the
requirements set forth in clauses (x) and (y) of the immediately following
paragraph will not be satisfied after giving pro forma effect to such
classification. Except as provided in the first sentence of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to Section 4.03(a)(i) and (y) no Default or Event of Default shall have
occurred and be continuing or would result therefrom.
<PAGE>
54
Any such designation or redesignation by the Board of Directors will
be evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate (a)
certifying that such designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of such designation or
redesignation, such filing with the Trustee to occur within 45 days after the
end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
SECTION 4.12. Limitation on Sale and Leaseback Transactions. The
---------------------------------------------
Company shall not, and shall not permit any Restricted Subsidiary to, enter into
any Sale and Leaseback Transaction with respect to any Property unless (a) the
Company or such Restricted Subsidiary would be entitled to (i) Incur Debt in an
amount equal to the Attributable Debt with respect to such Sale and Leaseback
Transaction pursuant to Section 4.03 and (ii) create a Lien on such Property
securing such Attributable Debt without also securing the Securities pursuant to
Section 4.05 and (b) such Sale and Leaseback Transaction is effected in
compliance with Section 4.07.
SECTION 4.13. Limitation on Company's Business. The Company shall
---------------------------------
not, and shall not permit any Restricted Subsidiary, to, directly or indirectly,
engage in any business other than the Telecommunications Business.
SECTION 4.14. Change of Control. (a) Upon the occurrence of a Change
------------------
of Control, each Holder of Securities shall have the right to require the
Company to repurchase all or any part of such Holder's Securities pursuant to
the offer described below (the "Change of Control Offer") at a purchase price
(the "Change of Control Purchase Price") equal to 101.0% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date).
(b) Within 30 days following any Change of Control, the Company shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send, by first-class mail, with a copy to the Trustee, to each Holder
of Securities, at such Holder's address appearing in the Security Register, a
notice
<PAGE>
55
stating: (A) that a Change of Control Offer is being made pursuant to
this Section 4.14 and that all Securities timely tendered will be accepted for
payment; (B) the Change of Control Purchase Price and the purchase date, which
shall be, subject to any contrary requirements of applicable law, a Business Day
no earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"); (C) the circumstances and
relevant facts regarding the Change of Control (including known information
known by the Company, if any, with respect to pro forma historical income, cash
flow and capitalization after giving effect to the Change of Control); and (D)
the procedures that Holders of Securities must follow in order to tender their
Securities (or portions thereof) for payment, and the procedures that Holders of
Securities must follow in order to withdraw an election to tender Securities (or
portions thereof) for payment.
(c) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company or its agent at the address specified in the notice at least three
Business Days prior to the Change of Control Payment Date. Holders shall be
entitled to withdraw their election if the Trustee or the Company receives not
later than one Business Day prior to the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security that was delivered for purchase by
the Holder and a statement that such Holder is withdrawing its election to have
such Security purchased.
(d) On or prior to the Change of Control Payment Date, the Company
shall irrevocably deposit with the Trustee or with the Paying Agent (or, if the
Company or any of its Wholly Owned Subsidiaries is acting as the Paying Agent,
segregate and hold in trust) in cash an amount equal to the Change of Control
Purchase Price payable to the Holders entitled thereto, to be held for payment
in accordance with the provisions of this Section. On the Change of Control
Payment Date, the Company shall deliver to the Trustee the Securities or
portions thereof that have been properly tendered to and are to be accepted by
the Company for payment. The Trustee or the Paying Agent shall, on the Change
of Control Payment Date, mail or deliver payment to each tendering Holder of the
Change of Control Purchase Price. In the event that the aggregate Change of
Control Purchase Price is less than the amount delivered by the Company to the
Trustee or the Paying Agent, the Trustee or the Paying Agent, as the case may
be, shall deliver the
<PAGE>
56
excess to the Company immediately after the Change of Control Payment Date.
(e) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the purchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Section by virtue thereof.
SECTION 4.15. Ellensburg Put Option. If the Company or one of its
----------------------
Restricted Subsidiaries does not consummate the acquisition of Ellensburg
Telephone Company ("Ellensburg") pursuant to the Agreement and Plan of Merger
dated December 31, 1997, among Ellensburg, MJD Ventures, Inc. and Ellensburg
Acquisition Corp., within 10 days after the Issue Date (or such longer period as
is permitted by the lenders under the Credit Agreement dated March 30, 1998,
among the Company, NationsBank of Texas, N.A., Bankers Trust Company and the
lenders party thereto, but in no case longer than 120 days from the Issue Date)
(the "Cut-off Date"), then (a) each Holder of Original Securities shall have the
right to require the Company to repurchase a portion of such Holder's Original
Securities (the "Ellensburg Put Option") pursuant to Section 4.15(b) (the
"Ellensburg Put Option Offer") at a purchase price (the "Ellensburg Put Option
Purchase Price") equal to 100.0% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the purchase date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date);
(b) the Holders of Original Fixed Rate Securities shall have the
right to require the Company to repurchase, on a pro rata basis according to the
principal amount, a principal amount of such Original Fixed Rate Securities that
is less than or equal to the product of (i) $74.0 million multiplied by (ii) the
proportion that (A) the aggregate principal amount of Original Fixed Rate
Securities bears to (B) the aggregate principal amount of Original Securities;
and the Holders of Original Floating Rate Securities shall have the right to
require the Company to repurchase, on a pro rata basis according to the
principal amount, a principal amount of Original Floating Rate Securities that
is the product of (x) $74.0 million multiplied by (y) the proportion that (A)
the aggregate principal amount of
<PAGE>
57
Original Floating Rate Securities bears to (B) the aggregate principal amount of
Original Securities;
(c) within one day following the Cut-off Date, the Company shall (i)
cause a notice of the Ellensburg Put Option Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send, by first-class mail, with a copy to the Trustee, to each Holder
of Securities, at such Holder's address appearing in the Security Register, a
notice stating: (A) that an Ellensburg Put Option Offer is being made pursuant
to this Section 4.15 and that all Securities timely tendered will be accepted
for payment pursuant to the terms of Section 4.15(b); (B) the Ellensburg Put
Option Purchase Price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a Business Day no earlier than 30 days
nor later than 60 days from the date such notice is mailed (the "Ellensburg Put
Payment Date"); (C) the circumstances and relevant facts regarding the
nonconsummation or termination of the acquisition of Ellensburg; and (D) the
procedures that Holders of Securities must follow in order to tender their
Securities (or portions thereof) for payment, and the procedures that holders of
Securities must follow in order to withdraw an election to tender Securities (or
portions thereof) for payment;
(d) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the
Company or its agent at the address specified in the notice at least three
Business Days prior to the Ellensburg Put Payment Date. Holders shall be
entitled to withdraw their election if the Trustee or the Company receives not
later than one Business Day prior to the Ellensburg Put Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security that was delivered for purchase by
the Holder and a statement that such Holder is withdrawing its election to have
such Security purchased;
(e) on or prior to the Ellensburg Put Payment Date, the Company shall
irrevocably deposit with the Trustee or with the Paying Agent (or, if the
Company or any of its Wholly Owned Subsidiaries is acting as the Paying Agent,
segregate and hold in trust) in cash an amount equal to the Ellensburg Put
Option Purchase Price payable to the Holders entitled thereto, to be held for
payment in accordance with the provisions of this Section. On the Ellensburg
Put Payment Date, the Company shall deliver to the Trustee the Securities or
portions thereof that have been properly
<PAGE>
58
tendered to and are to be accepted by the Company for payment. The Trustee or
the Paying Agent shall, on the Ellensburg Put Payment Date, mail or deliver
payment to each tendering Holder of the Ellensburg Put Option Purchase Price. In
the event that the aggregate Ellensburg Put Option Purchase Price is less than
the amount delivered by the Company to the Trustee or the Paying Agent, the
Trustee or the Paying Agent, as the case may be, shall deliver the excess to the
Company immediately after the Ellensburg Put Payment Date; and
(f) the Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to an
Ellensburg Put Option Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this Section, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations hereunder by virtue of such
compliance.
SECTION 4.16. Compliance Certificate. The Company shall deliver to
-----------------------
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers they would normally have knowledge of any
Default and whether or not the signers know of any Default that occurred during
such period. If they do, the certificate shall describe the Default, its status
and what action the Company is taking or proposes to take with respect thereto.
The Company also shall comply with TIA (S) 314(a)(4).
SECTION 4.17. Further Instruments and Acts. Upon request of the
-----------------------------
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE V
Successor Company
-----------------
The Company shall not merge, consolidate or amalgamate with or into
any other Person (other than a merger of a Wholly Owned Subsidiary into the
Company) or sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless: (a) the
<PAGE>
59
Company shall be the surviving Person (the "Surviving Person") or the Surviving
Person (if other than the Company) formed by such merger, consolidation or
amalgamation or to which such sale, transfer, assignment, lease, conveyance or
disposition is made shall be a corporation organized and existing under the laws
of the United States of America, any State thereof or the District of Columbia;
(b) the Surviving Person (if other than the Company) expressly assumes, by
supplemental indenture in form satisfactory to the Trustee, executed and
delivered to the Trustee by such Surviving Person, the due and punctual payment
of the principal of, and premium, if any, and interest on, all the Securities,
according to their tenor, and the due and punctual performance and observance of
all the covenants and conditions of this Indenture to be performed by the
Company; (c) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all the Property of the Company, such
Property shall have been transferred as an entirety or virtually as an entirety
to one Person; (d) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (and treating, for
purposes of this clause (d) and clauses (e) and (f) below, any Debt that
becomes, or is anticipated to become, an obligation of the Surviving Person or
any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no
Default or Event of Default shall have occurred and be continuing; (e)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Company or the Surviving Person, as the case may be,
would be able to Incur at least $1.00 of additional Debt under Section
4.03(a)(i); (f) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Surviving Person shall have a
Consolidated Net Worth in an amount that is not less than the Consolidated Net
Worth of the Company immediately prior to such transaction or series of
transactions; and (g) the Company shall deliver, or cause to be delivered, to
the Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if any, in respect thereto comply
with this Article V and that all conditions precedent herein provided for
relating to such transaction have been satisfied.
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of the Company under this Indenture, but the
predecessor Company in the case of a sale, transfer, assignment, lease,
<PAGE>
60
conveyance or other disposition shall not be released from its obligations under
this Indenture and the Securities (except the predecessor company shall be so
released in the case of the sale, transfer assignment, conveyance or other
disposition, but not the lease, of the assets as an entirety or virtually as an
entirety).
ARTICLE VI
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. The following events shall be
------------------
"Events of Default":
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article X, and such default continues for a period of 30
days;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
acceleration, redemption, optional redemption, required repurchase or
otherwise, whether or not such payment shall be prohibited by Article X;
(3) the Company fails to comply with Article V;
(4) the Company fails to comply with any covenant or agreement in the
Securities or in this Indenture (other than a failure that is the subject
of the foregoing clause (1), (2) or (3)) and such failure continues for 30
days after written notice is given to the Company as specified below;
(5) a default by the Company or any Restricted Subsidiary under any
Debt of the Company or any Restricted Subsidiary that results in
acceleration of the maturity of such Debt, or the failure to pay any such
Debt at maturity, in an aggregate amount in excess of $5,000,000 or its
foreign currency equivalent at the time;
<PAGE>
61
(6) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property;
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary; or
(D) grants any similar relief under any foreign laws;
and in each such case the order or decree remains unstayed and in effect
for 30 days; or
(8) any judgment or judgments for the payment of money in an
unsecured aggregate amount in excess of $5,000,000 or its foreign currency
equivalent at the time is entered against the Company or any Restricted
Subsidiary and shall not be waived, satisfied or discharged for any period
of 60 consecutive days during which a stay of enforcement shall not be in
effect.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or
<PAGE>
62
order of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the
Trustee or the Holders of at least 25.0% in aggregate principal amount of the
Securities then outstanding (to be determined with all Fixed Rate Securities and
all Floating Rate Securities voting together as a single class) notify the
Company (and in the case of such notice by Holders, the Trustee) of the Default
and the Company does not cure such Default within the time specified after
receipt of such notice. Such notice must specify the Default, demand that it be
remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee promptly, and in any event,
within 10 days after the occurrence thereof, written notice in the form of an
Officers' Certificate of any Event of Default and any event that with the giving
of notice or the lapse of time would become an Event of Default, its status and
what action the Company is taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an
-------------
Event of Default specified in Section 6.01(6) or (7) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Securities then
outstanding (to be determined with all Fixed Rate Securities and all Floating
Rate Securities voting together as a single class), by notice to the Company and
the Trustee, may declare the principal of and accrued and unpaid interest to the
date of acceleration on all the Securities to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default specified in Section 6.01(6) or (7) with respect to the
Company occurs, the principal of and accrued and unpaid interest to the date of
acceleration on all the Securities shall, automatically and without any action
by the Trustee or any Holder, become immediately due and payable. The Holders
of a majority in aggregate principal amount of the outstanding Securities (to be
determined with all Fixed Rate Securities and all Floating Rate Securities
voting together as a single class) by notice to the Trustee and the Company may
rescind any
<PAGE>
63
declaration of acceleration if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
---------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
------------------------
aggregate principal amount of the Securities (to be determined with all Fixed
Rate Securities and all Floating Rate Securities voting together as a single
class) by notice to the Trustee may waive an existing Default and its
consequences except (i) a Default in the payment of the principal of or interest
on a Security or (ii) a Default in respect of a provision that under Section
9.02 cannot be amended without the consent of each Securityholder affected.
When a Default is waived, it is deemed cured, but no such waiver shall extend to
any subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
--------------------
aggregate principal amount of the Securities then outstanding (to be determined
with all Fixed Rate Securities and all Floating Rate Securities voting together
as a single class) may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee with respect to the Securities. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture or, subject to Section 7.01, that the Trustee determines is unduly
prejudicial to the rights of other Securityholders or would involve the Trustee
in personal liability; provided, however, that the Trustee may take any other
-------- -------
action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any
<PAGE>
64
action hereunder, the Trustee shall be entitled to reasonable indemnification
against all losses and expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Security holder may not pursue
--------------------
any remedy with respect to this Indenture or the Securities unless:
(1) such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding (to be determined with all Fixed Rate
Securities and all Floating Rate Securities voting together as a single
class) shall have made a written request, and such Holder of or Holders
shall have offered reasonable indemnity, to the Trustee to pursue such
proceeding as trustee; and
(3) the Trustee has failed to institute such proceeding and has not
received from the Holders of at least a majority in aggregate principal
amount of the Securities outstanding (to be determined with all Fixed Rate
Securities and all Floating Rate Securities voting together as a single
class) a direction inconsistent with such request, within 60 days after
such notice, request and offer.
The foregoing limitations on the pursuit of remedies by a
Securityholder shall not apply to a suit instituted by a Holder of Securities
for the enforcement of payment of the principal of or interest on such Security
on or after the applicable due date specified in such Security. A Securityholder
may not use this Indenture to prejudice the rights of another Securityholder or
to obtain a preference or priority over another Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
-------------------------------------
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in this Securities, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
---------------------------
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its
<PAGE>
65
own name and as trustee of an express trust against the Company for the whole
amount then due and owing (together with interest on any unpaid interest to the
extent lawful) and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
---------------------------------
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or
-----------
property pursuant to this Article VI, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Debt to the extent required by Article
X;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
----------------------
of any right or remedy under this Inden-
<PAGE>
66
ture or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07
or a suit by Holders of more than 10% in aggregate principal amount of the
Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
---------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE VII
Trustee
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
------------------
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the require-
<PAGE>
67
ments of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA and
the provisions of this Article VII shall apply to the Trustee in its role as
Registrar, Paying Agent and Securities Custodian.
(i) The Trustee shall not be deemed to have notice of a Default or an
Event of Default unless (a) the Trustee has received written notice thereof from
the Company
<PAGE>
68
or any Holder or (b) a Trust Officer shall have actual knowledge thereof.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
------------------
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated
in the document. The Trustee may, however, in its discretion make such further
inquiry or investigation into such facts or matters as it may see fit and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
--------- -------
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
(f) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty unless so specified herein.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
-----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar or co-
registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.
<PAGE>
69
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
---------------------
responsible for and makes no representation as to the validity, priority or
adequacy of this Indenture or the Securities, it shall not be accountable for
the Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in this Indenture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default or Event of Default
-------------------
occurs and is continuing and if it is known to the Trustee, the Trustee shall
mail to each Securityholder notice of the Default or Event of Default within 90
days after it is known to a Trust Officer or written notice of it is received by
the Trustee. Except in the case of a Default or Event of Default in payment of
principal of or interest on any Security, the Trustee may withhold the notice if
and so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
------------------------------
practicable after each May 15 beginning with May 15, 1999, and in any event
prior to July 15 in each year, the Trustee shall mail to each Securityholder a
brief report dated as of May 15 each year as and if required by TIA (S) 313(a)
if and to the extent required by such subsection. The Trustee also shall comply
with TIA (S) 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
---------------------------
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee against any and all loss,
liability or expense (including reasonable attorneys' fees) incurred by it in
connection with the acceptance and
<PAGE>
70
administration of this trust and the performance of its duties hereunder. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder. The Company shall defend the claim and the
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith. The Company need
not pay for any settlement made by the Trustee without the Company's consent,
such consent not to be unreasonably withheld. All indemnifications and releases
from liability granted hereunder to the Trustee shall extend to its officers,
directors, employees, agents, successors and assigns.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the resignation or removal of the Trustee and the discharge of this
Indenture. When the Trustee incurs expenses after the occurrence of a Default
specified in Section 6.01(6) or (7) with respect to the Company, the expenses
are intended to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
-----------------------
time by so notifying the Company. The Holders of a majority in aggregate
principal amount of the Securities then outstanding (to be determined with all
Fixed Rate Securities and Floating Rate Securities voting together as a single
class) may remove the Trustee by so notifying the Trustee and may appoint a
successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
<PAGE>
71
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in aggregate principal amount of the Securities then outstanding (to
be determined with all Fixed Rate Securities and all Floating Rate Securities
voting together as a single class) and such Holders do not reasonably promptly
appoint a successor Trustee, or if a vacancy exists in the office of Trustee for
any reason (the Trustee in such event being referred to herein as the retiring
Trustee), the Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in aggregate principal amount of the Securities then outstanding (to be
determined with all Fixed Rate Securities and all Floating Rate Securities
voting together as a single class) may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
who has been a bona fide Holder of a Security for at least six months may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
----------------------------
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or banking
association without any further act shall be the successor Trustee.
<PAGE>
72
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
such successor to the Trustee may authenticate such Securities either in the
name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force that
it is anywhere in the Securities or in this Indenture provided that the
certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
------------------------------
all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have
(or, in the case of a corporation included in a bank holding company system, the
related bank holding company shall have) a combined capital and surplus of at
least $50,000,000 as set forth in its (or its related bank holding company's)
most recent published annual report of condition. The Trustee shall comply with
TIA (S) 310(b), subject to the penultimate paragraph thereof; provided, however,
-------- -------
that there shall be excluded from the operation of TIA (S) 310(b)(1) any
indenture or indentures under which other securities or certificates of interest
or participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA (S) 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
--------------------------------------------------
Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated.
ARTICLE VIII
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
-------------------------------------------------
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancelation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article III and the
Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding
<PAGE>
73
Securities, including interest thereon to maturity or such redemption date
(other than Securities replaced pursuant to Section 2.07), and if in either case
the Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Section 8.01(c), cease to be of further effect. The
Trustee shall acknowledge satisfaction and discharge of this Indenture on demand
of the Company accompanied by an Officers' Certificate and an Opinion of Counsel
and at the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14 or 4.15 the
operation of Sections 6.01(5), 6.01(6), 6.01(7) and 6.01(8) (but, in the case of
Sections 6.01(6) and (7), with respect only to Restricted Subsidiaries) and the
limitations contained in clauses (e) and (f) of Article V ("covenant defeasance
option"). The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Sections 6.01(4)
(with respect to the covenants of Article IV identified in the immediately
preceding paragraph), 6.01(5), 6.01(6), 6.01(7) and 6.01(8) (with respect only
to Restricted Subsidiaries in the case of Sections 6.01(6) and 6.01(7)) or
because of the failure of the Company to comply with the limitations contained
in clauses (e) and (f) of Article V.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.05 and 8.06 shall
survive until the Securities have been paid in full. Thereafter, the Company's
obligations in Sections 7.07 and 8.05 shall survive.
<PAGE>
74
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
-------------------------
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(6) or (7) with respect to the
Company occurs that is continuing at the end of the period;
(4) no Default or Event of Default has occurred and is continuing on
the date of such deposit and after giving effect thereto;
(5) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article X;
(6) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(7) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from the Internal Revenue Service a ruling, or (ii)
since the date of this Indenture there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Securityholders
will not recognize income, gain or loss for Federal income tax purposes as
a result of such defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same
<PAGE>
75
times as would have been the case if such defeasance had not occurred;
(8) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred; and
(9) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities have been complied with as
required by this Indenture.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article III.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
---------------------------
trust money or U.S. Government Obligations deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article X.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
---------------------
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
thereafter, Securityholders entitled to the money must look solely to the
Company for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company
-------------------------------------
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
<PAGE>
76
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
--------------
unable to apply any money or U.S. Government Obligations in accordance with this
Article VIII by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article VIII until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article VIII; provided, however, that, if
-------- -------
the Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE IX
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company and the
--------------------------
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article V;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
-------- -------
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article X that would limit or terminate the
benefits available to any holder of Senior Debt (or Representatives
therefor) under Article X;
(5) to add Guarantees with respect to the Securities or to secure
the Securities;
<PAGE>
77
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA; or
(8) to make any change that does not adversely affect the rights of
any Securityholder.
Notwithstanding the foregoing, no amendment may be made to Article X
that adversely affects the rights of any holder of Senior Debt then outstanding
unless the holders of such Senior Debt (or their Representative) consent to such
change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company and the Trustee
------------------------
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent (including consents obtained in connection with a
tender offer or exchange offer for the Securities) of the Holders of at least a
majority in aggregate principal amount of the Securities outstanding (such
majority to be determined with the Holders of the Fixed Rate Securities and the
Holders of the Floating Rate Securities voting together as a single class on all
matters). However, without the consent of each Securityholder affected thereby,
an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment or waiver;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) impair the right of any Holder to receive payment of principal of
and interest on such Holder's Securities on or after the due dates therefor
or to institute suit for the enforcement of any payment on or with respect
to such Holder's Securities;
<PAGE>
78
(5) (i) reduce the amount payable upon the redemption or repurchase
of any Security under Article III or Section 4.07, 4.14 or 4.15, (ii)
change the time at which any Security may be redeemed in accordance with
Article III, (iii) extend the Cut-off Date for the Ellensburg Put Option
beyond the time period specified in Section 4.15 or (iv) at any time after
a Change of Control has occurred, at any time after the Company is
obligated to make a Prepayment Offer with the Excess Proceeds from Asset
Sales, or at any time after the earlier of the Cut-off Date and the
termination of the acquisition of Ellensburg, respectively change the time
at which any Change of Control Offer, Prepayment Offer or Ellensburg Put
Option Offer must be made or at which the Securities must be repurchased
pursuant to such Change of Control Offer, Prepayment Offer or Ellensburg
Put Option Offer respectively.
(6) make any Security payable in money other than that stated in the
Security;
(7) make any change in Article X that would adversely affect the
Securityholders;
(8) release any security interest that may have been granted in favor
of the Holders; or
(9) make any change in Section 6.04 or 6.07 or the second sentence of
this Section.
Notwithstanding the foregoing, no amendment may be made to Article X
that adversely affects the rights of any holder of Senior Debt then outstanding
unless the holders of such Senior Debt (or their Representative) consent to such
change.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
<PAGE>
79
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
------------------------------------
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
----------------------------------------------
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
An amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
--------------------------------------
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver such Security to the Trustee. The Trustee may place an
appropriate notation on the Security regarding the changed terms and return such
Security to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and the Trustee
shall authenticate a new Security that reflects the changed terms. Failure to
make the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
---------------------------
amendment authorized pursuant to this Article IX if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In sign-
<PAGE>
80
ing such amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
--------------------
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE X
Subordination
-------------
SECTION 10.01. Agreement To Subordinate. The Company agrees, and
-------------------------
each Securityholder by accepting a Security agrees, that the Debt evidenced by
the Securities is subordinated in right of payment, to the extent and in the
manner provided in this Article X, to the payment when due of all Senior Debt
and that the subordination is for the benefit of and enforceable by the holders
of Senior Debt. The Securities shall in all respects rank pari passu with any
---- -----
future Senior Subordinated Debt and senior to all existing and future junior
subordinated Debt of the Company, and only Senior Debt shall rank senior to the
Securities in accordance with the provisions set forth herein. All provisions
of this Article X shall be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any
-------------------------------------
payment or distribution of the assets of the Company upon a total or partial
liquidation, dissolution or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its Property:
(a) the holders of Senior Debt will be entitled to receive payment in
full in cash before the Holders of the Securities are entitled to receive
any payment of principal of or interest on the Securities, except that
Holders of Securities may receive and retain shares of stock and any debt
securities that are subordinated to
<PAGE>
81
Senior Debt to at least the same extent as the Securities; and
(b) until the Senior Debt is paid in full in cash, any distribution
to which Holders of the Securities would be entitled but for this Article X
will be made to holders of the Senior Debt as their interests may appear.
SECTION 10.03. Default on Senior Debt. The Company may not pay
-----------------------
principal of, or premium, if any, or interest on, the Securities, or make any
deposit pursuant to Article VIII, and may not repurchase, redeem or otherwise
retire any Securities (collectively, "pay the Securities"), if (a) any
principal, premium or interest in respect of any Senior Debt is not paid within
any applicable grace period (including at maturity) or (b) any other default on
Senior Debt occurs and the maturity of such Senior Debt is accelerated in
accordance with its terms unless, in either case, (i) the default has been cured
or waived and any such acceleration has been rescinded or (ii) such Senior Debt
has been paid in full in cash; provided, however, that the Company may pay the
-------- -------
Securities without regard to the foregoing if the Company and the Trustee
receive written notice approving such payment from the Representative of such
issue of Senior Debt. During the continuance of any default (other than a
default described in clause (a) or (b) of the preceding sentence) with respect
to any Designated Senior Debt pursuant to which the maturity thereof may be
accelerated immediately without further notice (except any notice required to
effect the acceleration) or the expiration of any applicable grace period, the
Company may not pay the Securities for a period (a "Payment Blockage Period")
commencing upon the receipt by the Company and the Trustee of written notice of
such default from the Representative of the holders of such Designated Senior
Debt specifying an election to effect a Payment Blockage Period (a "Payment
Blockage Notice") and ending 179 days thereafter (unless such Payment Blockage
Period is earlier terminated (x) by written notice to the Trustee and the
Company from the Representative that gave such Payment Blockage Notice, (y)
because such default is no longer continuing or (z) because such Designated
Senior Debt has been repaid in full in cash). Unless the holders of such
Designated Senior Debt or the Representative of such holders have accelerated
the maturity of such Designated Senior Debt and not rescinded such acceleration,
the Company may (unless otherwise prohibited as described in the first sentence
of this paragraph) resume payments on the Securities after the end of such
Payment Blockage Period. Not more than one Payment Blockage Notice with respect
to all issues of
<PAGE>
82
Designated Senior Debt may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to one or more issues of
Designated Senior Debt during such period.
SECTION 10.04. Acceleration of Payment of Securities. If payment of
--------------------------------------
the Securities is accelerated when any Designated Senior Debt is outstanding,
the Company may not pay the Securities until three Business Days after the
Representatives of all issues of Designated Senior Debt receive notice of such
acceleration and, thereafter, may pay the Securities only if this Indenture
otherwise permits payment at that time.
SECTION 10.05. When Distribution Must Be Paid Over. If a
------------------------------------
distribution is made to Securityholders that because of this Article X should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Debt and pay it over to them as
their interests may appear.
SECTION 10.06. Subrogation. After all Senior Debt is paid in full
------------
and until the Securities are paid in full, Securityholders shall be subrogated
to the rights of holders of Senior Debt to receive distributions applicable to
Senior Debt. A distribution made under this Article X to holders of Senior Debt
that otherwise would have been made to Securityholders is not, as between the
Company and Securityholders, a payment by the Company on such Senior Debt.
SECTION 10.07. Relative Rights. This Article X defines the relative
----------------
rights of Securityholders and holders of Senior Debt. Nothing in this Indenture
shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their terms;
or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default or an Event of Default, subject to the
rights of holders of Senior Debt to receive distributions otherwise payable
to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No
---------------------------------------------
right of any holder of Senior Debt of the Company to enforce the subordination
of the Debt evidenced by the Securities shall be impaired by any act or failure
to
<PAGE>
83
act by the Company or by its failure to comply with this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
-----------------------------------
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer receives notice
satisfactory to it that payments may not be made under this Article X. The
Company, the Registrar or co-registrar, the Paying Agent, a Representative or a
holder of Senior Debt may give the notice; provided, however, that, if an issue
-------- -------
of Senior Debt has a Representative, only the Representative may give the
notice.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. The Registrar
and co-registrar and the Paying Agent may do the same with like rights. The
Trustee shall be entitled to all the rights set forth in this Article X with
respect to any Senior Debt that may at any time be held by it, to the same
extent as any other holder of such Senior Debt; and nothing in Article VII shall
deprive the Trustee of any of its rights as such holder. Nothing in this Article
X shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
-----------------------------------------
distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to their Representative (if any).
SECTION 10.11. Article X Not To Prevent Events of Default or Limit
---------------------------------------------------
Right To Accelerate. The failure to make a payment pursuant to the Securities
- --------------------
by reason of any provision in this Article X shall not be construed as
preventing the occurrence of a Default. Nothing in this Article X shall have any
effect on the right of the Securityholders or the Trustee to accelerate the
maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
------------------------------
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article VIII by the Trustee
for the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Debt or subject to the
restrictions set forth in
<PAGE>
84
this Article X, and none of the Securityholders shall be obligated to pay over
any such amount to the Company or any holder of Senior Debt or any other
creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
-------------------------
distribution pursuant to this Article X, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Debt for the purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of Senior Debt and other Debt of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article X.
In the event that the Trustee determines, in good faith, that evidence is
required with respect to the right of any Person as a holder of Senior Debt to
participate in any payment or distribution pursuant to this Article X, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such Senior Debt held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and other facts pertinent to the rights of such Person
under this Article X, and, if such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment. The provisions of Sections 7.01
and 7.02 shall be applicable to all actions or omissions of actions by the
Trustee pursuant to this Article X.
SECTION 10.14. Trustee To Effectuate Subordination. Each
------------------------------------
Securityholder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Debt as provided in this Article X and appoints the Trustee as attorney-
in-fact for any and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Debt. The
-------------------------------------------------
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt and shall not be liable to any such holders if it shall mistakenly pay over
or distribute to Securityholders or the Company or any other Person, money or
assets to which any holders of Senior
<PAGE>
85
Debt shall be entitled by virtue of this Article X or otherwise.
SECTION 10.16. Reliance by Holders of Senior Debt on Subordination
---------------------------------------------------
Provisions. Each Securityholder by accepting a Security acknowledges and
- -----------
agrees that the foregoing subordination provisions are, and are intended to be,
an inducement and a consideration to each holder of any Senior Debt, whether
such Senior Debt was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such Senior
Debt and such holder of such Senior Debt shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Debt.
ARTICLE XI
Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls. If any provision of
-----------------------------
this Indenture limits, qualifies or conflicts with another provision that is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall be in
--------
writing and delivered in person or mailed by first class mail or sent by
facsimile (with a hard copy delivered in person or by mail promptly thereafter)
and addressed as follows:
if to the Company:
MJD Communications, Inc.
Morehead Place
521 East Morehead Street
Suite 250
Charlotte, NC 28202
Facsimile: 704-344-8121
Attention: Chief Financial Officer
if to the Trustee:
United States Trust Company of New York
114 West 47th Street, New York, NY 10036
Facsimile: (212) 852-1626
Attention: Corporate Trust Department
<PAGE>
86
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
----------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
<PAGE>
87
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. When Securities Disregarded. In determining whether
----------------------------
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The
---------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent or co-registrar may make reasonable rules for
their functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
---------------
Sunday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 11.09. Governing Law. THIS INDENTURE AND THE SECURITIES
--------------
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW
TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
<PAGE>
88
SECTION 11.10. No Recourse Against Others. No director, officer,
---------------------------
employee or stockholder, as such, of the Company shall have any liability for
any obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this
-----------
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number
-------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is sufficient to
prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents,
----------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE>
89
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
MJD COMMUNICATIONS, INC.,
by
__________________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee,
by
__________________________________
Name:
Title:
<PAGE>
EXHIBIT 4.2
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS NOTE,
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE
HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN
AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE
OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS
THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION, AND A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE
TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE (PROVIDED
THAT
<PAGE>
CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT TRANSFER THIS SECURITY
PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF THE "40 DAY RESTRICTED
PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE
SECURITIES ACT)), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR
(6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY
AGREES THAT IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND
OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY
IT OF THIS NOTE COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT
IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2)
PURCHASING FROM A PERSON NOT PARTICIPATING IN THE INITIAL DISTRIBUTION OF THIS
SECURITY (OR ANY PREDECESSOR SECURITY), THAT IT IS AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT AND THAT IT IS HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND NOT
FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.
<PAGE>
No. 1 up to $125,000,000
9-1/2% Senior Subordinated Note due 2008
CUSIP No. U6069M AA1
MJD COMMUNICATIONS, INC., a Delaware corporation, promises to pay to
Cede & Co., or registered assigns, on May 1, 2008, the principal sum as set
forth on the Schedule of Increases and Decreases annexed hereto.
Interest Payment Dates: May 1 and November 1.
Record Dates: April 15 and October 15.
<PAGE>
Additional provisions of this Security are set forth on the other side
of this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
Dated: May 5, 1998
MJD COMMUNICATIONS, INC.
by
__________________________
Name:
Title:
by
__________________________
Name:
Title:
[CORPORATE SEAL]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By:_________________________
Authorized Signatory
<PAGE>
9-1/2% Senior Subordinated Note due 2008
1. Interest
--------
(a) MJD Communications, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The
Company will pay interest semiannually on May 1 and November 1 of each year
commencing November 1, 1998. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from May 5, 1998. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. The Company shall pay interest on overdue
principal at the rate borne by the Securities plus 1% per annum, and it shall
pay interest on overdue installments of interest at the rate borne by the
Securities to the extent lawful.
(b) Additional Interest. The holder of this Security is entitled to
-------------------
the benefits of a Registration Agreement, dated April 30, 1998, among the
Company and the Purchasers named therein (the "Registration Agreement").
Capitalized terms used in this paragraph (b) but not defined herein have the
meanings assigned to them in the Registration Agreement. In the event that (i)
neither the Exchange Offer Registration Statement nor the Shelf Registration
Statement has been filed with the Commission on or prior to the 60th day
following the date of the original issuance of the Securities, (ii) the Exchange
Offer Registration Statement has not been declared effective on or prior to the
150th day following the date of the original issuance of the Securities, (iii)
neither the Registered Exchange Offer has been consummated nor the Shelf
Registration Statement has been declared effective on or prior to the 180th day
following the date of the original issuance of the Securities, or (iv) after
either the Exchange Offer Registration Statement or the Shelf Registration
Statement has been declared effective, such Registration Statement thereafter
ceases to be effective or usable (subject to certain exceptions) in connection
with resales of the Securities at any time that the Company is obligated to
maintain the effectiveness thereof pursuant to the Registration Agreement (each
such event referred to in clauses (i) through (iv) above being referred to
herein as a "Registration Default"), interest (the "Additional Interest") shall
accrue (in addition to stated interest on the Securities) from and including the
date on which the
<PAGE>
first such Registration Default shall occur to but excluding the date on which
all Registration Defaults have been cured, at a rate per annum equal to 0.50% of
the principal amount of the Securities; provided, however, that such rate per
-------- -------
annum shall increase by 0.25% per annum from and including the 91st day after
the first such Registration Default (and each successive 91st day thereafter)
unless and until all Registration Defaults have been cured; provided further,
----------------
however, that in no event shall the Additional Interest accrue at a rate in
- -------
excess of 1.50% per annum. The Additional Interest will be payable in cash
semiannually in arrears each May 1 and November 1.
2. Method of Payment
-----------------
The Company will pay interest on the Securities to the Persons who are
registered holders of Securities at the close of business on the April 15 or
October 15 next preceding the interest payment date even if Securities are
canceled after the record date and on or before the interest payment date.
Defaulted interest will be paid in the manner set forth in the Indenture.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States of America that at the time of payment is legal tender for payment of
public and private debts. Payments in respect of the Securities represented by a
Global Security (including principal, premium and interest) will be made by wire
transfer of immediately available funds to the accounts specified by The
Depository Trust Company. The Company will make all payments in respect of a
certificated Security (including principal, premium and interest), by mailing a
check to the registered address of each Holder thereof; provided, however, that
-------- -------
payments on the Securities may also be made, in the case of a Holder of at least
$1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S.
dollar account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the Trustee
or the Paying Agent to such effect designating such account no later than 30
days immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
--------------------------
Initially, United States Trust Company of New York (the "Trustee"),
will act as Paying Agent and Registrar. The Company may appoint and change any
Paying Agent, Registrar or co-registrar without notice. The Company or
<PAGE>
any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying
Agent, Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of May
5, 1998 (the "Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior subordinated, unsecured obligations of the
Company limited to $300,000,000 aggregate principal amount at any one time
outstanding (subject to Sections 2.01 and 2.08 of the Indenture). This Security
is one of the Initial Fixed Rate Notes referred to in the Indenture, and is one
of the Original Fixed Rate Securities issued in an aggregate principal amount of
$125,000,000. The Securities include the Original Fixed Rate Securities, the
Original Floating Rate Securities, up to an aggregate principal amount of
$100,000,000 additional Initial Securities issued under the Indenture and any
Exchange Securities issued in Exchange for the Initial Securities. The Original
Securities, the additional Initial Securities and the Exchange Securities are
treated as a single class of securities under the Indenture, without regard to
whether such Securities are Fixed Rate Securities or Floating Rate Securities.
The Indenture imposes certain limitations on the ability of the Company and its
Restricted Subsidiaries to, among other things, make certain Investments and
other Restricted Payments, pay dividends and other distributions, incur Debt,
enter into consensual restrictions upon the payment of certain dividends and
distributions by such Restricted Subsidiaries, issue or sell shares of capital
stock of such Restricted Subsidiaries, enter into or permit certain transactions
with Affiliates, create or incur Liens, make Asset Sales and enter into lines of
business other than the Telecommunications Business. The Indenture also imposes
limitations on the ability of the Company to consolidate or merge with or into
any other Person or sell, transfer, assign, lease, convey or otherwise dispose
of all or substantially all of the Property of the Company.
<PAGE>
5. Optional Redemption
-------------------
Except as set forth below, the Securities may not be redeemed prior to
May 1, 2003. On and after that date, the Company may redeem the Securities in
whole at any time or in part from time to time at the following redemption
prices (expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date that is on or prior to the date of redemption), if
redeemed during the 12-month period beginning on or after May 1 of the years set
forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ -----
<S> <C>
2003.............................................. 104.750%
2004.............................................. 103.167%
2005.............................................. 101.583%
2006 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to May 1, 2001, the Company
may redeem up to 35% of the aggregate principal amount of all Fixed Rate
Securities issued, at a redemption price of 109.5% of the principal amount
thereof plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of redemption) with the net proceeds of an Equity Sale, provided
--------
that at least 65% of the aggregate principal amount of the Original Fixed Rate
Securities remain outstanding after the occurrence of such redemption and
provided, further, that such redemption shall be made within 75 days of such
- -------- -------
Equity Sale and shall occur not later than 60 days after the date of the closing
of any such Equity Sale upon not less than 30 nor more than 60 days' notice.
6. Sinking Fund
------------
The Securities are not subject to any sinking fund.
7. Notice of Redemption
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
<PAGE>
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Subordination
-------------
The Securities are subordinated to Senior Debt of the Company. To the
extent provided in the Indenture, Senior Debt of the Company must be paid before
the Securities may be paid. The Company agrees, and each Securityholder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the Trustee
as attorney-in-fact for such purpose.
9. Repurchase of Securities at the Option of Holders upon Change of Control or
---------------------------------------------------------------------------
Failure to Consummate the Acquisition of Ellensburg
---------------------------------------------------
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
If the Company's acquisition of Ellensburg Telephone Company is not
consummated within 10 days after the Issue Date (or such longer period as is
permitted by certain lenders specified in the Indenture, but in no case longer
than 120 days from the Issue Date) (the "Cut-off Date"), each Holder of the
Original Securities shall have the right to require the Company to repurchase a
portion of such Holder's Original Securities pursuant to the terms, and in the
amounts, set forth in the Indenture at a purchase price equal to 100.0% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date (subject to the right of Holders of record on the relevant
<PAGE>
record date to receive interest due on the relevant interest payment date).
10. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or to transfer or exchange any Securities for a period of 15 days prior to a
selection of Securities to be redeemed or 15 days before an interest payment
date.
11. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
13. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some of or all its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended without prior notice to any
Securityholder but with the written consent of the Holders of at least a
majority in
<PAGE>
aggregate principal amount of the outstanding Securities and (ii) any default or
noncompliance with any provision may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding Securities
(such majority, in the case of both (i) and (ii), to be determined with the
Holders of the Fixed Rate Securities and the Holders of the Floating Rate
Securities voting together as a single class on all matters). Subject to certain
exceptions set forth in the Indenture, without the consent of any Holder of
Securities, the Company and the Trustee may amend the Indenture or the
Securities (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to
comply with Article 5 of the Indenture; (iii) to provide for uncertificated
Securities in addition to or in place of certificated Securities; (iv) to make
certain changes in the subordination provisions; (v) to add Guarantees with
respect to the Securities; (vi) to secure the Securities; (vii) to add
additional covenants or to surrender rights and powers conferred on the Company;
(viii) to comply with the requirements of the SEC in order to effect or maintain
the qualification of the Indenture under the TIA; or (ix) to make any change
that does not adversely affect the rights of any Securityholder.
15. Defaults and Remedies
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Securities then
outstanding (to be determined with all Fixed Rate Securities and all Floating
Rate Securities voting together as a single class), subject to certain
limitations, may declare all the Securities to be immediately due and payable.
Certain events of bankruptcy or insolvency are Events of Default and shall
result in the Securities being immediately due and payable upon the occurrence
of such Events of Default without any further act of the Trustee or any Holder.
Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the Securities then outstanding (to be determined with all Fixed Rate
Securities and all Floating Rate Securities voting together as a single class)
may direct the Trustee in its exercise of any trust or power under the
Indenture. The Holders of a majority in aggregate principal amount of the
Securities then outstanding (to be determined with all Fixed Rate
<PAGE>
Securities and all Floating Rate Securities voting together as a single class),
by written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration.
16. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may other wise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
17. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
18. Authentication
--------------
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
<PAGE>
20. Governing Law
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITH OUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY HOLDER OF SECURITIES UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT
THE TEXT OF THIS SECURITY.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date: _________________________ Your Signature: ________________________________
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act of 1933 after the later of the date of original
issuance of such Securities and the last date, if any, on which such Securities
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such Securities are being transferred in accordance with its
terms:
CHECK ONE BOX BELOW
(1) [_] to the Company; or
(2) [_] pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) [_] inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
<PAGE>
being made in reliance on Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the Securities Act of 1933; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933; or
(5) [_] to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that
has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee or the Company); or
(6) [_] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box (4),
-------- -------
(5) or (6) is checked, the Trustee may require, prior to registering any such
transfer of the Securities, such legal opinions, certifications and other
information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933.
________________________
Your Signature
Signature Guarantee:
Date: _____________________ __________________________
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
________________________________________________________________________________
<PAGE>
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: __________________ ______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $0. The
following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease Amount of increase Principal amount Signature of
Exchange in Principal in Principal of this Global authorized
Amount of this Amount of this Security following signatory of
Global Security Global Security such decrease or Trustee or
increase Securities
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED BY THE COMPANY
PURSUANT TO SECTION 4.07, 4.14 OR 4.15 OF THE INDENTURE, CHECK THE BOX:
____
/ /
----
IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS SECURITY PURCHASED BY
THE COMPANY PURSUANT TO SECTION 4.07, 4.14 OR 4.15 OF THE INDENTURE, STATE THE
AMOUNT:
$
DATE: ____________________ YOUR SIGNATURE: __________________
(SIGN EXACTLY AS YOUR NAME APPEARS
ON THE OTHER SIDE OF THE SECURITY)
SIGNATURE GUARANTEE:__________________________________________________
SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A
RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER
SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE
<PAGE>
EXHIBIT 4.3
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS NOTE,
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE
HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN
AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE
OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS
THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
<PAGE>
RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS NOTE), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
(AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE WHICH MAY BE
OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE
COMPANY AND THE TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE
INDENTURE MAY NOT TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR TO
THE EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE
903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT)), (5) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN
INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES THAT IT WILL
FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION
AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE
COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS
NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) PURCHASING
FROM A PERSON NOT PARTICIPATING IN THE INITIAL DISTRIBUTION OF THIS SECURITY (OR
ANY PREDECESSOR SECURITY), THAT IT IS AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
AND THAT IT IS HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.
<PAGE>
No. 1 up to $75,000,000
Floating Rate Callable Security due 2008
CUSIP No. U6069M AB9
MJD COMMUNICATIONS, INC., a Delaware corporation, promises to pay to
Cede & Co., or registered assigns, on May 1, 1998, the principal sum as set
forth on the Schedule of Increases and Decreases annexed hereto.
Interest Payment Dates: May 1 and November 1.
Record Dates: April 15 and October 15.
<PAGE>
Additional provisions of this Security are set forth on the other side
of this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
Dated: May 5, 1998
MJD COMMUNICATIONS, INC.
by
Name:
Title:
by
Name:
Title:
[CORPORATE SEAL]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By:_________________________
Authorized Signatory
<PAGE>
Floating Rate Callable Security due 2008
1. Interest
--------
(a) MJD Communications, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum, reset semiannually,
equal to LIBOR plus 418.75 basis points, as determined by the calculation agent
(the "Calculation Agent"), which shall initially be the Trustee. The Company
will pay interest semiannually on May 1 and November 1 of each year commencing
November 1, 1998. Interest on the Securities will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from May
5, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-
day months. The Company shall pay interest on overdue principal at the rate
borne by the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the rate borne by the Securities to the extent
lawful.
"LIBOR", with respect to an Interest Period, means the rate (expressed
as a percentage per annum) for deposits in United States dollars for a six-month
period beginning on the second London Banking Day after the Determination Date
that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the
Determination Date. If Telerate Page 3750 does not include such a rate or is
unavailable on a Determination Date, LIBOR for the Interest Period shall be the
arithmetic mean of the rates (expressed as a percentage per annum) for deposits
in a Representative Amount in United States dollars for a six-month period
beginning on the second London Banking Day after the Determination Date that
appears on Reuters Screen LIBO Page as of 11:00 a.m., London time, on the
Determination Date. If Reuters Screen LIBO Page does not include two or more
rates or is unavailable on a Determination Date, the Company, shall request the
principal London office of each of four major banks in the London interbank
market, as selected by
<PAGE>
the Company, to provide such bank's offered quotation (expressed as a
percentage per annum), as of approximately 11:00 a.m., London time, on such
Determination Date, to prime banks in the London interbank market for deposits
in a Representative Amount in United States dollars for a six-month period
beginning on the second London Banking Day after the Determination Date. If at
least two such offered quotations are so provided, LIBOR for the Interest Period
shall be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, the Calculation Agent shall request each of three
major banks in New York City, as selected by the Company, to provide such bank's
rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New
York City time, on such Determination Date, for loans in a Representative Amount
in United States dollars to leading European banks for a six-month period
beginning on the second London Banking Day after the Determination Date. If at
least two such rates are so provided, LIBOR for the Interest Period will be the
arithmetic mean of such rates. If fewer than two such rates are so provided,
then LIBOR for the Interest Period will be LIBOR in effect with respect to the
immediately preceding Interest Period.
"Determination Date," with respect to an Interest Period, means the
second London Banking Day preceding the first day of the Interest Period.
"Interest Period" means the period commencing on and including an
interest payment date and ending on and including the day immediately preceding
the next succeeding interest payment date, with the exception that the first
Interest Period shall commence on and include May 5, 1998.
"London Banking Day" means any day in which dealings in United States
dollars are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
<PAGE>
"Representative Amount" means a principal amount of not less than
U.S.$1,000,000 for a single transaction in the relevant market at the relevant
time.
"Telerate Page 3750" means the display designated as "Page 3750" on
the Dow Jones Telerate Service (or such other page as may replace Page 3750 on
that service).
"Reuters Screen LIBO Page" means the display designated as page "LIBO"
on The Reuters Monitor Money Rates Service (or such other page as may replace
the LIBO page on that service).
The amount of interest for each day that the Floating Rate Securities
are outstanding (the "Daily Interest Amount") will be calculated by dividing the
interest rate in effect for such day by 360 and multiplying the result by the
principal amount of the Floating Rate Securities. The amount of interest to be
paid on the Floating Rate Securities for each Interest Period will be calculated
by adding the Daily Interest Amounts for each day in the Interest Period.
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (e.g.,
9.876545% being rounded to 9.87655%), and all dollar amounts used in or
resulting from such calculations will be rounded to the nearest cent (with one-
half cent being rounded upwards).
The interest rate on the Floating Rate Securities will in no event be
higher than the maximum rate permitted by New York law as the same may be
modified by United States law of general application. Under current New York
law, the maximum rate of interest is 25.0% per annum on a simple interest basis.
This limit may not apply to Floating Rate Securities in which a Holder has
invested $2.5 million or more.
<PAGE>
The Calculation Agent will, upon the request of the Holder of any
Floating Rate Security, provide the interest rate then in effect with respect to
the Floating Rate Securities. All calculations made by the Calculation Agent in
the absence of manifest error will be conclusive for all purposes and binding on
the Company and the Holders of the Floating Rate Securities.
(b) Additional Interest. The holder of this Security is entitled to
-------------------
the benefits of a Registration Agreement, dated April 30, 1998, among the
Company and the Purchasers named therein (the "Registration Agreement").
Capitalized terms used in this paragraph (b) but not defined herein have the
meanings assigned to them in the Registration Agreement. In the event that (i)
neither the Exchange Offer Registration Statement nor the Shelf Registration
Statement has been filed with the Commission on or prior to the 60th day
following the date of the original issuance of the Securities, (ii) the Exchange
Offer Registration Statement has not been declared effective on or prior to the
150th day following the date of the original issuance of the Securities, (iii)
neither the Registered Exchange Offer has been consummated nor the Shelf
Registration Statement has been declared effective on or prior to the 180th day
following the date of the original issuance of the Securities, or (iv) after
either the Exchange Offer Registration Statement or the Shelf Registration
Statement has been declared effective, such Registration Statement thereafter
ceases to be effective or usable (subject to certain exceptions) in connection
with resales of the Securities at any time that the Company is obligated to
maintain the effectiveness thereof pursuant to the Registration Agreement (each
such event referred to in clauses (i) through (iv) above being referred to
herein as a "Registration Default"), interest (the "Additional Interest") shall
accrue (in addition to stated interest on the Securities) from and including the
date on which the first such Registration Default shall occur to but excluding
the date on which all Registration Defaults have been cured, at a rate per annum
equal to 0.50% of the principal amount of the Securities; provided, however,
-------- -------
that such rate per annum shall increase by 0.25% per annum from and including
<PAGE>
the 91st day after the first such Registration Default (and each successive 91st
day thereafter) unless and until all Registration Defaults have been cured;
provided further, however, that in no event shall the Additional Interest accrue
- ---------------- -------
at a rate in excess of 1.50% per annum. The Additional Interest will be payable
in cash semiannually in arrears each May 1 and November 1.
2. Method of Payment
-----------------
The Company will pay interest on the Securities to the Persons who are
registered holders of Securities at the close of business on the April 15 or
October 15 next preceding the interest payment date even if Securities are
canceled after the record date and on or before the interest payment date.
Defaulted interest will be paid in the manner set forth in the Indenture.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States of America that at the time of payment is legal tender for payment of
public and private debts. Payments in respect of the Securities represented by a
Global Security (including principal, premium and interest) will be made by wire
transfer of immediately available funds to the accounts specified by The
Depository Trust Company. The Company will make all payments in respect of a
certificated Security (including principal, premium and interest), by mailing a
check to the registered address of each Holder thereof; provided, however, that
-------- -------
payments on the Securities may also be made, in the case of a Holder of at least
$1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S.
dollar account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the Trustee
or the Paying Agent to such effect designating such account no later than 30
days immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion).
<PAGE>
3. Paying Agent and Registrar
--------------------------
Initially, United States Trust Company of New York (the "Trustee"),
will act as Paying Agent and Registrar. The Company may appoint and change any
Paying Agent, Registrar or co-registrar without notice. The Company or any of
its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of May
5, 1998 (the "Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior subordinated, unsecured obligations of the
Company limited to $300,000,000 aggregate principal amount at any one time
outstanding (subject to Sections 2.01 and 2.08 of the Indenture). This Security
is one of the Initial Floating Rate Notes referred to in the Indenture, and is
one of the Original Floating Rate Securities issued in an aggregate principal
amount of $75,000,000. The Securities include the Original Floating Rate
Securities, the Original Fixed Rate Securities, up to an aggregate principal
amount of $100,000,000 additional Initial Securities issued under the Indenture
and any Exchange Securities issued in Exchange for the Initial Securities. The
Original Securities, the additional Initial Securities and the Exchange
Securities are treated as a single class of securities under the Indenture,
without regard (subject to certain exceptions set forth in the Indenture) to
whether such Securities are Fixed Rate Securities or Floating Rate Securities.
The Indenture
<PAGE>
imposes certain limitations on the ability of the Company and its Restricted
Subsidiaries to, among other things, make certain Investments and other
Restricted Payments, pay dividends and other distributions, incur Debt, enter
into consensual restrictions upon the payment of certain dividends and
distributions by such Restricted Subsidiaries, issue or sell shares of capital
stock of such Restricted Subsidiaries, enter into or permit certain transactions
with Affiliates, create or incur Liens, make Asset Sales and enter into lines of
business other than the Telecommunications Business. The Indenture also imposes
limitations on the ability of the Company to consolidate or merge with or into
any other Person or sell, transfer, assign, lease, convey or otherwise dispose
of all or substantially all of the Property of the Company.
5. Optional Redemption
-------------------
The Floating Rate Securities will be redeemable, in whole or in part,
at any time and from time to time, at the option of the Company upon not less
than 30 nor more than 60 days' prior notice, at the following redemption prices
(expressed as percentages of principal amount), plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on May
1 of the years set forth below:
<TABLE>
<CAPTION>
Period Redemption Price
- ------ -----------------
<S> <C>
1998 ......................... 105.000%
1999 ......................... 104.000%
2000 ......................... 103.000%
2001 ......................... 102.000%
2002 ......................... 101.000%
2003 and thereafter .......... 100.000%
</TABLE>
<PAGE>
6. Sinking Fund
------------
The Securities are not subject to any sinking fund.
7. Notice of Redemption
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Subordination
-------------
The Securities are subordinated to Senior Debt of the Company. To the
extent provided in the Indenture, Senior Debt of the Company must be paid before
the Securities may be paid. The Company agrees, and each Securityholder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the Trustee
as attorney-in-fact for such purpose.
9. Repurchase of Securities at the Option of Holders upon Change of Control or
---------------------------------------------------------------------------
Failure to Consummate the Acquisition of Ellensburg
---------------------------------------------------
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if
<PAGE>
any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date that is on or prior to the date of purchase) as provided in, and subject to
the terms of, the Indenture.
If the Company's acquisition of Ellensburg Telephone Company is not
consummated within 10 days after the Issue Date (or such longer period as is
permitted by certain lenders specified in the Indenture, but in no case longer
than 120 days from the Issue Date) (the "Cut-off Date"), each Holder of the
Original Securities shall have the right to require the Company to repurchase a
portion of such Holder's Original Securities pursuant to the terms, and in the
amounts, set forth in the Indenture at a purchase price equal to 100.0% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
10. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required
by law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities selected for redemption (except, in the
case of a Security to be redeemed in part, the portion of the Security not to be
redeemed) or to transfer or exchange any Securities for a period of 15 days
prior to a selection of Securities to be redeemed or 15 days before an interest
payment date.
11. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
<PAGE>
12. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
13. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some of or all its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended without prior notice to any
Securityholder but with the written consent of the Holders of at least a
majority in aggregate principal amount of the outstanding Securities and (ii)
any default or noncompliance with any provision may be waived with the written
consent of the Holders of at least a majority in principal amount of the
outstanding Securities (such majority, in the case of both (i) and (ii), to be
determined with the Holders of the Fixed Rate Securities and the Holders of the
Floating Rate Securities voting together as a single class on all matters).
Subject to certain exceptions set forth in the Indenture, without the consent of
any Holder of Securities, the Company and the Trustee may amend the Indenture or
the Securities (i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to comply with Article 5 of the Indenture; (iii) to provide for
uncertificated Securities in addition to or in place of certificated Securities;
(iv) to make certain changes in the subordination provisions; (v) to add
Guarantees with respect to the Securities; (vi) to secure the Securities; (vii)
to
<PAGE>
add additional covenants or to surrender rights and powers conferred on the
Company; (viii) to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA; or (ix) to make any
change that does not adversely affect the rights of any Securityholder.
15. Defaults and Remedies
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Securities then
outstanding (to be determined with all Fixed Rate Securities and all Floating
Rate Securities voting together as a single class), subject to certain
limitations, may declare all the Securities to be immediately due and payable.
Certain events of bankruptcy or insolvency are Events of Default and shall
result in the Securities being immediately due and payable upon the occurrence
of such Events of Default without any further act of the Trustee or any Holder.
Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the Securities then outstanding (to be determined with all Fixed Rate
Securities and all Floating Rate Securities voting together as a single class)
may direct the Trustee in its exercise of any trust or power under the
Indenture. The Holders of a majority in aggregate principal amount of the
Securities then outstanding (to be determined with all Fixed Rate Securities and
all Floating Rate Securities voting together as a single class), by written
notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration.
<PAGE>
16. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securi ties and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may other wise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
17. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
18. Authentication
--------------
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
<PAGE>
20. Governing Law
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITH OUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY HOLDER OF SECURITIES UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT
THE TEXT OF THIS SECURITY.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act of 1933 after the later of the date of original
issuance of such Securities and the last date, if any, on which such Securities
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such Securities are being transferred in accordance with its
terms:
CHECK ONE BOX BELOW
(1) [_] to the Company; or
<PAGE>
(2) [_] pursuant to an effective registration statement under the Securities
Act of 1933; or
(3) [_] inside the United States to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of 1933)
that purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and in
compliance with Rule 144A under the Securities Act of 1933; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance with
Rule 904 under the Securities Act of 1933; or
(5) [_] to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that
has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee or the Company); or
(6) [_] pursuant to another available exemption from registration provided
by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box (4),
-------- -------
(5) or (6) is checked, the Trustee may require, prior to registering any such
transfer of the Securities, such legal opinions, certifications and other
information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
<PAGE>
subject to, the registration requirements of the Securities Act of 1933.
________________________
Your Signature
Signature Guarantee:
Date: _____________________ ________________________
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
____________________________________________________________
<PAGE>
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: ________________ ______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $0. The
following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Signature of
Amount of Amount of Principal amount authorized
decrease increase of this Global signatory of
in Principal in Principal Security following Trustee or
Date of Amount of this Amount of this such decrease or Securities
Exchange Global Security Global Security increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07, 4.14 or 4.15 of the Indenture, check the box:
___
/ /
---
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07, 4.14 or 4.15 of the Indenture, state the
amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in a
recognized signature guaranty medallion program or other
signature guarantor acceptable to the Trustee
<PAGE>
EXHIBIT 4.4
[FORM OF FACE OF EXCHANGE FIXED RATE SECURITY]
No. $[ ]
9-1/2% Senior Subordinated Note due 2008
CUSIP No.
MJD COMMUNICATIONS, INC., a Delaware corporation, promises to pay
to , or registered assigns, on May 1, 1998, the principal sum as set
forth on the Schedule of Increases and Decreases annexed hereto.
Interest Payment Dates: May 1 and November 1.
Record Dates: April 15 and October 15.
<PAGE>
Additional provisions of this Security are set forth on the other side
of this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
Dated:
MJD COMMUNICATIONS, INC.
by
----------------------
Name:
Title:
by
----------------------
Name:
Title:
[CORPORATE SEAL]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By:
-------------------------
Authorized Signatory
- ----------------------
<PAGE>
*/ If the Security is to be issued in global form, add the Global Securities
- -
Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1
captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL SECURITY".
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE FIXED RATE SECURITY]
9-1/2% Senior Subordinated Note due 2008
1. Interest
--------
MJD Communications, Inc., a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above. The Company will pay
interest semiannually on May 1 and November 1 of each year commencing
November 1, 1998. Interest on the Securities will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
May 5, 1998. Interest will be computed on the basis of a 360-day year of twelve
30-day months. The Company shall pay interest on overdue principal at the rate
borne by the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the rate borne by the Securities to the extent
lawful.
2. Method of Payment
-----------------
The Company will pay interest on the Securities to the Persons who are
registered holders of Securities at the close of business on the April 15 or
October 15 next preceding the interest payment date even if Securities are
canceled after the record date and on or before the interest payment date.
Defaulted interest will be paid in the manner set forth in the Indenture.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States of America that at the time of payment is legal tender for payment of
public and private debts. Payments in respect of the Securities represented by a
Global Security (including principal, premium and interest) will be made by wire
transfer of immediately available funds to the accounts specified by The
Depository Trust Company.
<PAGE>
The Company will make all payments in respect of a certificated Security
(including principal, premium and interest), by mailing a check to the
registered address of each Holder thereof; provided, however, that payments on
-------- -------
the Securities may also be made, in the case of a Holder of at least $1,000,000
aggregate principal amount of Securities, by wire transfer to a U.S. dollar
account maintained by the payee with a bank in the United States if such Holder
elects payment by wire transfer by giving written notice to the Trustee or the
Paying Agent to such effect designating such account no later than 30 days
immediately preceding the relevant due date for payment (or such other date as
the Trustee may accept in its discretion).
3. Paying Agent and Registrar
--------------------------
Initially, United States Trust Company of New York (the "Trustee"),
will act as Paying Agent and Registrar. The Company may appoint and change any
Paying Agent, Registrar or co-registrar without notice. The Company or any of
its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of
May 5, 1998 (the "Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior subordinated, unsecured obligations of the
Company limited to $300,000,000 aggregate principal amount at any one time
outstanding (subject to Sections 2.01 and 2.08 of the Indenture). This Security
is
<PAGE>
one of the Exchange Fixed Rate Notes referred to in the Indenture, [and is one
of the Original Fixed Rate Securities issued in an aggregate principal amount of
$125,000,000. The Securities include the Original Fixed Rate Securities, the
Original Floating Rate Securities, up to an aggregate principal amount of
$100,000,000 additional Initial Securities issued under the Indenture and any
Exchange Securities issued in Exchange for the Initial Securities.] [and is one
of the additional Exchange Fixed Rate Notes, which along with any additional
Exchange Floating Rate Notes, may be issued in an aggregate principal amount of
up to $100,000,000. The Securities include additional Initial Securities, the
Original Securities in an aggregate principal amount of $200,000,000 previously
issued and any of such Exchange Securities issued in exchange for Initial
Securities.] The Original Securities, the additional Initial Securities and the
Exchange Securities are treated as a single class of securities under the
Indenture, without regard (subject to certain exceptions set forth in the
Indenture) to whether such Securities are Fixed Rate Securities or Floating Rate
Securities. The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries to, among other things, make certain
Investments and other Restricted Payments, pay dividends and other
distributions, incur Debt, enter into consensual restrictions upon the payment
of certain dividends and distributions by such Restricted Subsidiaries, issue or
sell shares of capital stock of such Restricted Subsidiaries, enter into or
permit certain transactions with Affiliates, create or incur Liens, make Asset
Sales and enter into lines of business other than the Telecommunications
Business. The Indenture also imposes limitations on the ability of the Company
to consolidate or merge with or into any other Person or sell, transfer, assign,
lease, convey or otherwise dispose of all or substantially all of the Property
of the Company.
5. Optional Redemption
-------------------
Except as set forth below, the Securities may not be redeemed prior to
May 1, 2003. On and after that date, the Company may redeem the Securities in
whole at any time
<PAGE>
or in part from time to time at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date that
is on or prior to the date of redemption), if redeemed during the 12-month
period beginning on or after May 1 of the years set forth below:
Redemption
Period Price
- ------ -----
2003........................................................ 104.750%
2004........................................................ 103.167%
2005........................................................ 101.583%
2006 and thereafter......................................... 100.000%
Notwithstanding the foregoing, on or prior to May 1, 2001, the Company
may redeem up to 35% of the aggregate principal amount of all Fixed Rate
Securities issued, at a redemption price of 109.5% of the principal amount
thereof plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of redemption) with the net proceeds of an Equity Sale, provided
--------
that at least 65% of the aggregate principal amount of the Original Fixed Rate
Securities remain outstanding after the occurrence of such redemption and
provided, further, that such redemption shall be made within 75 days of such
- -----------------
Equity Sale and shall occur not later than 60 days after the date of the closing
of any such Equity Sale upon not less than 30 nor more than 60 days' notice.
6. Sinking Fund
------------
The Securities are not subject to any sinking fund.
<PAGE>
7. Notice of Redemption
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Subordination
-------------
The Securities are subordinated to Senior Debt of the Company. To the
extent provided in the Indenture, Senior Debt of the Company must be paid before
the Securities may be paid. The Company agrees, and each Securityholder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the Trustee
as attorney-in-fact for such purpose.
9. Repurchase of Securities at the Option of Holders upon Change of Control or
---------------------------------------------------------------------------
Failure to Consummate the Acquisition of Ellensburg
---------------------------------------------------
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
<PAGE>
If the Company's acquisition of Ellensburg Telephone Company is not
consummated within 10 days after the Issue Date (or such longer period as is
permitted by certain lenders specified in the Indenture, but in no case longer
than 120 days from the Issue Date) (the "Cut-off Date"), each Holder of the
Original Securities shall have the right to require the Company to repurchase a
portion of such Holder's Original Securities pursuant to the terms, and in the
amounts, set forth in the Indenture at a purchase price equal to 100.0% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
10. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required
by law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities selected for redemption (except, in the
case of a Security to be redeemed in part, the portion of the Security not to be
redeemed) or to transfer or exchange any Securities for a period of 15 days
prior to a selection of Securities to be redeemed or 15 days before an interest
payment date.
11. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written
<PAGE>
request unless an abandoned property law designates another Person. After any
such payment, Holders entitled to the money must look only to the Company and
not to the Trustee for payment.
13. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some of or all its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended without prior notice to any
Securityholder but with the written consent of the Holders of at least a
majority in aggregate principal amount of the outstanding Securities and
(ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of at least a majority in principal amount of the
outstanding Securities (such majority, in the case of both (i) and (ii), to be
determined with the Holders of the Fixed Rate Securities and the Holders of the
Floating Rate Securities voting together as a single class on all matters).
Subject to certain exceptions set forth in the Indenture, without the consent of
any Holder of Securities, the Company and the Trustee may amend the Indenture or
the Securities (i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to comply with Article 5 of the Indenture; (iii) to provide for
uncertificated Securities in addition to or in place of certificated Securities;
(iv) to make certain changes in the subordination provisions; (v) to add
Guarantees with respect to the Securities; (vi) to secure the Securities;
(vii) to add additional covenants or to surrender rights and powers conferred on
the Company; (viii) to comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the TIA; or (ix) to
<PAGE>
make any change that does not adversely affect the rights of any Securityholder.
15. Defaults and Remedies
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Securities then
outstanding (to be determined with all Fixed Rate Securities and all Floating
Rate Securities voting together as a single class), subject to certain
limitations, may declare all the Securities to be immediately due and payable.
Certain events of bankruptcy or insolvency are Events of Default and shall
result in the Securities being immediately due and payable upon the occurrence
of such Events of Default without any further act of the Trustee or any Holder.
Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the Securities then outstanding (to be determined with all Fixed Rate
Securities and all Floating Rate Securities voting together as a single class)
may direct the Trustee in its exercise of any trust or power under the
Indenture. The Holders of a majority in aggregate principal amount of the
Securities then outstanding (to be determined with all Fixed Rate Securities and
all Floating Rate Securities voting together as a single class), by written
notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration.
16. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any
<PAGE>
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with and collect obligations owed to it by the Company or its Affiliates
and may other wise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee.
17. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
18. Authentication
--------------
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. Governing Law
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES
OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.
<PAGE>
21. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder of Securities upon written
request and without charge to the Holder a copy of the Indenture which has in it
the text of this Security.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
------------------ ---------------------------------------
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security. Signature
must be guaranteed by a participant in a recognized signature guaranty medallion
program or other signature guarantor acceptable to the Trustee.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07, 4.14 or 4.15 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07, 4.14 or 4.15 of the Indenture, state the
amount:
$
Date: __________________ Your Signature: _______________________________________
(Sign exactly as your name appears on the other side of
the Security)
Signature Guarantee:____________________________________________________________
Signature must be guaranteed by a participant in a
recognized signature guaranty medallion program or other
signature guarantor acceptable to the Trustee.
<PAGE>
EXHIBIT 4.5
[FORM OF FACE OF EXCHANGE FLOATING RATE SECURITY]
No. $[ ]
Floating Rate Callable Security due 2008
CUSIP No.
MJD COMMUNICATIONS, INC., a Delaware corporation, promises to pay to
, or registered assigns, on May 1, 1998, the principal sum as set
forth on the Schedule of Increases and Decreases annexed hereto.
Interest Payment Dates: May 1 and November 1.
Record Dates: April 15 and October 15.
<PAGE>
Additional provisions of this Security are set forth on the other side
of this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
Dated:
MJD COMMUNICATIONS, INC.
by
----------------------
Name:
Title:
by
----------------------
Name:
Title:
[CORPORATE SEAL]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By:
-------------------------
Authorized Signatory
- ----------------------
<PAGE>
*/ If the Security is to be issued in global form, add the Global Securities
- -
Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1
captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL SECURITY".
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE FLOATING RATE SECURITY]
Floating Rate Callable Security due 2008
1. Interest
--------
MJD Communications, Inc., a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum, reset semiannually, equal to
LIBOR plus 418.75 basis points, as determined by the calculation agent (the
"Calculation Agent"), which shall initially be the Trustee. The Company will
pay interest semiannually on May 1 and November 1 of each year commencing
November 1, 1998. Interest on the Securities will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from May
5, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-
day months. The Company shall pay interest on overdue principal at the rate
borne by the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the rate borne by the Securities to the extent
lawful.
"LIBOR", with respect to an Interest Period, means the rate (expressed
as a percentage per annum) for deposits in United States dollars for a six-month
period beginning on the second London Banking Day after the Determination Date
that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the
Determination Date. If Telerate Page 3750 does not include such a rate or is
unavailable on a Determination Date, LIBOR for the Interest Period shall be the
arithmetic mean of the rates (expressed as a percentage per annum) for deposits
in a Representative Amount in United States dollars for a six-month period
beginning on the second London Banking Day after the Determination Date that
appears on Reuters Screen LIBO Page as of 11:00 a.m., London time, on the
Determination Date. If
<PAGE>
Reuters Screen LIBO Page does not include two or more rates or is unavailable on
a Determination Date, the Calculation Agent shall request the principal London
office of each of four major banks in the London interbank market, as selected
by the Company, to provide such bank's offered quotation (expressed as a
percentage per annum), as of approximately 11:00 a.m., London time, on such
Determination Date, to prime banks in the London interbank market for deposits
in a Representative Amount in United States dollars for a six-month period
beginning on the second London Banking Day after the Determination Date. If at
least two such offered quotations are so provided, LIBOR for the Interest Period
shall be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, the Calculation Agent shall request each of three
major banks in New York City, as selected by the Company, to provide such bank's
rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New
York City time, on such Determination Date, for loans in a Representative Amount
in United States dollars to leading European banks for a six-month period
beginning on the second London Banking Day after the Determination Date. If at
least two such rates are so provided, LIBOR for the Interest Period will be the
arithmetic mean of such rates. If fewer than two such rates are so provided,
then LIBOR for the Interest Period will be LIBOR in effect with respect to the
immediately preceding Interest Period.
"Determination Date," with respect to an Interest Period, means the
second London Banking Day preceding the first day of the Interest Period.
"Interest Period" means the period commencing on and including an
interest payment date and ending on and including the day immediately preceding
the next succeeding interest payment date, with the exception that the first
Interest Period shall commence on and include May 5, 1998.
"London Banking Day" means any day in which dealings in United States
dollars are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
<PAGE>
"Representative Amount" means a principal amount of not less than
U.S.$1,000,000 for a single transaction in the relevant market at the relevant
time.
"Telerate Page 3750" means the display designated as "Page 3750" on
the Dow Jones Telerate Service (or such other page as may replace Page 3750 on
that service).
"Reuters Screen LIBO Page" means the display designated as page "LIBO"
on The Reuters Monitor Money Rates Service (or such other page as may replace
the LIBO page on that service).
The amount of interest for each day that the Floating Rate Securities
are outstanding (the "Daily Interest Amount") will be calculated by dividing the
interest rate in effect for such day by 360 and multiplying the result by the
principal amount of the Floating Rate Securities. The amount of interest to be
paid on the Floating Rate Securities for each Interest Period will be calculated
by adding the Daily Interest Amounts for each day in the Interest Period.
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (e.g.,
9.876545% being rounded to 9.87655%), and all dollar amounts used in or
resulting from such calculations will be rounded to the nearest cent (with one-
half cent being rounded upwards).
The interest rate on the Floating Rate Securities will in no event be
higher than the maximum rate permitted by New York law as the same may be
modified by United States law of general application. Under current New York
law, the maximum rate of interest is 25.0% per annum on a simple interest basis.
This limit may not apply to Floating Rate Securities in which a Holder has
invested $2.5 million or more.
<PAGE>
The Calculation Agent will, upon the request of the Holder of any
Floating Rate Security, provide the interest rate then in effect with respect to
the Floating Rate Securities. All calculations made by the Calculation Agent in
the absence of manifest error will be conclusive for all purposes and binding on
the Company and the Holders of the Floating Rate Securities.
2. Method of Payment
-----------------
The Company will pay interest on the Securities to the Persons who are
registered holders of Securities at the close of business on the April 15 or
October 15 next preceding the interest payment date even if Securities are
canceled after the record date and on or before the interest payment date.
Defaulted interest will be paid in the manner set forth in the Indenture.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States of America that at the time of payment is legal tender for payment of
public and private debts. Payments in respect of the Securities represented by a
Global Security (including principal, premium and interest) will be made by wire
transfer of immediately available funds to the accounts specified by The
Depository Trust Company. The Company will make all payments in respect of a
certificated Security (including principal, premium and interest), by mailing a
check to the registered address of each Holder thereof; provided, however, that
-------- -------
payments on the Securities may also be made, in the case of a Holder of at least
$1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S.
dollar account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the Trustee
or the Paying Agent to such effect designating such account no later than 30
days immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion).
<PAGE>
3. Paying Agent and Registrar
--------------------------
Initially, United States Trust Company of New York (the "Trustee"),
will act as Paying Agent and Registrar. The Company may appoint and change any
Paying Agent, Registrar or co-registrar without notice. The Company or any of
its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of May
5, 1998 (the "Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior subordinated, unsecured obligations of the
Company limited to $300,000,000 aggregate principal amount at any one time
outstanding (subject to Sections 2.01 and 2.08 of the Indenture). This Security
is one of the Exchange Floating Rate Securities referred to in the Indenture,
[and is one of the Original Floating Rate Securities issued in an aggregate
principal amount of $75,000,000. The Securities include the Original Floating
Rate Securities, the Original Fixed Rate Securities, up to an aggregate
principal amount of $100,000,000 additional Initial Securities issued under the
Indenture and any Exchange Securities issued in Exchange for the Initial
Securities.] [and is one of the additional Exchange Floating Rate Securities,
which along with any additional Exchange Fixed Rate Securities, may be issued in
an aggregate principal amount of up to $100,000,000. The Securities include
additional Initial Securities, the Original Securities in an aggregate principal
amount of $200,000,000
<PAGE>
previously issued and any of such Exchange Securities issued in exchange for
Initial Securities.] The Original Securities, the additional Initial Securities
and the Exchange Securities are treated as a single class of securities under
the Indenture, without regard (subject to certain exceptions set forth in the
Indenture) to whether such Securities are Fixed Rate Securities or Floating Rate
Securities. The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries to, among other things, make certain
Investments and other Restricted Payments, pay dividends and other
distributions, incur Debt, enter into consensual restrictions upon the payment
of certain dividends and distributions by such Restricted Subsidiaries, issue or
sell shares of capital stock of such Restricted Subsidiaries, enter into or
permit certain transactions with Affiliates, create or incur Liens, make Asset
Sales and enter into lines of business other than the Telecommunications
Business. The Indenture also imposes limitations on the ability of the Company
to consolidate or merge with or into any other Person or sell, transfer, assign,
lease, convey or otherwise dispose of all or substantially all of the Property
of the Company.
5. Optional Redemption
-------------------
The Floating Rate Securities will be redeemable, in whole or in part,
at any time and from time to time, at the option of the Company upon not less
than 30 nor more than 60 days' prior notice, at the following redemption prices
(expressed as percentages of principal amount), plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on May
1 of the years set forth below:
Period Redemption Price
- ------ ----------------
1998..................................... 105.000%
1999..................................... 104.000%
2000..................................... 103.000%
<PAGE>
2001..................................... 102.000%
2002..................................... 101.000%
2003 and thereafter...................... 100.000%
6. Sinking Fund
------------
The Securities are not subject to any sinking fund.
7. Notice of Redemption
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Subordination
-------------
The Securities are subordinated to Senior Debt of the Company. To the
extent provided in the Indenture, Senior Debt of the Company must be paid before
the Securities may be paid. The Company agrees, and each Securityholder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the Trustee
as attorney-in-fact for such purpose.
9. Repurchase of Securities at the Option of Holders upon Change of Control or
---------------------------------------------------------------------------
Failure to Consummate the Acquisition of Ellensburg
---------------------------------------------------
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions specified
<PAGE>
in the Indenture, to cause the Company to repurchase all or any part of the
Securities of such Holder at a purchase price equal to 101% of the principal
amount of the Securities to be repurchased plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date that is on or prior to the date of purchase) as provided in, and subject to
the terms of, the Indenture.
If the Company's acquisition of Ellensburg Telephone Company is not
consummated within 10 days after the Issue Date (or such longer period as is
permitted by certain lenders specified in the Indenture, but in no case longer
than 120 days from the Issue Date) (the "Cut-off Date"), each Holder of the
Original Securities shall have the right to require the Company to repurchase a
portion of such Holder's Original Securities pursuant to the terms, and in the
amounts, set forth in the Indenture at a purchase price equal to 100.0% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
10. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required
by law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities selected for redemption (except, in the
case of a Security to be redeemed in part, the portion of the Security not to be
redeemed) or to transfer or exchange any Securities for a period of 15 days
prior to a selection of Securities to be redeemed or 15 days before an interest
payment date.
<PAGE>
11. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
13. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some of or all its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended without prior notice to any
Securityholder but with the written consent of the Holders of at least a
majority in aggregate principal amount of the outstanding Securities and (ii)
any default or noncompliance with any provision may be waived with the written
consent of the Holders of at least a majority in principal amount of the
outstanding Securities (such majority, in the case of both (i) and (ii), to be
determined with the Holders of the Fixed Rate Securities and the Holders of the
Floating Rate Securities voting together as a single class on all matters).
Subject to certain exceptions set forth in the Indenture, without the consent of
any Holder of Securities, the Company and the Trustee may amend the Indenture or
the Securities (i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to comply
<PAGE>
with Article 5 of the Indenture; (iii) to provide for uncertificated Securities
in addition to or in place of certificated Securities; (iv) to make certain
changes in the subordination provisions; (v) to add Guarantees with respect to
the Securities; (vi) to secure the Securities; (vii) to add additional covenants
or to surrender rights and powers conferred on the Company; (viii) to comply
with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the TIA; or (ix) to make any change that
does not adversely affect the rights of any Securityholder.
15. Defaults and Remedies
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Securities then
outstanding (to be determined with all Fixed Rate Securities and all Floating
Rate Securities voting together as a single class), subject to certain
limitations, may declare all the Securities to be immediately due and payable.
Certain events of bankruptcy or insolvency are Events of Default and shall
result in the Securities being immediately due and payable upon the occurrence
of such Events of Default without any further act of the Trustee or any Holder.
Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the Securities then outstanding (to be determined with all Fixed Rate
Securities and all Floating Rate Securities voting together as a single class)
may direct the Trustee in its exercise of any trust or power under the
Indenture. The Holders of a majority in aggregate principal amount of the
Securities then outstanding (to be determined with all Fixed Rate Securities and
all Floating Rate Securities voting together as a single class), by written
notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
<PAGE>
judgment or decree, and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration.
16. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
17. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
18. Authentication
--------------
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
<PAGE>
20. Governing Law
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITH OUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder of Securities upon written
request and without charge to the Holder a copy of the Indenture which has in it
the text of this Security.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- -------------------------------------------------------------
Date: ----------------- Your Signature: ---------------------
- -------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security. Signature
must be guaranteed by a participant in a recognized signature guaranty medallion
program or other signature guarantor acceptable to the Trustee.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07, 4.14 or 4.15 of the Indenture, check the box:
[__]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07, 4.14 or 4.15 of the Indenture, state the
amount:
$
Date: ------------------ Your Signature: ---------------------------------------
(Sign exactly as your name appears on the other side of
the Security)
Signature Guarantee:-----------------------------------------------------------
Signature must be guaranteed by a participant in a
recognized signature guaranty medallion program or other
signature guarantor acceptable to the Trustee.
<PAGE>
EXHIBIT 4.6
EXECUTION COPY
MJD COMMUNICATIONS, INC.
$200,000,000
$125,000,000 9-1/2% Senior Subordinated Notes due 2008
$75,000,000 Floating Rate Callable Securities
due 2008
PURCHASE AGREEMENT
New York, New York
April 30, 1998
To: SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
In care of:
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
MJD Communications, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Purchasers"), $125,000,000 aggregate
principal amount of its 9-1/2% Senior Subordinated Notes due 2008 (the "Fixed
Rate Notes") and $75,000,000 aggregate principal amount of its Floating Rate
Callable Securities due 2008 (the "Floating Rate Notes" and, together with the
Fixed Rate Notes, the "Securities"). The Securities are to be issued under an
indenture (the "Indenture") dated as of May 5, 1998, between the Company and
United States Trust Company of New York, as trustee (the "Trustee").
The sale of the Securities to you will be made without registration of
the Securities under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemption from the registration requirements of the
Securities Act provided by Section 4(2) thereof. You have advised the Company
that you will make an offering of the Securities purchased by you hereunder in
accordance with Section 4 hereof as soon as you deem advisable after the
execution and delivery of this Agreement.
<PAGE>
2
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum, dated April 14, 1998 (the
"Preliminary Memorandum"), and a final offering memorandum, dated April 30, 1998
(the "Final Memorandum"). Each of the Preliminary Memorandum and the Final
Memorandum sets forth certain information concerning the Company and the
Securities. The Company hereby confirms that it has authorized the use of the
Preliminary Memorandum and the Final Memorandum, and any amendment or supplement
thereto, in connection with the offer and sale of the Securities by the
Purchasers. Unless stated to the contrary, all references herein to the Final
Memorandum are to the Final Memorandum at the Execution Time (as defined below)
and are not meant to include any amendment or supplement thereto subsequent to
the Execution Time.
The holders of the Securities will be entitled to the benefits of the
Registration Agreement dated the date hereof, between the Company and the
Purchasers (the "Registration Agreement").
Capitalized terms used herein without definition have the respective
meanings assigned to them in the Final Memorandum.
1. Representations and Warranties. The Company represents and
------------------------------
warrants to, and agrees with, the Purchasers as set forth below in this Section
1.
(a) The Preliminary Memorandum, at the date thereof, did not contain
any untrue statement of a material fact or omit to state any material fact
(other than pricing terms and other financial terms for the Securities
intentionally left blank) necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
Final Memorandum, at the date hereof, does not, and at the Closing Date (as
defined below) will not (and any amendment or supplement thereto, at the
date thereof and at the Closing Date, will not), contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that no
-------- -------
representation or warranty is made as to the information contained in or
omitted from the Preliminary Memorandum or the Final Memorandum, or any
amendment or supplement thereto, in reliance upon and
<PAGE>
3
in conformity with information furnished in writing to the Company by or on
behalf of the Purchasers specifically for inclusion therein, it being
understood that the only such information is that described in Section 8(b)
hereof.
(b) The Company has not taken nor will it take, directly or
indirectly, any action prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with
the offering of the Securities.
(c) None of the Company, any of its Affiliates (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) or any
person acting on its or their behalf has (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any security
(as defined in the Securities Act) that is or will be integrated with the
Securities in a manner that would require the registration of the
Securities under the Securities Act or (ii) engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with any offer or sale of the Securities in the United States.
(d) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(e) None of the Company, any of its Affiliates or any person acting
on its or their behalf has engaged in any directed selling efforts with
respect to the Securities, and each of them has complied with the offering
restrictions requirement of Regulation S ("Regulation S") under the
Securities Act. Terms used in this paragraph have the meanings given to
them by Regulation S.
(f) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company
Act"), without taking account of any exemption arising out of the number of
holders of the Company's securities.
(g) The Company has full corporate power and authority to enter into
this Agreement, the Registration Agreement, the Indenture and the
<PAGE>
4
Securities and to perform the transactions contemplated hereby and thereby
(the "Transactions"). This Agreement and the Registration Agreement have
been duly authorized, executed and delivered by the Company. The execution
and delivery of the Indenture has been duly authorized by the Company, and
the Indenture, when duly executed and delivered by the parties thereto,
will constitute a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(h) The Securities have been duly authorized for issuance and sale by
the Company to the Purchasers, and when duly executed, authenticated,
issued and delivered in accordance with the Indenture and paid for in
accordance with the terms of this Agreement, the Securities will constitute
valid and binding obligations of the Company enforceable against the
Company in accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(i) The execution, delivery and performance of this Agreement, the
Registration Agreement, the Indenture and the Securities by the Company and
the consummation of the Transactions will not conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, (i) the articles of incorporation, by-laws or other
organizational documents of the Company or any of its Subsidiaries (as
defined below), (ii) any material statute, rule or regulation applicable to
the Company or any Subsidiary or any order of any governmental agency or
body or any court having jurisdiction over the Company or any Subsidiary or
any of their respective properties, except for any such breach, violation
or default that individually and in the aggregate could not reasonably be
expected to have a material adverse effect on the business, condition
<PAGE>
5
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole, or on the consummation of the Transactions
(any such event, a "Material Adverse Effect"), (iii) any agreement or
instrument relating to borrowed money to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or
to which any of their respective properties is subject, including the
Credit Agreement dated March 30, 1998, among the Company, NationsBank of
Texas, N.A., Bankers Trust Company and the lenders party thereto (the
"Credit Agreement"), except for such breach, violation, or default that
individually and in the aggregate could not reasonably be expected to have
a Material Adverse Effect or (iv) any other material agreement or
instrument to which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary is bound or to which any of their respective
properties is subject, except for such breach, violation, or default that
individually and in the aggregate could not reasonably be expected to have
a Material Adverse Effect. No consent, approval, authorization or other
order of any court, regulatory body, administrative agency or other
governmental body that has not already been obtained is required for the
execution and delivery of this Agreement, the Registration Agreement, the
Indenture or the Securities or for the consummation of the Transactions,
except such as may be required under the blue sky or securities laws of any
jurisdiction in connection with the purchase and sale of the Securities by
the Purchasers and except such as may be required under the Securities Act
with respect to the Registration Agreement and the transactions
contemplated thereunder and except for such consents, approvals,
authorizations or orders that, if not obtained, individually and in the
aggregate could not reasonably be expected to have a Material Adverse
Effect. The term "Subsidiary" means each person of which a majority of the
voting equity securities or other interests is owned, directly or
indirectly, by the Company.
(j) The Company has not paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the
Company (except as contemplated by this Agreement).
<PAGE>
6
(k) No registration of the Securities under the Securities Act is
required in connection with the sale of the Securities to the Purchasers as
contemplated by this Agreement and the Final Memorandum or in connection
with the initial resale of the Securities by the Purchasers in accordance
with Section 4 of this Agreement, and prior to the commencement of the
Exchange Offer (as defined in the Registration Agreement) or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Agreement), the Indenture is not required to be qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), in each case assuming (i) that the purchasers who buy such
Securities in the initial resale thereof are qualified institutional buyers
within the meaning of Rule 144A under the Securities Act or are purchasing
pursuant to Regulation S under the Securities Act as set forth in the Final
Memorandum, (ii) the accuracy of the Purchasers' representations in Section
4 and those of the Company contained in this Agreement regarding the
absence of a general solicitation in connection with the sale of such
Securities to the Purchasers and the initial resale thereof and (iii) the
accuracy of the representations made by each person who purchases
Securities in the initial resale as set forth in the Final Memorandum.
2. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to the Purchasers, and the Purchasers agree to purchase from the
Company, severally and not jointly, (i) in the case of the Fixed Rate Notes, at
a purchase price of 97.0% of the principal amount thereof and (ii) in the case
of the Floating Rate Notes, at a purchase price of 97.0% of the principal amount
thereof, in each case plus accrued interest, if any, from May 5, 1998, to the
Closing Date, the principal amount of Securities set forth opposite each
Purchaser's name in Schedule I hereto.
3. Delivery and Payment. Delivery of and payment for the Securities
--------------------
shall be made at 10:00 AM, New York City time, on May 5, 1998, or such later
date as the Purchasers and the Company may agree or as provided in Section 9
hereof (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the Purchasers
<PAGE>
7
against payment by the Purchasers of the purchase price thereof to or upon the
order of the Company by wire transfer in Federal (same day) funds to a U.S.
dollar account in the United States previously designated by the Company or such
other manner of payment as may be designated by the Company and agreed to by the
Purchasers not less than two business days prior to the Closing Date. Delivery
of the Securities shall be made at the office of Cravath, Swaine & Moore
("Counsel for the Purchasers"), 825 Eighth Avenue, New York, New York.
Certificates for the Securities shall be registered in such names and in such
denominations as the Purchasers may request not less than two full business days
in advance of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Purchasers in New York, New York, not later than
1:00 PM on the business day prior to the Closing Date.
4. Offering of Securities. Each Purchaser severally and not jointly
----------------------
(i) acknowledges that the Securities have not been registered under the
Securities Act and may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act or pursuant to an effective registration statement under the
Securities Act and (ii) represents and warrants to and agrees with the Company
that:
(a) It has not offered or sold, and will not offer or sell, any
Securities except (i) to those it reasonably believes to be qualified
institutional buyers (as defined in Rule 144A under the Securities Act) and
that, in connection with each such sale, it has taken or will take
reasonable steps to ensure that the purchaser of such Securities is aware
that such sale is being made in reliance on Rule 144A or (ii) pursuant to
Regulation S.
(b) Neither it nor any person acting on its behalf has made or will
make offers or sales of the Securities in the United States by means of any
form of general solicitation or general advertising (within the meaning of
Regulation D) in the United States, except pursuant to a registered public
offering, whether an exchange offer or shelf registration, as provided in
the Registration Agreement.
<PAGE>
8
5. Agreements. The Company agrees with the Purchasers that:
----------
(a) The Company will furnish to the Purchasers, without charge, as
many copies of the Final Memorandum and any supplements or amendments
thereof or thereto as the Purchasers may reasonably request. The Company
will pay the expenses of printing or other production of all documents
relating to the Offering.
(b) The Company will not amend or supplement the Final Memorandum
without prior consent of the Purchasers, which consent will not be
unreasonably withheld.
(c) If at any time prior to the completion of the sale of the
Securities by the Purchasers, any event occurs as a result of which the
Final Memorandum, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend
or supplement the Final Memorandum to comply with any applicable law, the
Company promptly will notify the Purchasers of the same and, subject to
paragraph (b) of this Section 5, will prepare and provide to the Purchasers
pursuant to paragraph (a) of this Section 5 an amendment or supplement that
will correct such statement or omission or effect such compliance.
(d) The Company will cooperate with the Purchasers in arranging for
the qualification of the Securities for sale under the laws of such
jurisdictions as the Purchasers may designate and will maintain such
qualifications in effect so long as required for the sale of the
Securities, provided that in no event shall the Company be obligated to (i)
--------
qualify to do business in any jurisdiction where it is not now so
qualified, (ii) take any action that would subject it to service of process
in suits (other than those suits arising out of the offering or sale of the
Securities) in any jurisdiction where it is not now so subject or (iii)
subject itself to taxation in excess of a nominal dollar amount in any such
jurisdiction where it is not then so subject. The Company promptly will
advise the Purchasers of the
<PAGE>
9
receipt by it of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.
(e) The Company will not, and will not permit any of its Affiliates
under the Company's control to, resell any Securities that have been
acquired by any of them.
(f) None of the Company, any of its Affiliates, or any person acting
on its or their behalf will, directly or indirectly, make offers or sales
of any security, or solicit offers to buy any security, under circumstances
that would require the registration of the Securities under the Securities
Act, except pursuant to a registered public offering, whether an exchange
offer or shelf registration, as provided in the Registration Agreement..
(g) None of the Company, any of its Affiliates or any person acting
on its or their behalf will engage in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with
any offer or sale of the Securities in the United States, except pursuant
to a registered public offering, whether an exchange offer or shelf
registration, as provided in the Registration Agreement.
(h) So long as any of the Securities are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, the Company
will, during any period in which it is not subject to or in compliance with
Section 13 or 15(d) of the Exchange Act, provide to each holder of such
restricted securities and to each prospective purchaser (as designated by
such holder) of such restricted securities, upon the request of such holder
or prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Securities Act.
(i) None of the Company, any of its Affiliates or any person acting
on its or their behalf will engage in any directed selling efforts with
respect to the Securities except pursuant to a registered public offering
as provided in the Registration Agreement and each of them will comply with
the offering restrictions requirement of Regulation S. Terms used in this
<PAGE>
10
paragraph have the meanings given to them by Regulation S.
(j) The Company will cooperate with the Purchasers and use its
commercially reasonable efforts to permit the Securities to be eligible for
clearance and settlement through The Depository Trust Company.
(k) The Company hereby agrees to permit the Securities to be
designated Portal eligible securities, will pay the requisite fees related
thereto and has been advised by The Portal Market that the Securities have
or will be designated Portal eligible securities in accordance with the
rules and regulations of the National Association of Securities Dealers,
Inc.
(l) The Company will not, until 180 days following the Closing Date,
without the prior written consent of Salomon Brothers Inc, offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or
announce the offering of, or file a registration statement for, any debt
securities issued or guaranteed by the Company (other than (i) the
Securities and (ii) pursuant to a registered public offering as provided in
the Registration Agreement). The Company will not at any time offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, any
securities under circumstances where such offer, sale, contract or
disposition would cause the exemption afforded by Section 4(2) of the
Securities Act or the safe harbor of Regulation S thereunder to cease to be
applicable to the offer and sale of the Securities as contemplated by this
Agreement and the Final Memorandum.
(n) The Company will apply the net proceeds from the sale of the
Securities sold by it substantially in accordance with its statements under
the caption "Use of Proceeds" in the Final Memorandum.
6. Conditions to the Obligations of the Purchasers. The obligations
-----------------------------------------------
of the Purchasers to purchase the Securities shall be subject to the accuracy of
the representations and warranties on the part of the Company contained herein
at the date and time that this Agreement is executed and delivered by the
parties hereto (the "Execution Time") and the Closing Date, to the accuracy of
the statements of the Company made in any certificates pursuant
<PAGE>
11
to the provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) The Company shall have furnished to the Purchasers the opinion of
Paul, Hastings, Janofsky & Walker LLP, counsel for the Company, dated the
Closing Date, to the effect that:
(i) each of the Company and its Subsidiaries has been duly
incorporated and is in good standing as a corporation under the laws
of the respective jurisdiction in which it is chartered or organized,
with full corporate power and authority to own its properties and
conduct its business as described in the Final Memorandum, and, based
on certificates from applicable government officials, is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction that requires such
qualification wherein it owns or leases material properties or
conducts material business, other than such jurisdictions where
failure to be so qualified could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect;
(ii) all the outstanding shares of capital stock of the Company
and each of its Subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise
set forth in the Final Memorandum, and based solely on a review of the
stock ledgers of the Company and its Subsidiaries, all outstanding
shares of capital stock of any Subsidiary of the Company are owned by
the Company either directly or through wholly owned Subsidiaries free
and clear of any perfected security interest and, to the best of such
counsel's knowledge, any other security interests, claims or
encumbrances;
(iii) the Company's authorized equity capitalization is as set
forth in the Final Memorandum;
(iv) the information contained in the Final Memorandum under
the headings "Risk Factors--Regulation", "Regulation", "Certain U.S.
Federal
<PAGE>
12
Tax Considerations", and the third paragraph under the heading
"Business--Industry Overview", fairly summarizes the matters therein
described;
(v) the Indenture conforms as to form in all material respects
with the requirements of the Trust Indenture Act and the rules and
regulations of the Commission applicable to an indenture that is
qualified thereunder;
(vi) no consent, approval, authorization or order of, or filing
or registration with (collectively, the "consents"), any court or
governmental agency or body (other than the Federal Communications
Commission (the "FCC") or any state public utility or similar
commission (each such commission a "PUC"), as to which such counsel
will express no opinion) is required for the execution, delivery and
performance of this Agreement, the Indenture, the Registration
Agreement and the Securities or for the consummation of the
Transactions, except for such consents that, if not obtained,
individually and in the aggregate could not reasonably be expected to
have a Material Adverse Effect and except such as may be required
under the blue sky or securities laws of any jurisdiction in
connection with the purchase and sale of the Securities by the
Purchasers and such other approvals (specified in such opinion) as
have been obtained and except such as may be required under the
Securities Act with respect to the Registration Agreement and the
transactions contemplated thereunder;
(vii) none of the issue and sale of the Securities, the
execution and delivery of this Agreement, the Registration Agreement
or the Indenture, the fulfillment of the terms hereof or thereof or
the consummation of the Transactions will conflict with, result in a
breach or violation of, or constitute a default under any law or the
articles or by-laws of the Company or any Subsidiary or the terms of
the Credit Agreement or any indenture or other agreement or instrument
known to such counsel and to which the Company or any Subsidiary is a
party or bound or any judgment, order or decree known to such counsel
to be applicable to the Company or any Subsidiary of any
<PAGE>
13
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company or any Subsidiary,
except with respect to this subsection (vii), for any such conflict,
breach, violation or default (A) that individually and in the
aggregate could not reasonably be expected to have a Material Adverse
Effect or (B) arising under laws, rules or regulations promulgated by
the FCC or any PUC;
(viii) the Company has full corporate right, power and authority
to execute and deliver the Indenture, the Securities, the Registration
Agreement and this Agreement and to perform its respective obligations
hereunder and thereunder; and all corporate action required to be
taken for the due and proper authorization, execution and delivery of
the Indenture, the Securities, the Registration Agreement and this
Agreement and for the consummation of the Transactions has been duly
and validly taken;
(ix) this Agreement and the Registration Agreement have been
duly authorized, executed and delivered by the Company;
(x) the Indenture has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding
instrument enforceable against the Company in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at
law or in equity); the Securities are in the form contemplated by the
Indenture and have been duly authorized and executed by the Company
and, when authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Purchasers pursuant to
this Agreement, will be duly and validly issued and outstanding and
will constitute legal, valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable in
accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance,
<PAGE>
14
moratorium and similar laws affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity); and the
statements set forth under the heading "Description of Notes" in the
Final Memorandum, insofar as such statements purport to summarize the
provisions of the Securities and the Indenture, provide a fair summary
of such provisions;
(xi) to the best knowledge of such counsel, there is no pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of the Subsidiaries or to which any of the properties
of the Company or any of the Subsidiaries is subject that would be
required to be disclosed in the Final Memorandum if the Final
Memorandum were a prospectus included in a registration statement on
Form S-1 under the Securities Act, that is not adequately disclosed in
the Final Memorandum;
(xii) the Company is not, and after giving effect to the
offering and sale of the Securities and the application of the net
proceeds therefrom, will not be, an "investment company" within the
meaning of the Investment Company Act and the rules and regulations of
the Commission thereunder, without taking account of any exemption
arising out of the number of holders of the Company's securities; and
(xiii) assuming the accuracy of the representations and
warranties and compliance with the agreements contained herein, no
registration of the Securities under the Securities Act is required,
and no qualification of the Indenture under the Trust Indenture Act is
necessary, for the offer, sale and delivery of the Securities in the
manner contemplated by this Agreement.
Such counsel shall also state that they have no reason to believe that
at the Execution Time the Final Memorandum contained an untrue statement of
a material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of
<PAGE>
15
the circumstances under which they were made, not misleading or that the
Final Memorandum includes an untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading (provided that such counsel shall express no such belief
regarding the financial statements and the notes and schedules thereto and
other financial data contained in the Final Memorandum).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of New York, the State of Delaware or the United States, to the extent they
deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
reasonably satisfactory to Counsel for the Purchasers and (B) as to matters
of fact, to the extent they deem proper, on certificates of responsible
officers of the Company and public officials.
The opinion and letter of such counsel shall be rendered to the
Purchasers at the request of the Company and shall so state therein.
All references in this Section 6(a) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the Closing Date.
(b) The Company shall have furnished to the Purchasers the opinions
of the following local counsel, or such other counsel as shall be
reasonably acceptable to the Purchasers: Gorsuch Kirgis L.L.C., special
Colorado counsel to Big Sandy Telecom, Inc., Columbine Telephone Company,
Inc. and Sunflower Telephone Company, Inc.; Meyer, Capel, Hirschfeld,
Muncy, Jahn & Aldeen, P.C., special Illinois counsel to C-R Communications,
Inc. and Odin Telephone Exchange, Inc.; James M. Caplinger, special Kansas
counsel to Bluestem Telephone Company and Sunflower Telephone Company,
Inc.; Preti, Flaherty, Beliveau & Pachios, LLC, special Maine counsel to
Sidney Telephone Company and Northland Telephone Company of Maine, Inc.;
Devine, Millimet & Branch, special New Hampshire counsel to Northland
Telephone Company of Maine, Inc.; Harter, Secrest & Emery, special New York
counsel to Chautauqua & Erie
<PAGE>
16
Telephone Corporation and Taconic Telephone Corp.; Moss & Barnett, special
South Dakota counsel to Kadoka Telephone Co.; Miller, Eggleston & Cramer,
Ltd., special Vermont counsel to STE/NE Acquisition Corp. d/b/a Northland
Telephone Company of Vermont and Lane, Powell, Spears & Lubersky LLP,
special Washington counsel to Ellensburg Telephone Company. The opinion of
each such counsel shall be dated as of the Closing Date and to the effect
that:
(i) no consent, approval, authorization or order of, or filing
or registration with, any court or governmental agency or body of the
State to which such local counsel's opinion relates including, without
limitation, the Public Utilities Commission of such State, is
necessary in connection with the issuance by the Company of the
Securities or for the consummation of the Transactions;
(ii) each Subsidiary of the Company to which such local
counsel's opinion relates (A) has complied with the laws of such State
relating to such Subsidiary's corporate power to own and operate the
properties that it owns and operates in such State and (B) is the
valid holder of all approvals, consents, orders, permissions,
authorizations, and licenses of, and has made all registrations and
filings with, the PUC of such State that are required for the conduct
of its business as a regulated provider of telecommunications services
in such State;
(iii) to the best knowledge of such counsel, there is no pending
or threatened action, suit, or proceeding before any court or
governmental agency, authority or body or any arbitrator involving any
of the Subsidiaries to which such counsel's opinion relates or any of
their respective properties that seeks, or could reasonably be
expected, to rescind, terminate, modify or suspend any approval,
consent, permission, authorization, order or license of or
registration with any governmental authority or regulatory body; and
(iv) neither the issuance by the Company of the Securities nor
the consummation of the
<PAGE>
17
Transactions will violate any law, rule, regulation, policy,
order, procedure or judgment of any governmental authority
or regulatory body, including any PUC, of such State.
The opinion and letter of each such local counsel shall be
rendered to the Purchasers at the request of the Company and
shall so state therein.
(c) The Company shall have furnished to the Purchasers the
opinion of Blooston, Mordkofsky, Jackson & Dickens, special
communications counsel to the Company and its Subsidiaries, dated
the Closing Date, to the effect that:
(i) the issuance by the Company of the Securities and
the consummation of the Transactions will not violate the
Communications Act of 1934, as amended, or any rule,
regulation, policy, order or decision of the FCC (the
"FCC");
(ii) no approval, consent or authorization of or
filing with the FCC is required in connection with the
issuance of the Securities by the Company or the
consummation of the Transactions; and
The opinion and letter of such counsel shall be rendered to
the Purchasers at the request of the Company and shall so state
therein.
(d) The Purchasers shall have received from Counsel for the
Purchasers such opinion or opinions, dated the Closing Date, with
respect to the issuance and sale of the Securities, the Final
Memorandum (as amended or supplemented at the Closing Date) and
other related matters as the Purchasers may reasonably require,
and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling
them to pass upon such matters.
(e) The Company shall have furnished to the Purchasers a
certificate of the Company, signed by the Chief Executive Officer
and President and the Chief Financial Officer, dated the Closing
Date, to the effect that the signers of such certificate have
carefully examined the Final Memorandum, any amendment or
supplement to the Final Memorandum, this Agreement and the
Registration Agreement and that:
<PAGE>
18
(i) the representations and warranties of the Company
in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect
as if made on the Closing Date, and the Company has complied
with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to the
Closing Date; and
(ii) since the date of the most recent financial
statements included in the Final Memorandum (exclusive of
any amendment or supplement thereto), there has not been,
and no development has occurred that could reasonably be
expected to result in, any material adverse change in the
condition (financial or otherwise), properties, business or
results of operations of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as disclosed in
the Final Memorandum (exclusive of any amendment or
supplement thereto).
(f) At the Execution Time and at the Closing Date, KPMG
Peat Marwick LLP shall have furnished to the Purchasers a letter
or letters, dated respectively as of the Execution Time and as of
the Closing Date, in form and substance satisfactory to the
Purchasers, confirming that they are independent accountants
within the meaning of the Securities Act and the applicable rules
and regulations thereunder and Rule 101 of the Code of
Professional Conduct of the American Institute of Certified
Public Accountants (the "AICPA") and stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included in the Final
Memorandum and reported on by them, comply in form in all
material respects with the applicable accounting
requirements of the Securities Act and the related published
rules and regulations that would apply to the Final
Memorandum if the Final Memorandum were a prospectus
included in a registration statement on Form S-1 under the
Securities Act;
(ii) based upon the procedures detailed in such letter
with respect to the period subsequent
<PAGE>
19
to the date of the latest audited financial statements
included in the Final Memorandum, including the reading of
the minutes and inquiries of certain officials of the
Company who have responsibility for the financial and
accounting matters and certain other limited procedures
requested by the Purchasers and described in detail in such
letter, nothing has come to their attention that causes them
to believe that:
(A) with respect to the period subsequent to
December 31, 1997, there were any changes, at a
specified date not more than five business days prior
to the date of such letter, in the total debt of the
Company and its subsidiaries or capital stock of the
Company or decreases in the stockholders' equity of the
Company or decreases in working capital of the Company
and its subsidiaries, as compared with the amounts
shown on the December 31, 1997, consolidated balance
sheet included in the Final Memorandum, or for the
period from January 1, 1998, to such specified date
there were any decreases, as compared with the
corresponding period in the preceding fiscal year, in
net sales, operating income, net income or EBITDA, as
defined in the Final Memorandum under "Selected
Financial Data", in each case on an actual basis and
pro forma for the 1997 Acquisitions, except in all
instances for changes set forth in such letter, in
which case the letter shall be accompanied by an
explanation by the Company as to the significance
thereof unless said explanation is not deemed necessary
by the Purchasers; or
(B) the information included under the headings
"Summary Consolidated Financial and Operating Data",
"Selected Consolidated Financial and Operating Data",
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Summary
Compensation Table" is not in conformity with the
disclosure requirements of Regulation S-K that would
apply to the Final Memorandum if the Final Memorandum
were a prospectus included in a registration
<PAGE>
20
statement on Form S-1 under the Securities Act;
(iii) they have performed certain other specified
procedures as a result of which they deter mined that
certain information of an accounting, financial or
statistical nature (which is limited to accounting,
financial or statistical informa tion derived from the
general accounting records of the Company and its
subsidiaries) set forth in the Final Memorandum, including
the information set forth under the captions "Summary",
"Summary Consolidated Financial and Operating Data", "Risk
Factors", "Use of Proceeds", "Capitalization", "Selected
Consolidated Financial and Operating Data", "Management's
Discussion and Analysis of Financial Condition and Results
of Operations", "Business", "Summary Compensation Table",
"Security Ownership of Certain Beneficial Owners and
Management", "Certain Relationships and Related
Transactions", "Description of Notes" and "Legal Matters" in
the Final Memorandum, agrees with the accounting records of
the Company and its subsidiaries, excluding any questions of
legal interpretation; and
(iv) on the basis of a reading of the unaudited pro
forma financial statements included in the Final Memorandum
(the "pro forma financial statements"); carrying out certain
specified procedures; reading of minutes and inquiries of
certain officials of the Company and those other companies
included in the pro forma financial statements, which
officials have responsibility for financial and accounting
matters; and proving the arithmetic accuracy of the
application of such pro forma adjustments to the historical
amounts in the pro forma financial statements, nothing came
to their attention that caused them to believe that the pro
forma financial statements do not comply in form in all
material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of such statements.
<PAGE>
21
All references in this Section 6(f) to the Final Memorandum
shall be deemed to include any amendment or supplement thereto at
the date of the letter.
(g) At the Execution Time, KPMG Peat Marwick LLP,
independent public accountants to Taconic Telephone Corp.; Moss
Adams LLP, independent public accountants to Ellensburg Telephone
Company; Berry Dunn McNeil & Parker, independent public
accountants to Utilities, Inc.; Ernst & Young LLP, independent
public accountants to Chautauqua & Erie Telephone Corporation and
Kiesling Associates, independent public accountants to Big Sandy
Telecommunications, Inc., shall each have furnished to the
Purchasers a letter, dated as of the Execution Time and in form
and substance satisfactory to the Purchasers, confirming that
they are independent accountants within the meaning of the
Securities Act and the applicable rules and regulations
thereunder and Rule 101 of the Code of Professional Conduct of
the AICPA and stating in effect that in their opinion, the
audited financial statements and financial statement schedules
included in the Final Memorandum and reported on by them comply
in form in all material respects with the applicable accounting
requirements of the Securities Act and the related published
rules and regulations that would apply to the Final Memorandum if
the Final Memorandum were a prospectus included in a registration
statement on Form S-1 under the Securities Act.
(h) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in the Final Memorandum,
there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (f) of this
Section 6 or (ii) any change, or any development involving a
prospective change, in or affecting the business or properties of
the Company and its Subsidiaries the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the judgment of
the Purchasers, so material and adverse as to make it impractical
or inad visable to market the Securities as contemplated by the
Final Memorandum .
(i) Subsequent to the Execution Time, there shall not have
been (i) any decrease in the rating of the Securities by any
"nationally recognized statistical rating organization" (as
defined for purposes of
<PAGE>
22
Rule 436(g) under the Securities Act) or (ii) any notice given of any
intended or potential decrease in any such rating or that such organization
has under surveillance or review (other than any such notice that relates
only to a possible upgrading) its rating of the Securities or any of the
Company's other debt securities.
(j) If the acquisition by the Company of Ellensburg Telephone Company
is consummated prior to the Closing Date, the Company shall have received
an additional equity contribution of $15 million, in the aggregate, from
Kelso & Company ("Kelso") and Carousel Capital Partners, L.P. ("Carousel"
and, together with Kelso, the "Equity Investors").
(k) Each of the Equity Investors shall have granted its consent to
the issuance by the Company of the Securities.
(l) Each of NationsBank of Texas, N.A. and Bankers Trust Company, as
agents under the Credit Agreement, shall have granted its consent to the
issuance by the Company of the Securities, and for the Company to
consummate each of the Transactions, including, without limitation, the
consummation of the Ellensburg Put Option as it is described in the Final
Memorandum and the Indenture.
(m) Prior to the Closing Date, the Company shall have furnished to
the Purchasers such further information, certificates and documents as the
Purchasers may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Purchasers and Counsel for the Purchasers, this Agreement
and all obligations of the Purchasers hereunder may be canceled at, or at any
time prior to, the Closing Date by the Purchasers. Notice of such cancelation
shall be given to the Company in writing or by telephone confirmed in writing.
<PAGE>
23
The documents required to be delivered by this Section 6 will be
delivered at the office of Counsel for the Purchasers, 825 Eighth Avenue, New
York, New York, on the Closing Date.
7. Reimbursement of Expenses. If the sale of the Securities provided
-------------------------
for herein is not consummated because any condition to the obligations of the
Purchasers set forth in Section 6 hereof is not satisfied or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof, in each case other than by
reason of a default by the Purchasers, the Company will reimburse the Purchasers
upon demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Purchaser, each director, officer, employee and
agent of any Purchaser and each other person, if any, who controls any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Memorandum, the Final Memorandum or any information provided by the
Company to any holder or prospective purchaser of Securities pursuant to Section
5(h), or in any amendments thereof or supplements thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made in
the
<PAGE>
24
Preliminary Memorandum or the Final Memorandum, or in any amendment thereof or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Purchasers specifically for
inclusion therein, it being understood that the only such information is that
described in Section 8(b); and provided further, however, that with respect to
-------- ------- -------
any untrue statement or omission of a material fact made in any Preliminary
Memorandum, the indemnity agreement contained in this Section 8(a) shall not
inure to the benefit of any Purchaser from whom the person asserting any such
loss, claim, damage or liability purchased the Securities concerned in any
initial resale of the Securities by the Purchaser, to the extent that any such
loss, claim, damage or liability of such Purchaser occurs under the circumstance
where it shall have been determined by a court of competent jurisdiction by
final and nonappealable judgment that (i) the untrue statement or omission of a
material fact contained in the Preliminary Memorandum was corrected in the Final
Memorandum, (ii) the Company had previously furnished copies of the Final
Memorandum to the Purchasers and (iii) such loss, claim, damage or liability
results from the fact that there was not sent or given to such person at or
prior to the written confirmation of the sale of such Securities to such person,
a copy of the Final Memorandum. This indemnity agreement will be in addition to
any liability that the Company may otherwise have.
(b) Each Purchaser severally and not jointly agrees to indemnify and
hold harmless the Company, its directors and officers, and each other person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to the Purchasers, but only with reference
to written information relating to the Purchasers furnished to the Company by or
on behalf of the Purchasers specifically for inclusion in the Preliminary
Memorandum or the Final Memorandum (or in any amendment thereof or supplement
thereto). This indemnity agreement will be in addition to any liability that the
Purchasers may otherwise have. The Company acknowledges that the statements set
forth in the last paragraph of the cover page and under the heading "Plan of
Distribution" in the Preliminary Memorandum and the Final Memorandum (or in any
amendment or supplement thereto) constitute the only information furnished in
writing by or on behalf of the Purchasers for inclusion in the Preliminary
<PAGE>
25
Memorandum or the Final Memorandum (or in any amendment thereof or supplement
thereto).
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless it did not otherwise learn of
such action and then only to the extent such failure results in the forfeiture
by the indemnifying party of substantial rights and defenses and (ii) will not,
in any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
counsel of the indemnifying party's choice at the indemnifying party's expense
to represent the indemnified party in any action for which indemnification is
sought (in which case the indemnifying party shall not thereafter be responsible
for the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
-------- -------
counsel shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ one separate counsel (in addition to one local counsel in
each jurisdiction), and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel, if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of such action or
(iv) the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. An indemnifying party
will not,
<PAGE>
26
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Purchasers (severally and
not jointly) agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the
Company and the Purchasers may be subject in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and by
the Purchasers on the other from the offering of the Securities; provided,
--------
however, that in no case shall any Purchaser be responsible for any amount in
- -------
excess of the purchase discount or commission applicable to the Securities
purchased by such Purchaser hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company and
the Purchasers (severally and not jointly) shall contribute in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of the Company on the one hand and of the Purchasers on the other
in connection with the statements or omissions that resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company shall be deemed to be equal to the total net proceeds from the offering
of the Securities (before deducting expenses), and benefits received by the
Purchasers shall be deemed to be equal to purchase discounts and commissions, in
each case as set forth on the cover page of the Final Memorandum. Relative fault
shall be determined by reference to whether any alleged untrue statement or
omission relates to information provided by the Company or the Purchasers. The
Company and the Purchasers agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation that does not take account of the equitable considerations referred
to
<PAGE>
27
above. Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls a Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and each director, officer,
employee and agent of a Purchaser shall have the same rights to contribution as
such Purchaser, and each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act and each officer and director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
9. Default by a Purchaser. If any one or more Purchasers shall fail
----------------------
to purchase and pay for any of the Securities agreed to be purchased by such
Purchaser hereunder and such failure to purchase shall constitute a default in
the performance of its or their obligations under this Agreement, the remaining
Purchasers shall be obligated severally to take up and pay for (in the
respective proportions that the principal amount of Fixed Rate Notes or Floating
Rate Notes, as the case may be, set forth opposite their names in Schedule I
hereto bears to the aggregate principal amount of Fixed Rate Notes or Floating
Rate Notes, as the case may be, set forth opposite the names of all the
remaining Purchaser(s)) the Securities that the defaulting Purchaser or
Purchasers agreed but failed to purchase; provided, however, that in the event
-------- -------
that the aggregate principal amount of Securities that the defaulting Purchaser
or Purchasers agreed but failed to purchase shall exceed 10% of the aggregate
principal amount of Securities set forth in Schedule I hereto, the remaining
Purchasers shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the Securities, and if such non-defaulting
Purchasers do not purchase all the Securities, this Agreement will terminate
without liability to any non-defaulting Purchaser or the Company. In the event
of a default by any Purchaser as set forth in this Section 9, the Closing Date
shall be postponed for such period, not exceeding seven days, as the Purchasers
shall determine in order that the required changes in the Final Memorandum or in
any other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Purchaser of its liability, if any, to
the
<PAGE>
28
Company or any non-defaulting Purchaser for damages occasioned by its default
hereunder.
10. Termination. This Agreement shall be subject to termination in
-----------
the absolute discretion of the Purchasers, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in securities on the New York Stock Exchange, the American Stock Exchange, or
the NASDAQ National Market shall have been suspended or limited or minimum
prices shall have been established on any such exchange or automated quotation
system, (ii) a banking moratorium shall have been declared either by Federal or
New York State authorities or (iii) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States of a national
emergency or war or other calamity or crisis the effect of which on financial
markets is such as to make it, in the judgment of the Purchasers, impracticable
or inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Final Memorandum.
11. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Purchasers set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Purchasers, the Company or any of the
officers, directors, employees, agents or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for the Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Purchasers, will be mailed,
delivered or sent by fax and confirmed to them, care of Salomon Brothers Inc, at
Seven World Trade Center, New York, New York, 10048, attention: General Counsel;
or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at Morehead Place, 521 East Morehead Street, Suite 250,
Charlotte, North Carolina 28202, attention: Walter E. Leach, with a copy to
Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York
10022, attention: Neil Torpey, Esq.
<PAGE>
29
13. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no purchaser of the Securities from the Purchasers will be
deemed a successor because of such purchase and no other person will have any
right or obligation hereunder.
14. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
--------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE
CONFLICT OF LAW PROVISIONS THEREOF).
15. Business Day. For purposes of this Agreement, "business day"
------------
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
If the foregoing is in accordance with your under standing of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the Purchasers.
Very truly yours,
MJD COMMUNICATIONS, INC.
by
___________________________________
Name:
Title:
<PAGE>
30
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
by SALOMON BROTHERS INC
by
______________________
Name:
Title:
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of
Fixed Rate Floating Rate
Notes to be Notes to be
Purchasers Purchased Purchased
- ---------- --------- ---------
<S> <C> <C>
Salomon Brothers Inc. . . . . . . . . . . $ $
BT Alex. Brown Incorporated . . . . . . .
NationsBanc Montgomery
Securities LLC. . . . . . . . . . . . .
Donaldson, Lufkin &
Jenrette Securities
Corporation . . . . . . . . . . . . . .
--------- ---------
Total . . . . . . . . . . . . $ $
========= =========
</TABLE>
<PAGE>
30
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
by SALOMON BROTHERS INC
by
______________________
Name:
Title:
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of
Fixed Rate Floating Rate
Notes to be Notes to be
Purchasers Purchased Purchased
- ---------- --------- ---------
<S> <C> <C>
Salomon Brothers Inc........ $ $
BT Alex. Brown Incorporated
NationsBanc Montgomery
Securities LLC.............
Donaldson, Lufkin &
Jenrette Securities
Corporation................
--------- ---------
Total................ $ $
========= =========
</TABLE>
<PAGE>
EXHIBIT 4.7
EXECUTION COPY
MJD COMMUNICATIONS, INC.
$200,000,000
$125,000,000 9-1/2% Senior Subordinated Notes due 2008
$75,000,000 Floating Rate Callable Securities
due 2008
REGISTRATION AGREEMENT
New York, New York
April 30, 1998
To: SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
In care of:
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
MJD Communications, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Purchasers"), $125,000,000
aggregate principal amount of its 9-1/2% Senior Subordinated Notes due 2008
(the "Fixed Rate Notes") and $75,000,000 aggregate principal amount of its
Floating Rate Callable Securities due 2008 (the "Floating Rate Notes" and,
together with the Fixed Rate Notes, the "Securities") (the "Initial
Placement"). As an inducement to the Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to your obligations
thereunder, the Company agrees with you, (i) for your benefit and the
benefit of the other Purchasers and (ii) for the benefit of the holders
from time to time of the Securities (including you and the other
Purchasers) (each of the foregoing a "Holder" and together the "Holders"),
as follows:
1. Definitions. Capitalized terms used herein without
------------
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement,
<PAGE>
2
the following capitalized defined terms shall have the following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules
---
and regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person that,
---------
directly or indirectly, is in control of, is controlled by, or is under
common control with, such specified person. For purposes of this
definition, control of a person means the power, direct or indirect, to
direct or cause the direction of the management and policies of such person
whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
----------
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Exchange Offer Registration Period" means the one-year period
----------------------------------
following the consummation of the Registered Exchange Offer, exclusive of
any period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration
-------------------------------------
statement of the Company on an appropriate form under the Act with respect
to the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the
-----------------
Purchasers) that is a broker-dealer electing to exchange Securities
acquired for its own account as a result of market-making activities or
other trading activities for New Securities.
"Holder" has the meaning set forth in the preamble hereto.
------
"Indenture" means the Indenture relating to the Securities and
---------
the New Securities dated as of May 5, 1998, between the Company and United
States Trust Company of New
<PAGE>
3
York, as trustee, as the same may be amended from time to time in
accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble
-----------------
hereto.
"Majority Holders" means the Holders of a majority of the
----------------
aggregate principal amount of securities registered under a Registration
Statement.
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an underwritten
offering.
"New Securities" means debt securities of the Company identical
--------------
in all material respects to the Securities (except that the interest rate
step-up provisions will be eliminated and the transfer restrictions will be
modified, in each case as appropriate), to be issued under the Indenture.
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the Act),
as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Securities or the New
Securities, covered by such Registration Statement, and all amendments and
supplements to the Prospectus, including post-effective amendments.
"Registered Exchange Offer" means the proposed offer to the
-------------------------
Holders to issue and deliver to such Holders, in exchange for the
Securities, a like principal amount of the New Securities.
"Registration Securities" has the meaning set forth in Section
-----------------------
3(a) hereof.
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Securities
or the New Securities pursuant to the provisions of this Agreement, all
amendments and supplements to such registration statement, including,
without limitation, post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
<PAGE>
4
"Securities" has the meaning set forth in the preamble hereto.
----------
"Shelf Registration" means a registration effected pursuant to
------------------
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in Section
-------------------------
3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
----------------------------
statement of the Company pursuant to the provisions of Section 3 hereof
that covers some of or all the Securities or New Securities, as applicable,
on an appropriate form under Rule 415 under the Act, or any similar rule
that may be adopted by the Commission, all amendments and supplements to
such registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
"Trustee" means the trustee with respect to the Securities and
-------
the New Securities under the Indenture.
"underwriter" means any underwriter of securities in connection
-----------
with an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by
-------------------------------------------------------
Exchanging Dealers; Private Exchange. (a) The Company shall prepare and,
-------------------------------------
not later than 60 days after the date of the original issuance of the
Securities, shall file with the Commission the Exchange Offer Registration
Statement with respect to the Registered Exchange Offer. The Company shall
use its best efforts to cause the Exchange Offer Registration Statement to
become effective under the Act within 150 days after the date of the
original issuance of the Securities.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange
Offer, it being the objective of such Registered Exchange Offer to enable
each Holder electing to exchange Securities for New Securities (assuming
that such Holder is not an affiliate of the Company within the meaning of
the Act, acquires the New Securities in the ordinary course of such
Holder's business and has no arrangements with any person to participate in
the distribution of the New Securities) to trade such New Securities from
and after their receipt without any limitations or restrictions under the
Act and without
<PAGE>
5
material restrictions under the securities laws of a substantial
proportion of the several states of the United States.
(c) In connection with the Registered Exchange Offer, the
Company shall:
(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than
30 days and not more than 45 days after the date notice thereof is
mailed to the Holders (or longer if required by applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City
of New York; and
(iv) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancelation all Securities so
accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to
each Holder of Securities, New Securities equal in principal amount to
the Securities of such Holder so accepted for exchange.
(e) The Purchasers and the Company acknowledge that, pursuant
to current interpretations by the Commission's staff of Section 5 of the
Act, and in the absence of an applicable exemption therefrom, each
Exchanging Dealer is required to deliver a Prospectus in connection with a
sale of any New Securities received by such Exchanging Dealer pursuant to
the Registered Exchange Offer in exchange for Securities acquired for its
own
<PAGE>
6
account as a result of market-making activities or other trading
activities. Accordingly, the Company shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto
in the forepart of the Exchange Offer Registration Statement in a
section setting forth details of the Exchange Offer, in Annex C hereto
in the underwriting or plan of distribution section of the Prospectus
forming a part of the Exchange Offer Registration Statement, and in
Annex D hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Act during the Exchange
Offer Registration Period for delivery by Exchanging Dealers in
connection with sales of New Securities received pursuant to the
Registered Exchange Offer, as contemplated by Section 4(h) below.
(f) In the event that any Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to
the exchange of Securities constituting any portion of an unsold allotment,
at the request of such Purchaser, the Company shall issue and deliver to
such Purchaser or the party purchasing New Securities registered under a
Shelf Registration Statement as contemplated by Section 3 hereof from such
Purchaser, in exchange for such Securities, a like principal amount of New
Securities. The Company shall seek to cause the CUSIP Service Bureau to
issue the same CUSIP number for such New Securities as for New Securities
issued pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
-------------------
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to
effect the Registered Exchange Offer as contemplated by Section 2 hereof,
or (ii) for any other reason the Exchange Offer Registration Statement is
not declared effective within 150 days after the Closing Date or the
Registered Exchange Offer is not consummated within 180 days after the
Closing Date, or (iii) any Purchaser so requests with respect to Securities
(or any New Securities received pursuant to Section 2(f)) not eligible to
be exchanged for New Securities in a Registered Exchange Offer or, in the
case of any Purchaser that participates in any Registered Exchange
<PAGE>
7
Offer, such Purchaser does not receive freely tradable New Securities, or
(iv) any Holder (other than a Purchaser) is not eligible to participate in
the Registered Exchange Offer or (v) in the case of any such Holder that
participates in the Registered Exchange Offer, such Holder does not receive
freely tradable New Securities in exchange for tendered securities, other
than by reason of such Holder being an affiliate of the Company within the
meaning of the Act (it being understood that, for purposes of this Section
3, (x) the requirement that a Purchaser deliver a Prospectus containing the
information required by Items 507 and/or 508 of Regulation S-K under the
Act in connection with sales of New Securities acquired in exchange for
such Securities shall result in such New Securities being not "freely
tradeable" but (y) the requirement that an Exchanging Dealer deliver a
Prospectus in connection with sales of New Securities acquired in the
Registered Exchange Offer in exchange for Securities acquired as a result
of market-making activities or other trading activities shall not result in
such New Securities being not "freely tradeable"), the following provisions
shall apply:
(a) The Company shall as promptly as practicable (but in no
event more than 30 days after so required or requested pursuant to this
Section 3), file with the Commission and thereafter shall use its best
efforts to cause to be declared effective under the Act by the 180th day
after the issuance of the Securities a Shelf Registration Statement
relating to the offer and sale of the Securities or the New Securities, as
applicable, by the Holders from time to time in accordance with the methods
of distribution elected by such Holders and set forth in such Shelf
Registration Statement (such Securities or New Securities, as applicable,
to be sold by such Holders under such Shelf Registration Statement being
referred to herein as "Registration Securities"); provided, however, that,
-------- -------
with respect to New Securities received by a Purchaser in exchange for
Securities constituting any portion of an unsold allotment, the Company
may, if permitted by current interpretations by the Commission's staff,
file a post-effective amendment to the Exchange Offer Registration
Statement containing the information required by Regulation S-K Items 507
and/or 508, as applicable, in satisfaction of its obligations under this
paragraph (a) with respect thereto, and any such Exchange Offer
Registration Statement, as so amended, shall be referred to herein as, and
governed by the provisions herein applicable to, a Shelf Registration
Statement.
<PAGE>
8
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of two
years from the date the Shelf Registration Statement is declared effective
by the Commission or such shorter period that will terminate when all the
Securities or New Securities, as applicable, covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement (in any such case, such period being called the "Shelf
Registration Period"). The Company shall be deemed not to have used its
best efforts to keep the Shelf Registration Statement effective during the
Shelf Registration Period if it voluntarily takes any action that would
result in Holders of securities covered thereby not being able to offer and
sell such securities during that period, unless (i) such action is
required by applicable law or (ii) such action is taken by the Company in
good faith and for valid business reasons (not including avoidance of the
Company's obligation hereunder), including the acquisition or divestiture
of assets, so long as the Company promptly thereafter complies with the
requirements of Section 4(k) hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
------------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing
thereof with the Commission, a copy of any Shelf Registration
Statement and any Exchange Offer Registration Statement, each
amendment thereof and each amendment or supplement, if any, to the
Prospectus included therein and shall use its best efforts to reflect
in each such document, when so filed with the Commission, such
comments as you or any Holder reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement
and any amendment thereto and any Prospectus forming part thereof and
any amendment or supplement thereto complies in all material respects
with the Act and the rules and regulations thereunder, (ii) any
Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
Prospectus forming part of any Registration Statement, and any
amendment or supplement to such
<PAGE>
9
Prospectus, does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(c) (1) The Company shall advise you and, in the case of a
Shelf Registration Statement, the Holders of securities covered
thereby, and, if requested by you or any such Holder, confirm such
advice in writing:
(i) when a Registration Statement and any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus
included therein or for additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby,
and, in the case of an Exchange Offer Registration Statement, any
Exchanging Dealer that has provided in writing to the Company a
telephone or facsimile number and address for notices, and, if
requested by you or any such Holder or Exchanging Dealer, confirm such
advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making
of any changes in the Registration Statement or the Prospectus so
that, as of such date, the statements therein are not misleading
and do not omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the case
of the
<PAGE>
10
Prospectus, in the light of the circumstances under which they
were made) not misleading (which advice shall be accompanied by
an instruction to suspend the use of the Prospectus until the
requisite changes have been made).
(d) The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of any
Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of securities
included within the coverage of any Shelf Registration Statement,
without charge, at least one copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing,
any documents incorporated by reference therein and all exhibits
thereto (including those incorporated by reference therein).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of securities included within the coverage of
any Shelf Registration Statement, without charge, as many copies of
the Prospectus (including each preliminary Prospectus) included in
such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company
consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of securities in connection
with the offering and sale of the securities covered by the Prospectus
or any amendment or supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer that so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules and, if the Exchanging
Dealer so requests in writing, any documents incorporated by
reference therein and all exhibits thereto (including those
incorporated by reference therein).
(h) The Company shall, during the Exchange Offer Registration
Period, promptly deliver to each Exchanging Dealer, without charge, as
many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably
<PAGE>
11
request for delivery by such Exchanging Dealer in connection with a
sale of New Securities received by it pursuant to the Registered
Exchange Offer; and the Company consents to the use of the Prospectus
or any amendment or supplement thereto by any such Exchanging Dealer,
as aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering
of securities pursuant to any Registration Statement, the Company
shall register or qualify or cooperate with the Holders of securities
included therein and their respective counsel in connection with the
registration or qualification of such securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any
such Holder reasonably requests in writing and do any and all other
acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the securities covered by such Registration
Statement; provided, however, that the Company will not be required to
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qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to
general service of process or to taxation in any such jurisdiction
where it is not then so subject.
(j) The Company shall cooperate with the Holders of Securities
to facilitate the timely preparation and delivery of certificates
representing Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations
and registered in such names as Holders may request prior to sales of
securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement
to the related Prospectus or file any other required document so
that, as thereafter delivered to purchasers of the securities included
therein, the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities or New
<PAGE>
12
Securities, as the case may be, registered under such Registration
Statement, and provide the Trustee with printed certificates for such
Securities or New Securities, in a form, if requested by the
applicable Holder or Holder's Counsel, eligible for deposit with The
Depository Trust Company or any successor thereto under the Indenture.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission to the extent and
so long as they are applicable to the Registered Exchange Offer or the
Shelf Registration and will make generally available to its security
holders a consolidated earnings statement (which need not be audited)
covering a twelve-month period commencing after the effective date of
the Registration Statement and ending not later than 15 months
thereafter, as soon as practicable after the end of such period, which
consolidated earnings state ment shall satisfy the provisions of
Section 11(a) of the Securities Act.
(n) The Company shall cause the Indenture to be qualified under
the Trust Indenture Act of 1939, as amended, on or prior to the
effective date of any Shelf Registration Statement or Exchange Offer
Registration Statement.
(o) The Company may require each Holder of securities to be
sold pursuant to any Shelf Registration Statement to furnish to the
Company such information regarding the Holder and the distribution of
such securities as the Company may from time to time reasonably
require for inclusion in such Registration Statement.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree, and thereafter reasonably
request, to be included therein and shall make all required filings of
such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company
shall enter into such agreements (including underwriting agreements)
and take all other
<PAGE>
13
appropriate actions in order to expedite or facilitate the
registration or the disposition of the Securities, and in connection
therewith, if an underwriting agreement is entered into, cause the
same to contain indemnification provisions and procedures no less
favorable than those set forth in Section 6 hereof (or such other
provisions and procedures acceptable to the Majority Holders and the
Managing Underwriters, if any), with respect to all parties to be
indemnified pursuant to Section 6 hereof from Holders of Securities to
the Company.
(r) In the case of any Shelf Registration Statement, the Company
shall (i) make reasonably available for inspection by the Holders of
securities to be registered thereunder, any underwriter participating
in any disposition pursuant to such Registration Statement, and any
attorney, accountant or other agent retained by the Holders or any
such underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its
subsidiaries; (ii) cause the Company's officers, directors and
employees to supply all relevant information reasonably requested by
the Holders or any such underwriter, attorney, accountant or agent in
connection with any such Registration Statement as is customary for
similar due diligence examinations; provided, however, that any
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information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such information
shall be kept confidential by the Holders or any such underwriter,
attorney, accountant or agent, unless such disclosure is made in
connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a
third party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the Holders of
securities registered thereunder and the underwriters, if any, in
form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings; (iv) obtain opinions
of counsel to the Company (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the Managing
Underwriters, if any) addressed to each selling Holder and the
underwriters, if any, covering such matters as are customarily covered
in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such Holders and
underwriters; (v) obtain "cold comfort" letters (or, in the case of
<PAGE>
14
any person that does not satisfy the conditions for receipt of a "cold
comfort" letter specified in Statement on Auditing Standards No. 72,
an "agreed-upon procedures" letter) and updates thereof from the
independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company
for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each
selling Holder of securities registered thereunder and the
underwriters, if any, in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
primary underwritten offerings; and (vi) deliver such documents and
certificates as may be reasonably requested by the Majority Holders
and the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with any customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 4(r) shall be performed (A) on the
effective date of such Registration Statement and each post-effective
amendment thereto and (B) at each closing under any underwriting or
similar agreement as and to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement,
the Company shall (i) make reasonably available for inspection by each
Purchaser, and any attorney, accountant or other agent retained by
such Purchaser, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its
subsidiaries; (ii) cause the Company's officers, directors and
employees to supply all relevant information reasonably requested by
such Purchaser or any such attorney, accountant or agent in connection
with any such Registration Statement as is customary for similar due
diligence examinations; provided, however, that any information that
-------- -------
is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be
kept confidential by such Purchaser or any such attorney, accountant
or agent, unless such disclosure is made in connection with a court
proceeding or required by law, or such information becomes available
to the public generally or through a third party without an
accompanying obligation of confidenti-
<PAGE>
15
ality; (iii) make such representations and warranties to such
Purchaser, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings; (iv) obtain
opinions of counsel to the Company (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to such
Purchaser and its counsel), addressed to such Purchaser, covering such
matters as are customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Purchaser or its counsel; (v) obtain "cold comfort"
letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the
Registration Statement), addressed to such Purchaser, in customary
form and covering matters of the type customarily covered in "cold
comfort" letters in connection with primary underwritten offerings,
or if requested by such Purchaser or its counsel in lieu of a "cold
comfort" letter, an agreed-upon procedures letter under Statement on
Auditing Standards No. 35, covering matters requested by such
Purchaser or its counsel; and (vi) deliver such documents and
certificates as may be reasonably requested by such Purchaser or its
counsel, including those to evidence compliance with Section 4(k) and
with conditions customarily contained in underwriting agreements. The
foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of
this Section 4(s) shall be performed (A) at the close of the
Registered Exchange Offer and (B) on the effective date of any post-
effective amendment to the Exchange Offer Registration Statement.
5. Registration Expenses. The Company shall bear all expenses
----------------------
incurred in connection with the performance of its obligations under
Sections 2, 3 and 4 hereof and, in the event of any Shelf Registration
Statement, will reimburse the Holders for the reasonable fees and
disbursements of one firm or counsel (in addition to one local counsel in
each relevant jurisdiction) designated by the Majority Holders to act as
counsel for the Holders in connection therewith ("Holders' Counsel"), and,
in the case of any Exchange Offer Registration Statement, will reimburse
the Purchasers for the reasonable fees and disbursements of counsel acting
in connection therewith, in an amount not to exceed $50,000.
<PAGE>
16
6. Indemnification and Contribution. (a) In connection with any
---------------------------------
Registration Statement, the Company agrees to indemnify and hold harmless
each Holder of securities covered thereby (including each Purchaser and,
with respect to any Prospectus delivery as contemplated in Section 4(h)
hereof, each Exchanging Dealer), the directors, officers, employees and
agents of each such Holder and each other person, if any, who controls any
such Holder within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement as originally filed
or in any amendment thereof, or in any preliminary Prospectus or
Prospectus, or in any amendment thereof or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such Holder specifically
for inclusion therein; provided further, however, that with respect to any
---------------- -------
untrue statement or omission of a material fact made in any preliminary
Prospectus, the indemnity agreement contained in this Section 6 shall not
inure to the benefit of any indemnified party under this indemnity
agreement from whom the person asserting any such loss, claim, damage or
liability purchased the Securities concerned, to the extent that any such
loss, claim, damage or liability of such party occurs under the
circumstance where it shall have been determined by a court of competent
jurisdiction by final and nonappealable judgment that (i) the Company had
previously furnished copies of the Prospectus to such party, (ii) delivery
of the Prospectus was required by the Securities Act to be made to such
person, (iii) the untrue statement or omission of a material fact contained
in the preliminary Prospectus was corrected in the Prospectus and (iv)
there was not sent or
<PAGE>
17
given to such person, at or prior to the written confirmation of the sale
of such Securities to such person, a copy of the Prospectus. This indemnity
agreement will be in addition to any liability that the Company may
otherwise have.
The Company also agrees to indemnify or contribute to Losses (as
defined below) of, as provided in Section 6(d), any underwriters of
Securities registered under a Shelf Registration Statement, their officers,
directors, employees and agents and each person who controls such
underwriters on substantially the same basis as that of the indemnification
of the Purchasers and the selling Holders provided in this Section 6(a) and
shall, if requested by any Holder, enter into an underwriting agreement
reflecting such agreement, as provided in Section 4(q) hereof.
(b) Each Holder of securities covered by a Registration
Statement (including each Purchaser and, with respect to any Prospectus
delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer)
severally and not jointly agrees to indemnify and hold harmless the
Company, each of its directors and officers and each other person, if any,
who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to each such Holder, but only with reference to
written information relating to such Holder furnished to the Company by or
on behalf of such Holder specifically for inclusion in the documents
referred to in the foregoing indemnity. This indemnity agreement will be in
addition to any liability that any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify the indemnifying party in
writing of the commencement thereof; but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph
(a) or (b) above unless and to the extent it did not otherwise learn of
such action and such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a)
or (b) above. The indemnifying party shall be entitled to appoint counsel
of the indemnifying party's choice at the indemnifying party's
<PAGE>
18
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indem nified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to
-------- -------
the indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ one separate counsel (in
addition to one local counsel in each jurisdiction), and the indemnifying
party shall bear the reasonable fees, costs and expenses of such separate
counsel (and local counsel) if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential
defendants in, or targets of, any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after
notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not, without
the prior written consent of the indemnified parties, settle or compromise
or consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party,
in lieu of indemnifying such indemnified party, shall have a joint and
several obligation to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses")
to which such indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received by
<PAGE>
19
such indemnifying party, on the one hand, and such indemnified party, on
the other hand, from the Initial Placement and the Registration Statement
that resulted in such Losses; provided, however, that in no case shall any
-------- -------
Purchaser or any subsequent Holder of any Security or New Security be
responsible, in the aggregate, for any amount in excess of the purchase
discount or commission applicable to such Security, or in the case of a New
Security, applicable to the Security that was exchangeable into such New
Security, as set forth on the cover page of the Final Memorandum, nor shall
any underwriter be responsible for any amount in excess of the underwriting
discount or commission applicable to the securities purchased by such
underwriter under the Registration Statement that resulted in such Losses.
If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the indemnifying party and the indemnified
party shall contribute in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the
other hand, in connection with the statements or omissions that resulted in
such Losses as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total
net proceeds from the Initial Placement (before deducting expenses) as set
forth on the cover page of the Final Memorandum. Benefits received by the
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and
benefits received by any other Holders shall be deemed to be equal to the
value of receiving Securities or New Securities, as applicable, registered
under the Act. Benefits received by any underwriter shall be deemed to be
equal to the total underwriting discounts and commissions, as set forth on
the cover page of the Prospectus forming a part of the Registration
Statement that resulted in such Losses. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates
to information provided by the indemnifying party, on the one hand, or by
the indemnified party, on the other hand. The parties agree that it would
not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that does not take account of
the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6, each person
who controls a Holder within the meaning of either the Act or the Exchange
Act and each
<PAGE>
20
director, officer, employee and agent of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of
this paragraph (d).
(e) The provisions of this Section 6 will remain in full force
and effect, regardless of any investigation made by or on behalf of any
Holder, the Company or any underwriter or any of the officers, directors or
controlling persons referred to in this Section 6, and will survive the
sale by a Holder of securities covered by a Registration Statement.
7. Miscellaneous.
--------------
(a) No Inconsistent Agreements. The Company has not, as of the
---------------------------
date hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders herein or otherwise conflicts with
the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
-----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of the Holders of at least a majority of the then
outstanding aggregate principal amount of Securities (or, after the
consummation of any Exchange Offer in accordance with Section 2 hereof, of
New Securities); provided that, with respect to any matter that directly or
--------
indirectly materially and adversely affects the rights of any Purchaser
hereunder, the Company shall obtain the written consent of each such
Purchaser against which such amendment, qualification, supplement, waiver
or consent is to be effective. Notwithstanding the foregoing (except the
foregoing proviso), a waiver or consent to departure from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of
other Holders may be given by the Majority Holders, determined on the basis
of securities being sold rather than registered under such Registration
Statement.
<PAGE>
21
(c) Notices. All notices and other communications provided for
--------
or permitted hereunder shall be made in writing by hand-delivery, first-
class mail, telex, /telecopier, or air courier guaranteeing overnight
delivery:
(1) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of
this Section 7(c), which address initially is, with respect to
each Holder, the address of such Holder maintained by the
registrar under the Indenture, with a copy in like manner to
Salomon Brothers Inc by fax (212-783-2823) and confirmed by mail
to it at Seven World Trade Center, New York, New York 10048,
attention: General Counsel;
(2) if to you, initially at the address set forth in the
Purchase Agreement; and
(3) if to the Company, initially at its address set forth
in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given when received.
The Purchasers or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any
consent by the Company or subsequent Holders of Securities and/or New
Securities. The Company hereby agrees to extend the benefits of this
Agreement to any Holder of Securities and/or New Securities and any such
Holder may specifically enforce the provisions of this Agreement as if an
original party hereto.
(e) Counterparts. This Agreement may be executed in any number
-------------
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience
---------
of reference only and shall not limit or otherwise affect the meaning
hereof.
<PAGE>
22
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF).
(h) Severability. In the event that any one of more of the
-------------
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions hereof shall not be
in any way impaired or affected thereby, it being intended that all the
rights and privileges of the parties shall be enforceable to the fullest
extent permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent
------------------------------------
or approval of Holders of a specified percentage of principal amount of
Securities or New Securities is required hereunder, Securities or New
Securities, as applicable, held by the Company or its Affiliates (other
than subsequent Holders of Securities or New Securities if such subsequent
Holders are deemed to be Affiliates solely by reason of their holdings of
such Securities or New Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(j) If the sale of the Securities is not consummated and the
Indenture is not executed on the Closing Date (as defined in the Purchase
Agreement), this Agreement shall be terminated without any further action
by any party and shall no longer be in force and effect, and no party shall
have any further liability or obligation under this Agreement.
<PAGE>
23
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you.
Very truly yours,
MJD COMMUNICATIONS, INC.
By:
___________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written
SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: SALOMON BROTHERS INC
By:
________________________
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Securities.
The Letter of Transmittal states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Act. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Securities received in exchange for
Securities where such New Securities were acquired by such broker-dealer as
a result of market-making activities or other trading activities. The
Company has agreed that, starting on the date hereof (the "Expiration
Date") and ending on the close of business on the first anniversary of the
Expiration Date, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in
exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. See "Plan of
Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Securities.
The Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of New Securities
received in exchange for Securities where such Securities were acquired as
a result of market-making activities or other trading activities. The
Company has agreed that, starting on the Expiration Date and ending on the
close of business on the first anniversary following the Expiration Date,
it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition,
until , 199 , all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus./*/
The Company will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any such broker-dealer
and/or the purchasers of any such New Securities. Any broker-dealer that
resells New Securities that were received by it for its own account
pursuant to the Registered Exchange Offer and any broker or dealer that
participates in a distribution of such New Securities may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit of
any such resale of New Securities and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will.
________________
/*/ In addition, the legend required by Item 502(e) of Regulation S-K
will appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
2
not be deemed to admit that it is an "underwriter" within the meaning of
the Act
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one
counsel for the holders of the Securities) other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Act.
[If applicable, add information required by Regulation S-K Items 507
and/or 508.]
<PAGE>
ANNEX D
Rider A
-------
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name: _______________________________________________________________
Address: ____________________________________________________________
____________________________________________________________
Rider B
-------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
New Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities that were
acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection
with any resale of such New Securities; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Act.
<PAGE>
EXHIBIT 5.1
-----------
MJD COMMUNICATIONS, INC.
MOREHEAD PLACE
521 EAST MOREHEAD STREET
SUITE 250
CHARLOTTE, NORTH CAROLINA 28202
MJD COMMUNICATIONS, INC.
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to MJD
Communications, Inc., a Delaware corporation (the "Issuer"), in connection with
the Issuer's registration statement on Form S-4 (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended, relating to the offering by the Issuer of
$125,000,000 aggregate principal amount of its 9 1/2% Senior Subordinated Notes
due 2008 and $75,000,000 aggregate principal amount of its Floating Rate
Callable Securities due 2008 (collectively, the "Notes").
In connection with this opinion, we have examined copies or originals of
such documents, resolutions, certificates and instruments of the Issuer as we
have deemed necessary to form a basis for the opinion hereinafter expressed. In
addition, we have reviewed certificates of public officials, statutes, records
and other instruments and documents as we have deemed necessary to form a basis
for the opinion hereinafter expressed. In our examination of the foregoing, we
have assumed, without independent investigation, (i) the genuineness of all
signatures, and the authority of all persons or entities signing all documents
examined by us and (ii) the authenticity of all documents submitted to us as
originals and the conformity to authentic original documents of all copies
submitted to us as certified, conformed or photostatic copies.
<PAGE>
MJD Communications, Inc.
June 2, 1998
Page 2
With regard to certain factual matters, we have relied, without
independent investigation or verification, upon statements and representations
of representatives of the Issuer.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, when the notes have been duly authenticated by The United
States Trust Company of New York in its capacity as Trustee, and duly executed
and delivered on behalf of the Issuer against payment therefor as contemplated
by the registration statement, the Notes will be legally issued and will
constitute binding obligations of the Issuer, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance and transfer, moratorium or
other laws now or hereafter in effect relating to or affecting the rights or
remedies of creditors generally and by general principles of equity (whether
applied in a proceeding at law or in equity) including, without limitation,
standards of materiality, good faith and reasonableness in the interpretation
and enforcement of contracts, and the application of such principles to limit
the availability of equitable remedies such as specific performance.
We hereby consent to being named as counsel to the Issuer in the
Registration Statement,to the references therein to our firm under the caption
"Legal Matters" and to the inclusion of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker, LLP
<PAGE>
EXHIBIT 10.1
[CONFORMED COPY WITH EXHIBITS
F AND G CONFORMED AS EXECUTED]
================================================================================
CREDIT AGREEMENT
among
MJD COMMUNICATIONS, INC.,
VARIOUS LENDING INSTITUTIONS,
NATIONSBANK OF TEXAS, N.A.,
as SYNDICATION AGENT
and
BANKERS TRUST COMPANY,
as ADMINISTRATIVE AGENT
____________________________________
Dated as of March 30, 1998
____________________________________
$315,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amount and Terms of Credit............................. 1
1.01 Commitment............................................. 1
1.02 Minimum Borrowing Amounts, etc......................... 3
1.03 Notice of Borrowing.................................... 3
1.04 Disbursement of Funds.................................. 3
1.05 Notes.................................................. 4
1.06 Conversions............................................ 6
1.07 Pro Rata Borrowings.................................... 7
1.08 Interest............................................... 7
1.09 Interest Periods....................................... 8
1.10 Increased Costs, Illegality, etc....................... 9
1.11 Compensation........................................... 11
1.12 Change of Lending Office............................... 12
1.13 Replacement of Lenders................................. 12
SECTION 2. Fees................................................... 13
2.01 Fees................................................... 13
2.02 Voluntary Reduction of Commitments..................... 14
2.03 Mandatory Adjustments of Commitments, etc.............. 14
SECTION 3. Payments............................................... 16
3.01 Voluntary Prepayments.................................. 16
3.02 Mandatory Prepayments.................................. 17
3.03 Method and Place of Payment............................ 22
3.04 Net Payments........................................... 22
SECTION 4. Conditions Precedent................................... 24
4.01 Conditions Precedent to Closing Date................... 24
4.02 Conditions Precedent to Term Loans and RF Loans........ 28
4.03 Conditions Precedent to All Loans...................... 30
SECTION 5. Representations, Warranties and Agreements............. 31
5.01 Corporate Status....................................... 31
5.02 Corporate Power and Authority.......................... 31
5.03 No Violation........................................... 31
5.04 Litigation............................................. 31
5.05 Use of Proceeds; Margin Regulations.................... 32
5.06 Governmental Approvals................................. 32
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.07 Investment Company Act................................. 33
5.08 Public Utility Holding Company Act..................... 33
5.09 True and Complete Disclosure........................... 33
5.10 Financial Condition; Financial Statements.............. 33
5.11 Security Interests..................................... 34
5.12 Acquisitions........................................... 35
5.13 Tax Returns and Payments............................... 35
5.14 Compliance with ERISA.................................. 35
5.15 Subsidiaries........................................... 36
5.16 Intellectual Property.................................. 37
5.17 Environmental Matters.................................. 37
5.18 Labor Relations........................................ 37
5.19 Compliance with Statutes, etc.......................... 37
SECTION 6. Affirmative Covenants.................................. 38
6.01 Information Covenants.................................. 38
6.02 Books, Records and Inspections......................... 39
6.03 Insurance.............................................. 40
6.04 Payment of Taxes....................................... 40
6.05 Corporate Franchises................................... 40
6.06 Compliance with Statutes, etc.......................... 40
6.07 ERISA.................................................. 40
6.08 Good Repair............................................ 42
6.09 End of Fiscal Years; Fiscal Quarters................... 42
6.10 Interest Rate Agreement................................ 42
6.11 Approvals.............................................. 42
6.12 CoBank Capital......................................... 42
SECTION 7. Negative Covenants..................................... 43
7.01 Changes in Business.................................... 43
7.02 Consolidation, Merger, Sale or Purchase of Assets, etc. 43
7.03 Liens.................................................. 45
7.04 Indebtedness........................................... 47
7.05 Capital Expenditures................................... 49
7.06 Advances, Investments and Loans........................ 49
7.07 Limitation on Creation of Subsidiaries................. 50
7.08 Modifications.......................................... 51
7.09 Dividends, etc......................................... 51
7.10 Transactions with Affiliates........................... 53
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.11 Interest Coverage Ratio................................ 53
7.12 Leverage Ratio......................................... 54
7.13 Senior Leverage Ratio.................................. 55
7.14 Limitation On Issuance of Stock........................ 56
7.15 Designated Senior Debt................................. 56
SECTION 8. Events of Default...................................... 56
8.01 Payments............................................... 56
8.02 Representations, etc................................... 56
8.03 Covenants.............................................. 56
8.04 Default Under Other Agreements......................... 57
8.05 Bankruptcy, etc........................................ 57
8.06 ERISA.................................................. 57
8.07 Pledge Agreement....................................... 58
8.08 Subsidiary Guaranty.................................... 58
8.09 Judgments.............................................. 58
SECTION 9. Definitions............................................ 59
SECTION 10. The Agents............................................ 87
10.01 Appointment........................................... 87
10.02 Nature of Duties...................................... 88
10.03 Lack of Reliance on the Agents........................ 88
10.04 Certain Rights of the Administrative Agent............ 88
10.05 Reliance.............................................. 89
10.06 Indemnification....................................... 89
10.07 Each Agent in its Individual Capacity................. 89
10.08 Holders............................................... 89
10.09 Resignation by the Administrative Agent............... 90
SECTION 11. Miscellaneous......................................... 90
11.01 Payment of Expenses, etc.............................. 90
11.02 Right of Setoff....................................... 91
11.03 Notices............................................... 92
11.04 Benefit of Agreement.................................. 92
11.05 No Waiver; Remedies Cumulative........................ 94
11.06 Payments Pro Rata..................................... 95
11.07 Calculations; Computations............................ 95
11.08 Governing Law; Submission to Jurisdiction; Venue;
Waiver of Jury Trial........................... 96
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.09 Counterparts.......................................... 96
11.10 Effectiveness......................................... 96
11.11 Headings Descriptive.................................. 97
11.12 Amendment or Waiver................................... 97
11.13 Survival.............................................. 98
11.14 Domicile of Loans..................................... 98
11.15 Confidentiality....................................... 98
11.16 Lender Register....................................... 98
</TABLE>
ANNEX I -- Commitments
ANNEX II -- Addresses
ANNEX III -- Subsidiaries
ANNEX IV -- ERISA
ANNEX V -- Existing Liens
ANNEX VI -- Existing Indebtedness
ANNEX VII -- Existing Investments
ANNEX VIII -- Governmental Approvals
ANNEX IX -- Affiliate Transactions
EXHIBIT A -- Form of Notice of Borrowing
EXHIBIT B-1 -- Form of B Term Note
EXHIBIT B-2 -- Form of C Term Note-Floating Rate
EXHIBIT B-3 -- Form of C Term Note-Fixed Rate
EXHIBIT B-4 -- Form of RF Note
EXHIBIT B-5 -- Form of AF Note
EXHIBIT C -- Form of Section 3.04 Certificate
EXHIBIT D-1 -- Form of Opinion of Paul, Hastings, Janofsky & Walker LLP
EXHIBIT D-2 -- Form of Opinion of White & Case LLP
EXHIBIT E -- Form of Officers' Certificate
EXHIBIT F -- Form of Subsidiary Guaranty
EXHIBIT G -- Form of Pledge Agreement
EXHIBIT H -- Form of Solvency Certificate
EXHIBIT I -- Form of Capital Contribution Agreement
EXHIBIT J -- Form of Consent Letter
EXHIBIT K -- Form of Assignment Agreement
(iv)
<PAGE>
CREDIT AGREEMENT, dated as of March 30, 1998, among MJD
COMMUNICATIONS, INC., a Delaware corporation, the lenders from time to time
party hereto (each, a "Lender" and, collectively, the "Lenders"), NATIONSBANK OF
TEXAS, N.A., as Syndication Agent (the "Syndication Agent"), and BANKERS TRUST
COMPANY, as Administrative Agent (the "Administrative Agent" and together with
the Syndication Agent, collectively, the "Agents"). Unless otherwise defined
herein, all capitalized terms used herein and defined in Section 9 are used
herein as so defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, subject to and upon the terms and conditions herein set
forth, the Lenders are willing to make available to the Borrower the credit
facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01 Commitment. Subject to and upon the terms and conditions
----------
herein set forth, each Lender severally agrees to make a loan or loans (each, a
"Loan" and, collectively, the "Loans") to the Borrower, which Loans shall be
drawn, to the extent such Lender has a commitment under such Facility, under the
B Term Facility, the C Term Facility, the Revolving Facility and the Acquisition
Facility, as set forth below:
(a) Loans under the B Term Facility (each, a "B Term Loan" and,
collectively, the "B Term Loans") (i) shall be made to the Borrower pursuant to
one or more drawings on and after the Closing Date and prior to the B
Termination Date, provided that B Term Loans incurred pursuant to B Term
Commitments created pursuant to a B Term Commitment Renewal shall not be subject
to the foregoing but shall be made within the time frame specified in the
definition of B Term Commitment Renewal, (ii) except as hereinafter provided,
may, at the option of the Borrower, be incurred and maintained as, and/or
converted into, Base Rate Loans or Eurodollar Loans, provided that all B Term
Loans made as part of the same Borrowing shall, unless specifically provided
herein, consist of Loans of the same Type and (iii) shall not exceed in
aggregate principal amount for any Lender in respect of any incurrence of B Term
Loans the B Term Commitment, if any, of such Lender as in effect immediately
prior to such incurrence. Once repaid, B Term Loans may not be reborrowed,
provided that B Term Loans may be subsequently incurred to the extent of the B
Term Commitments created pursuant to the B Term Commitment Renewal.
<PAGE>
(b) Loans under the C Term Facility shall be made pursuant to the
Total C Term Commitment (each, a "C Term Loan-Floating Rate" and, collectively,
the "C Term Loans-Floating Rate") and pursuant to the CoBank Commitment (each, a
"C Term Loan-Fixed Rate" and, collectively, the "C Term Loans-Fixed Rate"), with
(A) the C Term Loans-Floating Rate (i) to be made to the Borrower pursuant to a
single drawing on the Closing Date (and not thereafter), (ii) except as
hereinafter provided, and, in any event, at the option of the Borrower, to be
incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar
Loans, provided that all C Term Loans-Floating Rate made as part of the same
Borrowing shall, unless specifically provided herein, consist of Loans of the
same Type and (iii) not to exceed in aggregate principal amount for any Lender
at the time of incurrence of C Term Loans-Floating Rate the C Term Commitment,
if any, of such Lender as in effect on such date immediately prior to such
incurrence and (B) the C Term Loans-Fixed Rate to be made to the Borrower by
CoBank on the Closing Date (and not thereafter) by converting the CoBank
Continuing Loans into C Term Loans-Fixed Rate in the aggregate amount of the
CoBank Commitment. Once repaid, C Term Loans-Floating Rate and C-Term Loans-
Fixed Rate may not be reborrowed.
(c) Loans under the Revolving Facility (each, an "RF Loan" and,
collectively, the "RF Loans") (i) shall be made to the Borrower at any time and
from time to time on and after the Closing Date and prior to the AF/RF Maturity
Date, (ii) except as hereinafter provided, may, at the option of the Borrower,
be incurred and maintained as, and/or converted into, Base Rate Loans or
Eurodollar Loans, provided that all RF Loans made as part of the same Borrowing
shall, unless otherwise specifically provided herein, consist of Loans of the
same Type, (iii) may be repaid and reborrowed in accordance with the provisions
hereof, and (iv) shall not exceed (giving effect to any incurrence thereof and
the use of the proceeds of such incurrence) for any Lender in aggregate
principal amount at any time outstanding the Revolving Commitment, if any, of
such Lender at such time.
(d) Loans under the Acquisition Facility (each, an "AF Loan" and,
collectively, the "AF Loans") (i) shall be made to the Borrower at any time and
from time to time on and after the B Utilization Date and prior to the AF/RF
Maturity Date, (ii) except as hereinafter provided, may, at the option of the
Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans
or Eurodollar Loans, provided that all AF Loans made as part of the same
Borrowing shall, unless otherwise specifically provided herein, consist of Loans
of the same Type, (iii) may be repaid and reborrowed in accordance with the
provisions hereof, and (iv) shall not exceed (giving effect to any incurrence
thereof and the use of the proceeds of such incurrence) for any Lender at any
time outstanding in aggregate principal amount the Acquisition Commitment, if
any, of such Lender at such time.
-2-
<PAGE>
1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount
-------------------------------
of each Borrowing shall not be less than the Minimum Borrowing Amount. More than
one Borrowing may be incurred on any day, provided that at no time shall there
be outstanding more than eight Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to
-------------------
incur Loans under any Facility, it shall give the Administrative Agent at its
Notice Office, (x) prior to 12:00 Noon (New York time), at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each proposed incurrence of Eurodollar Loans and (y) prior to 11:00 A.M. (New
York time) on the proposed date thereof, written notice (or telephonic notice
promptly confirmed in writing) of each proposed incurrence of Base Rate Loans
and Fixed Rate Loans. Each such notice (each, a "Notice of Borrowing") shall be
in the form of Exhibit A and shall be irrevocable and shall specify (i) the
Facility pursuant to which such incurrence is being made, (ii) the aggregate
principal amount of the Loans to be made pursuant to such incurrence, (iii) the
date of incurrence (which shall be a Business Day) and (iv) whether the
respective Borrowing shall consist of Base Rate Loans, Eurodollar Loans or Fixed
Rate Loans and, if Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall promptly give each Lender
written notice (or telephonic notice promptly confirmed in writing) of each
proposed incurrence of Loans of such Lender's proportionate share thereof and
of the other matters covered by the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent, prior to receipt of written confirmation may act without
liability upon the basis of and consistent with such telephonic notice, believed
by the Administrative Agent in good faith to be from an Authorized Officer of
the Borrower. In each such case, the Borrower hereby waives the right to dispute
the Administrative Agent's record of the terms of such telephonic notice, unless
such record reflects gross negligence or willful misconduct on the part of the
Administrative Agent.
1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (New York
---------------------
time) (2:00 P.M. (New York time) in the case of Base Rate Loans made pursuant to
same day notice) on the date specified in each Notice of Borrowing, each Lender
with a Commitment under the respective Facility will make available its pro rata
--- ----
share of each Borrowing requested to be made on such date, provided that no
proceeds of the C Term Loans-Fixed Rate will be made available to the Borrower,
with the C Term Loans-Fixed Rate to constitute the conversion of the outstanding
CoBank Continuing Loans. All such amounts shall be made available to the
Administrative Agent in Dollars and immediately available funds at the Payment
Office and the Administrative Agent promptly will make available to the Borrower
by depositing to its account at the Payment Office or as otherwise directed in
the applicable
-3-
<PAGE>
Notice of Borrowing the aggregate of the amounts so made available in the type
of funds received. Unless the Administrative Agent shall have been notified by
any Lender prior to the date of the proposed incurrence that such Lender does
not intend to make available to the Administrative Agent its portion of the
Borrowing or Borrowings to be made on such date, the Administrative Agent may
assume that such Lender has made such amount avail able to the Administrative
Agent on such date, and the Administrative Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Administrative Agent by such Lender
and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from
such Lender. If such Lender does not pay such corresponding amount forthwith
upon the Administrative Agent's demand therefor, the Administrative Agent may
notify the Borrower, and, upon receipt of such notice, the Borrower shall
promptly pay such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover on demand from such
Lender or the Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to the Borrower to the date such
corresponding amount is recovered by the Administrative Agent, at a rate per
annum equal to (x) if paid by such Lender, the overnight Federal Funds Effective
Rate or (y) if paid by the Borrower, the then applicable rate of interest,
calculated in accordance with Section 1.08, for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
the Borrower may have against any Lender as a result of any default by such
Lender hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal of,
-----
and interest on, the Loans made to it by each Lender shall be evidenced (i) if B
Term Loans, by a promissory note substantially in the form of Exhibit B-1 with
blanks appropriately completed in conformity herewith (each, a "B Term Note"
and, collectively, the "B Term Notes"), (ii) if C Term Loans-Floating Rate, by a
promissory note substantially in the form of Exhibit B-2 with blanks
appropriately completed in conformity herewith (each, a "C Term Note-Floating
Rate" and, collectively, the "C Term Notes-Floating Rate"), (iii) if C Term
Loans-Fixed Rate, by promissory notes substantially in the form of Exhibit B-3
(the "C Term Notes-Fixed Rate"), (iv) if RF Loans, by a promissory note
substantially in the form of Exhibit B-4 with blanks appropriately completed in
conformity herewith (each, an "RF Note" and, collectively, the "RF Notes") and
(v) if AF Loans, by a promissory note substantially in the form of Exhibit B-5,
with blanks appropriately completed in conformity herewith (each, an "AF Note"
and, collectively, the "AF Notes").
-4-
<PAGE>
(b) The B Term Note issued to each Lender that makes any B Term Loan
shall (i) be executed by the Borrower, (ii) be payable to the order of such
Lender and be dated the Closing Date, (iii) be in a stated principal amount
equal to the B Term Commitment of such Lender on the Closing Date (or in the
case of a new B Term Note issued pursuant to Section 1.13 or 11.04, the B Term
Loans and B Term Commitment then being assigned) and be payable in the principal
amount of B Term Loans evidenced thereby, (iv) mature on the B Maturity Date,
(v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and Eurodollar Loans, as the case may be,
evidenced thereby, (vi) be subject to mandatory repayment as provided in Section
3.02 and (vii) be entitled to the benefits of this Agreement and the other
Credit Documents.
(c) The C Term Note-Floating Rate issued to each Lender that makes
any C Term Loan-Floating Rate shall (i) be executed by the Borrower, (ii) be
payable to the order of such Lender and be dated the Closing Date, (iii) be in a
stated principal amount equal to the C Term Loans-Floating Rate made by such
Lender on the Closing Date (or in the case of a new C Term Note-Floating Rate
issued pursuant to Section 1.13 or 11.04, the respective C Term Loans-Floating
Rate evidenced thereby at the time of issuance) and be payable in the principal
amount of C Term Loans-Floating Rate evidenced thereby, (iv) mature on the C
Maturity Date, (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in
Section 3.02 and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.
(d) The C Term Note-Fixed Rate issued to each Lender that makes or
acquires any C Term Loan-Fixed Rate shall (i) be executed by the Borrower,
(ii) be payable to the order of such Lender and be dated the Closing
Date, (iii) be in a stated principal amount equal to the relevant C Term Loans-
Fixed Rate continued by CoBank on the Closing Date (or in the case of a new C
Term Note-Fixed Rate issued pursuant to Section 1.13 or 11.04, the respective C
Term Loans Fixed Rate evidenced thereby at the time of issuance) and be payable
in the principal amount of C Term Loans-Fixed Rate evidenced thereby, (iv)
mature on the C Maturity Date, (v) bear interest as provided in Section 1.08(c)
in respect of the Fixed Rate Loans evidenced thereby, (vi) be subject to
mandatory repayment as provided in Section 3.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(e) The RF Note issued to each RF Lender shall (i) be executed by the
Borrower, (ii) be payable to the order of such RF Lender and be dated the
Closing Date, (iii) be in a stated principal amount equal to the Revolving
Commitment of such RF Lender and be payable in the principal amount of the RF
Loans evidenced thereby, (iv) mature on the AF/RF Maturity Date, (v) bear
interest as provided in the appropriate clause of Section 1.08 in respect of the
Base Rate Loans and Eurodollar Loans, as the case may be, evidenced
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thereby, (vi) be subject to mandatory repayment as provided in Section 3.02 and
(vii) be entitled to the benefits of this Agreement and the other Credit
Documents.
(f) The AF Note issued to each AF Lender shall (i) be executed by the
Borrower, (ii) be payable to the order of such AF Lender and be dated the
Initial AF Borrowing Date, (iii) be payable in the principal amount of the AF
Loans evidenced thereby, (iv) mature on the AF/RF Maturity Date, (v) bear
interest as provided in the appropriate clause of Section 1.08 in respect of the
Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby,
(vi) be subject to mandatory repayment as provided in Section 3.02 and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(g) Each Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of any of its Notes, endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation shall not affect the Borrower's obligations in respect of such
Loans.
1.06 Conversions. The Borrower shall have the option to convert on
-----------
any Business Day all or a portion at least equal to the applicable Minimum
Borrowing Amount of the outstanding principal amount of the Loans owing pursuant
to a single Facility into a Borrowing or Borrowings pursuant to such Facility of
another Type of Loan provided that (i) no partial conversion of a Borrowing of
Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar
Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount
applicable thereto, (ii) Base Rate Loans and C Term Loans-Fixed Rate may not be
converted into Eurodollar Loans when a Default under Section 8.01 or an Event of
Default is in existence on the date of the proposed conversion if the
Administrative Agent or the Required Lenders shall have determined in its or
their sole discretion not to permit such conversion, (iii) Borrowings of
Eurodollar Loans resulting from this Section 1.06 shall be limited in number as
provided in Section 1.02 and (iv) no conversion of any C Term Loan-Fixed Rate
shall be made pursuant to this Section 1.06 until the FRE Date applicable
thereto, at which time such Loans shall be converted into Eurodollar Loans
and/or Base Rate Loans as elected by the Borrower in the absence of giving any
such notice, shall be automatically converted into Base Rate Loans) and such
resulting Eurodollar Loans and Base Rate Loans shall thereafter be subject to
conversion as provided in this Section 1.06. Each such con version shall be
effected by the Borrower giving the Administrative Agent at its Notice Office,
prior to 12:00 Noon (New York time), at least three Business Days' (or one
Business Day's, in the case of a conversion into Base Rate Loans) prior written
notice (or telephonic notice promptly confirmed in writing) (each, a "Notice of
Conversion") specifying the Loans to be so converted (including the relevant
Facility), the Type of Loans to be converted into and, if to be converted into a
Borrowing of Eurodollar Loans, the Interest Period to be initially applicable
there to. The Administrative
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<PAGE>
Agent shall give each Lender prompt notice of any such proposed conversion
affecting any of its Loans.
1.07 Pro Rata Borrowings. All Loans under this Agreement (other
-------------------
than C Term Loans-Fixed Rate) shall be made by the Lenders pro rata on the basis
--- ----
of their B Term Commitments, C Term Commitments, Revolving Commitments or
Acquisition Commitments, as the case may be, if any. It is understood that no
Lender shall be responsible for any default by any other Lender in its
obligation to make Loans hereunder and that each Lender shall be obligated to
make the Loans provided to be made by it hereunder, regardless of the failure of
any other Lender to fulfill its commitments hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base Rate
--------
Loan shall bear interest from the date of the Borrowing thereof until the
earlier of repayment or conversion thereof and maturity (whether by acceleration
or otherwise) at a rate per annum which shall at all times be the Applicable
Base Rate Margin plus the Base Rate in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear
interest from the date of the Borrowing thereof until the earlier of repayment
or conversion thereof and maturity (whether by acceleration or otherwise) at a
rate per annum which shall at all times be the Applicable Eurodollar Margin plus
the relevant Eurodollar Rate.
(c) The unpaid principal amount of each C Term Loan-Fixed Rate shall
bear interest until maturity (whether by acceleration or otherwise) as provided
in the C Term Notes-Fixed Rate.
(d) Interest in respect of any overdue amount payable hereunder shall
accrue at a rate per annum equal to the Base Rate in effect from time to time
plus the sum of (i) 2% and (ii) the Applicable Base Rate Margin, provided that
principal in respect of Eurodollar Loans and C Term Loans-Fixed Rate (prior to
the applicable FRE Date) shall bear interest from the date the same becomes due
(whether by acceleration or otherwise) until (x) in the case of Eurodollar
Loans, the end of the Interest Period then applicable to such Eurodollar Loan
and (y) in the case of C Term Loans-Fixed Rate until paid in full, at a rate per
annum no less than one which is equal to 2% in excess of the rate of interest
applicable thereto on such date.
(e) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each March, June, September and December commencing on June 30,
1998, (ii) in respect of each Eurodollar Loan, on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess
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of three months, on each date occurring at three month intervals after the first
day of such Interest Period, (iii) in respect of each such Loan, on any
prepayment or conversion (on the amount prepaid or converted), at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand and
(iv) in respect of the C Term Loans-Fixed Rate, as provided in the relevant C
Term Note-Fixed Rate.
(f) All computations of interest hereunder shall be made in
accordance with Section 11.07(b).
(g) The Administrative Agent, upon determining the interest rate for
any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify
the Borrower and the Lenders thereof.
1.09 Interest Periods. (a) At the time the Borrower gives a Notice
----------------
of Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of the Borrower, be a one, two, three, six or, to
the extent available to all Lenders with a Commitment and/or outstanding Loans
under the respective Facility, nine or twelve month period. Notwithstanding
anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing (including
the date of any conversion from a Borrowing of Base Rate Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall
commence on the day on which the next preceding Interest Period expires;
(ii) if any Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
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<PAGE>
(iv) no Interest Period with respect to a Borrowing of RF
Loans or AF Loans shall extend beyond the AF/RF Maturity Date;
(v) no Interest Period with respect to any B Term Loans, C
Term Loans-Floating Rate or C Term Loans-Fixed Rate outstanding as
Eurodollar Loans may be elected that would extend beyond any date upon
which a Scheduled Repayment is required to be made in respect of such
Loans if, after giving effect to the selection of such Interest Period,
the aggregate principal amount of B Term Loans or C Term Loans-Floating
Rate or C Term Loans-Fixed Rate outstanding as Eurodollar Loans,
respectively, maintained as Eurodollar Loans with Interest Periods
ending after such date would exceed the aggregate principal amount of B
Term Loans, C Term Loans-Floating Rate or C Term Loans-Fixed Rate
outstanding as Eurodollar Loans, as the case may be, permitted to be
outstanding after such Scheduled Repayment; and
(vi) no Interest Period may be elected at any time when a
Default under Section 8.01 or an Event of Default is then in existence
if the Administrative Agent or the Required Lenders shall have
determined in its or their sole discretion not to permit such election.
(b) If upon the expiration of any Interest Period, the Borrower has
failed to (or may not) elect a new Interest Period to be applicable to the
respective Borrowing of Eurodollar Loans as provided above, the Borrower shall
be deemed to have elected to convert such Borrowing into a Borrowing of Base
Rate Loans effective as of such expiration.
1.10 Increased Costs, Illegality, etc. (a) In the event that (x)
---------------------------------
in the case of clause (i) below, the Administrative Agent or (y) in the case of
clauses (ii) and (iii) below, any Lender shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period that, by reason of any changes arising after the date of
this Agreement affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate on
the basis provided for in the definition of Eurodollar Rate or the
making or continuance of any Eurodollar Loan has become impracticable as
a result of a contingency occurring after the Effective Date which
materially and adversely affects the interbank Eurodollar market;
(ii) at any time, that such Lender shall incur increased
costs or reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Loans (other than taxes covered by Section
3.04 and any increased cost or reduction in the amount received or
receivable resulting from the imposition of or a change in the rate
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<PAGE>
of taxes or similar charges) because of (x) any change since the
Effective Date in any applicable law, governmental rule, regulation,
guideline or order (or in the interpretation or administration thereof
and including the introduction of any new law or governmental rule,
regulation, guideline or order) (such as, for example, but not limited
to, a change in official reserve requirements, but, in all events,
excluding reserves required under Regulation D to the extent included in
the computation of the Eurodollar Rate) and/or (y) other circumstances
affecting the interbank Eurodollar market or the position of such Lender
in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has become unlawful by compliance by such Lender in good
faith with any law, governmental rule, regulation, guideline or order
(or would conflict with any such governmental rule, regulation,
guideline or order not having the force of law but with which such
Lender customarily complies even though the failure to comply therewith
would not be unlawful);
then, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) above) shall (x) on such date and (y) within ten Business
Days of the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Lenders). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice by the Administrative Agent no longer
exist, and any Notice of Borrowing or Notice of Con version given by the
Borrower with respect to Eurodollar Loans which have not yet been incurred shall
be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the
Borrower shall pay to such Lender, within 10 Business Days after the Borrower's
receipt of written demand therefor, such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender in its reasonable discretion shall determine after consultation
with the Borrower) as shall be required to compensate such Lender for such
increased costs or reductions in amounts receivable here under (a written notice
as to the additional amounts owed to such Lender, describing the basis for such
increased costs and showing the calculation thereof, submitted to the Borrower
by such Lender shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in Section 1.10(b) as promptly as
possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii), the Borrower may (and in the
case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii), the
Borrower shall within the time period required
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<PAGE>
by law) either (x) if the affected Eurodollar Loan is then being made pursuant
to a Borrowing, cancel said Borrowing by giving the Administrative Agent
telephonic notice (confirmed promptly in writing) thereof on the same date that
the Borrower was notified by a Lender pursuant to Section 1.10(a)(ii) or (iii),
or (y) if the affected Eurodollar Loan is then outstanding, upon at least three
Business Days' notice to the Administrative Agent, require the affected Lender
to convert each such Eurodollar Loan into a Base Rate Loan (which conversion, in
the case of the circumstances described in Section 1.10(a)(iii), shall occur no
later than the last day of the Interest Period then applicable to such
Eurodollar Loan (or such earlier date as shall be required by applicable law));
provided, that if more than one Lender is affected at any time, then all
- --------
affected Lenders must be treated the same pursuant to this Section 1.10(b).
(c) If any Lender shall have determined that the adoption or
effectiveness of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, in each case
after the Effective Date, or compliance by such Lender or its parent corporation
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency first
made after the Effective Date, has or would have the effect of reducing the rate
of return on such Lender's or its parent corporation's capital or assets as a
consequence of its commitments or obligations hereunder to a level below that
which such Lender or its parent corporation could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such
Lender's or its parent corporation's policies with respect to capital adequacy),
then from time to time, within 10 Business Days after demand by such Lender
(with a copy to the Administrative Agent), the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender or its parent
corporation for such reduction. Each Lender, upon determining in good faith that
any additional amounts will be payable pursuant to this Section 1.10(c), will
give prompt written notice thereof to the Borrower, which notice shall describe
the basis for such claim and set forth in reasonable detail the calculation of
such additional amounts, although the failure to give any such notice shall not
release or diminish any of the Borrower's obligations to pay additional amounts
pursuant to this Section 1.10(c) upon the subsequent receipt of such notice.
1.11 Compensation. (a) The Borrower shall, without duplication,
------------
compensate each Lender, upon its written request (which request shall set forth
the basis for requesting such compensation and reasonably detailed calculations
thereof), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Lender
to fund its Eurodollar Loans but excluding in any event the loss of anticipated
profits) which such Lender may sustain: (i) if for any reason (other than a
default by any
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<PAGE>
Lender or the Administrative Agent) a Borrowing of Eurodollar Loans by the
Borrower does not occur on a date specified therefor in a Notice of Borrowing or
Notice of Conversion (whether or not withdrawn by the Borrower or deemed
withdrawn pursuant to Section 1.10(a)); (ii) if any prepayment, repayment or
conversion of any of its Eurodollar Loans occurs on a date which is not the last
day of an Interest Period applicable thereto; (iii) if any prepayment of any of
its Eurodollar Loans is not made on any date specified in a notice of prepayment
given by the Borrower; or (iv) as a consequence of (x) any other default by the
Borrower to repay its Eurodollar Loans when required by the terms of this
Agreement or (y) an election made pursuant to Section 1.10(b).
(b) Notwithstanding anything in this Agreement to the contrary, to
the extent any notice or request required by Section 1.10, 1.11 or 3.04 of this
Agreement is given by any Lender more than 120 days after such Lender obtained,
or reasonably should have obtained, knowledge of the occurrence of the event
giving rise to the additional costs, reductions in amounts, losses, taxes or
other additional amounts of the type described in such Section, such Lender
shall not be entitled to compensation under Section 1.10, 1.11 or 3.04 of this
Agreement for any amounts incurred or accruing prior to the giving of such
notice to the Borrower.
1.12 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), 1.10(c) or 3.04 with respect to such Lender, it will, if requested by the
Borrower, use reasonable efforts (subject to overall policy considerations of
such Lender) to designate another lending office for any Loans affected by such
event, provided that such designation is made on such terms that such Lender
--------
and its lending office suffer no material economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of any such Section. Nothing in this Section 1.12 shall
affect or postpone any of the obligations of the Borrower or the right of any
Lender provided in Section 1.10 or 3.04.
1.13 Replacement of Lenders. (x) Upon the occurrence of any event
----------------------
giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c) or
Section 3.04 with respect to any Lender which results in such Lender charging to
the Borrower increased costs materially in excess of those being charged
generally by the Lenders, (y) if a Lender becomes a Defaulting Lender and/or (z)
in the case of a refusal by a Lender to consent to a proposed change, waiver,
discharge or termination with respect to this Agreement which has been approved
by the Required AF/RF Lenders and the Required TF Lenders, the Borrower shall
have the right, if no Default under Section 8.01 or Event of Default then
exists, to replace such Lender (the "Replaced Lender") with one or more other
Eligible Transferee or Transferees, none of whom shall constitute a Defaulting
Lender at the time of such replacement (collectively, the "Replacement Lender")
reasonably acceptable to the Administrative Agent, provided that (i) at the time
of any replacement pursuant to this
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<PAGE>
Section 1.13, the Replacement Lender shall enter into one or more Assignment
Agreements pursuant to Section 11.04(b) (and with all fees payable pursuant to
said Section 11.04(b) to be paid by the Replacement Lender) pursuant to which
the Replacement Lender shall acquire all of the Commitments and outstanding
Loans of the Replaced Lender and, in connection therewith, shall pay to the
Replaced Lender an amount equal to the sum of (A) an amount equal to the
principal of, and all accrued and unpaid interest on, all outstanding Loans of
the Replaced Lender and an amount equal to all accrued and unpaid Fees owing to
the Replaced Lender pursuant to Section 2.01, and (ii) all obligations of the
Borrower owing to the Replaced Lender (other than those specifically described
in clause (i) above in respect of which the assignment purchase price has been,
or is concurrently being, paid) shall be paid in full to such Replaced Lender by
the Borrower concurrently with such replacement. Upon the execution of the
respective Assignment Agreements, the payment of amounts referred to in clauses
(i) and (ii) above and, if so requested by the Replacement Lender, delivery to
the Replacement Lender of the appropriate Note or Notes executed by the
Borrower, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except with
respect to indemnification provisions applicable to the Replaced Lender under
this Agreement, which shall survive as to such Replaced Lender.
SECTION 2. Fees.
----
2.01 Fees. (a) The Borrower agrees to pay to the Administrative
----
Agent a commitment commission (the "TF Commitment Commission") for the account
of each Lender with a B Term Commitment that is a Non-Defaulting Lender for any
period on and after the Closing Date during which any B Term Commitments are
outstanding, computed for each day at a rate per annum equal to the Applicable
CC Percentage for such day on the B Term Commitment on such day of such Lender.
Such TF Commitment Commission shall be due and payable in arrears on the last
Business Day of each calendar quarter and on the B Termination Date.
(b) The Borrower agrees to pay to the Administrative Agent a
commitment commission (the "RF Commitment Commission") for the account of each
RF Lender that is a Non-Defaulting Lender for the period from and including the
Closing Date to but not including the date upon which the Total Revolving
Commitment has been terminated, computed for each day at the rate per annum
equal to the Applicable CC Percentage for such day on the unutilized Revolving
Commitment on such day of such Lender. Such RF Commitment Commission shall be
due and payable in arrears on the last Business Day of each calendar quarter and
on the date upon which the Total Revolving Commitment is terminated.
(c) The Borrower agrees to pay to the Administrative Agent a
commitment commission (the "AF Commitment Commission") for the account of each
AF Lender that is
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a Non-Defaulting Lender for the period during which any Acquisition Commitments
are outstanding, computed for each day at the rate per annum equal to the
Applicable CC Percentage for such day on the unutilized Acquisition Commitment
on such day of such Lender. Such AF Commitment Commission shall be due and
payable quarterly in arrears on the last Business Day of each calendar quarter
and upon the date on which the Total Acquisition Commitment is terminated.
(d) The Borrower shall pay to (x) each Agent on the Closing Date, for
its own account and/or for distribution to the Lenders, such fees as heretofore
agreed by the Borrower and the Agents, (y) the Administrative Agent, for its own
account, such other fees as agreed to between the Borrower and the
Administrative Agent, when and as due and (z) CoBank, for its own account, on
the Closing Date, such fees as heretofore agreed by the Borrower and CoBank.
(e) All computations of Fees shall be made in accordance with Section
11.07(b).
2.02 Voluntary Reduction of Commitments. (a) Upon at least one
----------------------------------
Business Day's prior written notice (or telephonic notice confirmed in writing)
to the Administrative Agent at its Notice Office (which notice shall be deemed
to be given on a certain day only if given before 2:00 P.M. (New York time) on
such day and shall be promptly transmitted by the Administrative Agent to each
of the Lenders), the Borrower shall have the right, without premium or penalty,
to reduce, in whole or in part, the unutilized Total Revolving Commitment or
unutilized Total Acquisition Commitment, as the case may be, provided that (w)
any such partial reduction shall apply to proportionately and permanently reduce
the Revolving Commitment or Acquisition Commitment, as the case may be, of each
Lender with such a Commitment, (x) no such reduction shall reduce any Non-
Defaulting Lender's Revolving Commitment or Acquisition Commitment, as the case
may be, in an amount greater than the then unutilized Revolving Commitment or
Acquisition Commitment, as the case may be, of such Lender, (y) any reduction of
the Total Revolving Commitment or Total Acquisition Commitment, as the case may
be, pursuant to this Section 2.02(a) shall reduce the then remaining Scheduled
Reductions applicable thereto pro rata and (z) any partial reduction pursuant to
--- ----
this Section 2.02 shall be in the amount of at least $1,000,000.
(b) At any time after the Closing Date and prior to the B Termination
Date upon at least one Business Day's prior written notice (or telephone notice
promptly confirmed in writing) to the Administrative Agent at its Notice Office
(which notice the Administrative Agent shall promptly transmit to each of the
Lenders), the Borrower shall have the right, without premium or penalty, to
reduce, in whole or in part, the remaining Total B Term Commitment. The amount
of any reduction of the Total B Term Commitment effected
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<PAGE>
pursuant to this Section 2.02(b) and/or Section 2.03(b)(ii), (iii)
and/or (iv) shall be applied to reduce pro rata the remaining Scheduled
--- ----
Repayments of B Term Loans.
2.03 Mandatory Adjustments of Commitments, etc. (a) The Total
------------------------------------------
Commitment (and the Commitment of each Lender) shall terminate in its entirety
on the Expiration Date unless the Closing Date has occurred on or before such
date.
(b) The Total B Term Commitment shall (i) be reduced on the date
any B Term Loans are incurred in an amount equal to the aggregate principal
amount of B Term Loans so incurred, (ii) terminate in its entirety (to the
extent not theretofore terminated) at 5:00 P.M. (New York time) on the B
Termination Date, whether or not any B Term Loans are incurred on such date,
(iii) until terminated in full, be reduced on each day on which Term Loans, if
still outstanding, would be required to be repaid pursuant to Sections
3.02(A)(c), (e) and (f) by the amount, if any, by which the amount required to
be applied pursuant to said Sections to repay B Term Loans (determined as if an
unlimited amount of Term Loans were actually outstanding) exceeds the aggregate
principal amount of B Term Loans being repaid, (iv) terminate in its entirety
(to the extent not theretofore terminated) on the date of the initial issuance
of any Permitted Subordinated Debt, (v) terminate in its entirety on the day on
which a Change of Control occurs and (vi) be increased after any B Term Loans
have been mandatorily repaid pursuant to Section 3.02 or the Total B Term Loan
Commitment has been reduced pursuant to clause (iii) or (iv) above in the
aggregate amount of such repayment and/or reduction to the extent new B Term
Commitments are provided pursuant to a B Term Commitment Renewal.
(c) The Total C Term Commitment shall terminate in its entirety on
the Closing Date (after giving effect to the making of C Term Loans-Floating
Rate on such date).
(d) The Total Revolving Commitment shall be reduced on June 30,
2001 and on each successive three-month anniversary of such date in an aggregate
amount equal to 1/13th of Total Revolving Commitment outstanding on June 30,
2001 (each such reduction, together with each reduction of the Total Acquisition
Commitment required by Section 2.03(e), as the same may be reduced as provided
in Section 2.02 and, in the case of the Total Acquisition Commitment, Section
2.03(f), a "Scheduled Reduction").
(e) The Total Acquisition Commitment shall be reduced on each of
March 31, 2002 and each successive three-month anniversary of such date in an
aggregate amount equal to 1/10th of the Total Acquisition Commitment outstanding
on March 31, 2002.
(f) The Total Revolving Commitment and Total Acquisition Commitment
(to the extent outstanding) shall each be reduced on each date on which (x) no
Term Loans or Term Commitments are outstanding (after giving effect to the
application on or prior to such
-15-
<PAGE>
date of the provisions of Sections 3.02(A) and 2.03(b)) and (y) Term Loans, if
still outstanding, would be required to be repaid pursuant to Sections
3.02(A)(c), (d), (e), (f) or (g) by the amount, if any, by which the amount
required to be applied pursuant to said Sections as a result of the events
described therein (determined as if an unlimited amount of Term Loans were
actually outstanding) exceeds the aggregate principal amount of Term Loans being
repaid and the B Term Commitments being reduced as a result of such events, with
any commitment reduction pursuant to this Section 2.03(f) to apply pro rata
--- ----
between the Total Revolving Commitment and the Total Acquisition Commitment.
(g) Each of the Total Revolving Commitment and the Total Acquisition
Commitment shall terminate in its entirety on the earlier of (x) the AF/RF
Maturity Date and (y) the date on which a Change of Control occurs.
(h) Each partial reduction of the Commitments under a Facility
pursuant to this Section 2.03 shall apply proportionately to the Commitment
under such Facility of each Lender.
SECTION 3. Payments.
--------
3.01 Voluntary Prepayments. The Borrower shall have the right to
---------------------
prepay Loans (other than C Term Loans-Fixed Rate, with any prepayment in respect
thereof to be as set forth in the C Term Notes-Fixed Rate) in whole or in part,
without premium or penalty, from time to time on the following terms and
conditions: (i) the Borrower shall give the Administrative Agent at the Payment
Office written notice (or telephonic notice promptly confirmed in writing) of
its intent to prepay the Loans, whether such Loans are B Term Loans, C Term
Loans-Floating Rate, RF Loans or AF Loans, the amount of such pre payment and
(in the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which
made, which notice shall be given by the Borrower prior to 12:00 Noon (New York
time) on the Business Day prior to the date of such prepayment, and which notice
shall promptly be transmitted by the Administrative Agent to each of the
Lenders; (ii) each partial prepayment of any Borrowing shall be in an aggregate
principal amount of at least $1,000,000, provided that no partial prepayment of
Eurodollar Loans made pursuant to a Borrowing shall reduce the aggregate
principal amount of the Loans outstanding pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount applicable thereto; (iii) each
prepayment in respect of any Loans made pursuant to a Borrowing shall be applied
pro rata among such Loans provided that at the Borrower's election in connection
- --- ----
with any prepayment of RF Loans or AF Loans pursuant to this Section 3.01, such
prepayment shall not be applied to any RF Loans or AF Loans, as the case may be,
of a Defaulting Lender; and (iv) each prepayment of Term Loans pursuant to this
Section 3.01 shall be applied to B Term Loans (in an amount equal to the B TF
Percentage of such prepayment) and C Term Loans (in an amount equal to the C TF
Percentage of such prepayment) and shall reduce the remaining
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<PAGE>
Scheduled Repayments of each of the B Term Loans and the C Term Loans (x) first,
in direct order of maturity to those Scheduled Repayments which will be due and
payable within twelve months after the date of the respective payment and (y)
second, to the extent in excess thereof, on a pro rata basis (based upon the
--- ----
then remaining principal amount of each such Scheduled Repayment).
3.02 Mandatory Prepayments.
---------------------
(A) Requirements:
------------
(a) (i) If on any date (and after giving effect to all other
repayments on such date) the aggregate outstanding principal amount of RF Loans
made by Non-Defaulting Lenders exceeds the Adjusted Total Revolving Commitment
as then in effect, the Borrower shall repay on such date the principal of
outstanding RF Loans of Non-Defaulting Lenders in an aggregate amount equal to
such excess.
(ii) If on any date (and after giving effect to all other repayments
on such date) the aggregate outstanding principal amount of AF Loans made by
Non-Defaulting Lenders exceeds the Adjusted Total Acquisition Commitment then in
effect, the Borrower shall repay on such date the principal of outstanding AF
Loans of Non-Defaulting Lenders in an aggregate amount equal to such excess.
(iii) If on any date prior to the first anniversary of the Closing
Date the Borrower issues Permitted Subordinated Debt at any time that the Senior
Leverage Ratio exceeds 4.0 to 1.0, the proceeds (net of underwriting discounts
and commissions, private placement and/or initial purchaser fees and other
reasonable fees and expenses associated therewith) of such issuance shall be
applied as a mandatory repayment of RF Loans (to the extent outstanding) to the
extent necessary to reduce the Senior Leverage Ratio to 4.0 to 1.0.
(b) (i) On each date set forth below, the Borrower shall repay the
principal amount of B Term Loans set forth opposite such date (each such
repayment, together with each repayment of C Term Loans required by clause
(b)(ii) below, as the same may be reduced as provided in Sections 2.02(b) and
3.02(B), a "Scheduled Repayment"):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
June 30, 1998 $ 387,500
September 30, 1998 $ 387,500
December 31, 1998 $ 387,500
March 31, 1999 $ 387,500
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
June 30, 1999 $ 387,500
September 30, 1999 $ 387,500
December 31, 1999 $ 387,500
March 31, 2000 $ 387,500
June 30, 2000 $ 387,500
September 30, 2000 $ 387,500
December 31, 2000 $ 387,500
March 31, 2001 $ 387,500
June 30, 2001 $ 387,500
September 30, 2001 $ 387,500
December 31, 2001 $ 387,500
March 31, 2002 $ 387,500
June 30, 2002 $ 387,500
September 30, 2002 $ 387,500
December 31, 2002 $ 387,500
March 31, 2003 $ 387,500
June 30, 2003 $ 387,500
September 30, 2003 $ 387,500
December 31, 2003 $ 387,500
March 31, 2004 $ 387,500
June 30, 2004 $ 387,500
September 30, 2004 $ 387,500
December 31, 2004 $24,154,167
March 31, 2005 $24,154,167
June 30, 2005 $24,154,167
September 30, 2005 $24,154,167
December 31, 2005 $24,154,167
B Maturity Date $24,154,167
</TABLE>
, provided that any increase in the Total B Term Commitment pursuant to a B Term
Commitment Renewal shall be applied pro rata to increase the then remaining
--- ----
Scheduled Repayments set forth above.
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<PAGE>
(ii) On each date set forth below, the Borrower shall repay the principal
amount of C Term Loans-Floating Rate and C Term Loans-Fixed Rate, respectively,
set forth opposite such date:
<TABLE>
<CAPTION>
Floating Rate Fixed Rate
Date Amount Amount
---- ------ ------
<S> <C> <C>
April 1, 1998 $ 0 $ 313,567
June 30, 1998 $ 58,734 $ 301,638
September 30, 1998 $ 58,734 $ 307,321
December 31, 1998 $ 58,734 $ 330,617
March 31, 1999 $ 58,734 $ 336,530
June 30, 1999 $ 58,734 $ 342,560
September 30, 1999 $ 58,734 $ 348,712
December 31, 1999 $ 58,734 $ 363,736
March 31, 2000 $ 58,734 $ 370,135
June 30, 2000 $ 58,734 $ 376,663
September 30, 2000 $ 58,734 $ 383,321
December 31, 2000 $ 58,734 $ 402,613
March 31, 2001 $ 58,734 $ 409,540
June 30, 2001 $ 58,734 $ 416,606
September 30, 2001 $ 58,734 $ 515,704
December 31, 2001 $ 58,734 $ 529,893
March 31, 2002 $ 58,734 $ 539,266
June 30, 2002 $ 58,734 $ 548,826
September 30, 2002 $ 58,734 $ 521,965
December 31, 2002 $ 58,734 $ 531,665
March 31, 2003 $ 58,734 $ 541,567
June 30, 2003 $ 58,734 $ 551,674
September 30, 2003 $ 58,734 $ 561,990
December 31, 2003 $ 58,734 $ 572,520
March 31, 2004 $ 58,734 $ 583,267
June 30, 2004 $ 58,734 $ 594,237
September 30, 2004 $ 58,734 $ 49,807
December 31, 2004 $ 58,734 $ 49,807
March 31, 2005 $ 58,734 $ 49,807
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
June 30, 2005 $2,731,131 $4,970,106
September 30, 2005 $2,731,131 $4,970,106
December 31, 2005 $2,731,131 $4,970,106
March 31, 2006 $2,731,131 $4,970,106
June 30, 2006 $2,731,131 $4,970,106
September 30, 2006 $2,731,131 $4,970,106
December 31, 2006 $2,731,131 $4,970,106
C Maturity Date $2,731,131 $4,970,106
</TABLE>
(c) On the fifth Business Day following the date of receipt thereof
by the Borrower and/or any of its Subsidiaries of the Net Cash Proceeds from any
Asset Sale, an amount equal to 100% of the Net Cash Proceeds from such Asset
Sale shall be applied as a mandatory repayment of principal of the then
outstanding Term Loans and if no Term Loans are then outstanding, to the RF
Loans and the AF Loans, pro rata, among such Loans, provided that up to 100% of
--- ---- --------
the Net Cash Proceeds from Asset Sales shall not be required to be used to so
repay Loans to the extent the Borrower elects, as hereinafter provided, to cause
such Net Cash Proceeds to be used within 180 days to finance an Acquisition or
Acquisitions or Permitted Acquisitions (a "Reinvestment Election"). The Borrower
may exercise its Reinvestment Election with respect to an Asset Sale if (x) no
Default or Event of Default exists and (y) the Borrower delivers a Reinvestment
Notice to the Administrative Agent no later than five Business Days following
the date of the consummation of the respective Asset Sale, with such
Reinvestment Election being effective with respect to the Net Cash Proceeds of
such Asset Sale equal to the Anticipated Reinvestment Amount specified in such
Reinvestment Notice.
(d) On the Business Day following the receipt thereof by the
Borrower, if at the time of such receipt the Senior Leverage Ratio exceeds 4.0
to 1.0, an amount equal to 100% of the proceeds (net of underwriting discounts
and commissions, private placement and/or initial purchaser fees and other
reasonable fees and expenses associated therewith and of any repayment of RF
Loans required by Section 3.02(A)(a)(iii)) from the issuance of Permitted
Subordinated Debt by the Borrower shall be applied as a mandatory repayment of
principal of the then outstanding Term Loans to the extent necessary to reduce
the Senior Leverage Ratio to 4.0 to 1.0, provided that if any such Permitted
Subordinated Debt is issued prior to the consummation of the Ellensberg
Acquisition, then up to $74.0 million of such proceeds that, pursuant to Section
3.02(B)(a), would be required to be used to repay Term Loans shall not be
required to be so applied to the extent that the Borrower elects, as hereinafter
provided, to cause such proceeds to be used within 45 days to finance the
Ellensberg Acquisition or to effect the Permitted PSD Repurchase (a "Special PSD
Election"). The Borrower may exercise its Special PSD Election if it delivers a
Special PSD
-20-
<PAGE>
Notice to the Administrative Agent not later than one Business Day following the
date of any issuance of Permitted Subordinated Debt.
(e) On the date of the receipt thereof by the Borrower, if at the
time of such receipt the Senior Leverage Ratio exceeds 4.0 to 1.0, an amount
equal to 100% of the proceeds (net of underwriting discounts and commissions,
private placement and/or initial purchaser fees and other reasonable fees and
expenses associated therewith) of any sale or issuance of its equity or of any
equity contribution (other than equity issued to management and other employees
of the Borrower and its Subsidiaries) shall be applied as a mandatory repayment
of principal of the then outstanding Term Loans to the extent necessary to
reduce the Senior Leverage Ratio to 4.0 to 1.0.
(f) On the Reinvestment Prepayment Date with respect to a
Reinvestment Election, an amount equal to the Reinvestment Prepayment Amount, if
any, for such Reinvestment Election shall be applied as a repayment of the
principal amount of the then outstanding Term Loans.
(g) On the date occurring 45 days after the date of a Special PSD
Election, an amount equal to the related Special PSD Prepayment Amount, if any,
shall be applied as a repayment of the principal amount of the then outstanding
Term Loans.
(h) To the extent not theretofore repaid pursuant to the provisions
of this Agreement, (i) all outstanding RF Loans and AF Loans, respectively,
shall be repaid in full upon the termination of the Total Revolving Commitment
or the Total Acquisition Commitment, as the case may be, and (ii) all
outstanding Term Loans shall be repaid in full on the date a Change in Control
occurs.
(B) Application:
-----------
(a) Each mandatory repayment of Term Loans required to be made
pursuant to Section 3.02(A) shall be applied (i) in the case of any mandatory
repayment required pursuant to Section 3.02(A)(d) or (g), first, to the
-----
outstanding B Term Loans, if any, in an amount equal to the lesser of the amount
of such prepayment and the then outstanding principal amount of B Term Loans
and, second, commencing on the first anniversary of the Closing Date, if the
------
amount of such repayment exceeds the then outstanding principal amount of B Term
Loans, if any, to the outstanding C Term Loans, if any, (ii) in the case of any
mandatory repayment required pursuant to Section 3.02(A)(c),(e) or (f), to the
outstanding B Term Loans, if any, in an amount equal to the B TF Percentage of
such prepayment and to the outstanding C Term Loans, if any, in an amount equal
to the C TF Percentage of such prepayment and (iii) to reduce pro rata the then
--- ----
remaining Scheduled Repayments of the respective Facility.
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<PAGE>
(b) With respect to each prepayment of Loans required by Section
3.02(A), (other than C Term Loans-Fixed Rate to the extent provided in the
relevant C Term Note-Fixed Rate), the Borrower may designate the Types of Loans
which are to be prepaid and the specific Borrowing(s) under the affected
Facility pursuant to which made provided that (i) if any prepayment of
--------
Eurodollar Loans made pursuant to a single Borrowing shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount for such Borrowing, such Borrowing shall be immediately
converted into Base Rate Loans; (ii) each prepayment of any Loans under a
Facility shall be applied pro rata among such Loans; and (iii) except for the
--- ----
differing treatments of Defaulting Lenders and Non-Defaulting Lenders as
expressly provided in Section 3.02(A)(a), each prepayment of any Eurodollar
Loans made pursuant to a Borrowing shall be applied pro rata among such
--- ----
Eurodollar Loans. In the absence of a designation by the Borrower as described
in the preceding sentence, the Administrative Agent shall, subject to the
above, make such designation in its sole discretion with a view, but no
obligation, to minimize breakage costs owing under Section 1.11.
3.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement shall be made to the
Administrative Agent for the ratable account of the Lenders entitled thereto,
not later than 1:00 P.M. (New York time) on the date when due and shall be made
in immediately available funds and in Dollars at the Payment Office, it being
understood that written notice by the Borrower to the Administrative Agent to
make a payment from the funds in the Borrower's account at the Payment Office
shall constitute the making of such payment to the extent of such funds held in
such account. Any payments under this Agreement which are made later than 1:00
P.M. (New York time) shall be deemed to have been made on the next succeeding
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day which is not a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
3.04 Net Payments. (a) All payments made by the Borrower hereunder
------------
and/or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 3.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Lender pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of such Lender is
located or any subdivision thereof or therein) and all interest, penalties or
similar liabilities with respect to such non-excluded taxes, levies,
-22-
<PAGE>
imposts, duties, fees, assessments or other charges (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement and/or under any Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein or
therein. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the Borrower agrees to reimburse each Lender, upon the
written request of such Lender, for taxes imposed on or measured by the net
income or net profits of such Lender pursuant to the laws of the jurisdiction in
which such Lender is organized or in which the principal office or applicable
lending office of such Lender is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which such Lender is
organized or in which the principal office or applicable lending office of such
Lender is located and for any withholding of taxes as such Lender shall
determine are payable by, or withheld from, such Lender, in respect of such
amounts so paid to or on behalf of such Lender pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence. The Borrower will furnish to the Agent within 45 days
after the date the payment of any Taxes is due pursuant to applicable law
certified copies of tax receipts evidencing such payment by the Borrower. The
Borrower agrees to indemnify and hold harmless each Lender, and reimburse such
Lender upon its written request, for the amount of any Taxes so levied or
imposed and paid by such Lender.
(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes
agrees to deliver to the Borrower and the Agent on or prior to the Effective
Date, or in the case of a Lender that is an assignee or transferee of an
interest under this Agreement pursuant to Section 1.13 or 11.04 (unless the
respective Lender was already a Lender hereunder immediately prior to such
assignment or transfer), on the date of such assignment or transfer to such
Lender, (i) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms) certifying to such Lender's
entitlement to a complete exemption from United States withholding tax with
respect to payments to be made under this Agreement and under any Note, or (ii)
if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit C (any such certificate, a "Section 3.04 Certificate") and (y) two
accurate and complete original signed copies of Internal Revenue Service Form W-
8 (or successor form) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax with respect to payments of
interest to be made under this Agreement and under any Note. In addition, each
Lender agrees that from time to time after the Effective Date, when a lapse of
time or change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
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<PAGE>
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 3.04
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify the
Borrower and the Administrative Agent of its inability to deliver any such Form
or Certificate, in which case such Lender shall not be required to deliver any
such Form or Certificate pursuant to this Section 3.04(b). Notwithstanding
anything to the contrary contained in Section 3.04(a), but subject to Section
11.04(b) and the immediately succeeding sentence, (x) the Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political sub
division or taxing authority thereof or therein) from interest, Fees or other
amounts payable by it hereunder for the account of any Lender which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) for U.S. Federal income tax purposes to the extent that such Lender has
not provided to the Borrower U.S. Internal Revenue Service Forms that establish
a complete exemption from such deduction or withholding and (y) the Borrower
shall not be obligated pursuant to Section 3.04(a) hereof to gross-up payments
to be made by it to a Lender in respect of income or similar taxes imposed by
the United States if (I) such Lender has not provided to the Borrower the
Internal Revenue Service Forms required to be provided to the Borrower pursuant
to this Section 3.04(b) or (II) in the case of a payment, other than interest,
to a Lender described in clause (ii) above, to the extent that such Forms do not
establish a complete exemption from withholding of such taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 3.04 and except as set forth in Section 11.04(b), the Borrower
agrees to pay any additional amounts and to indemnify each Lender in the manner
set forth in Section 3.04(a) (without regard to the identity of the jurisdiction
requiring the deduction or withholding) in respect of any Taxes deducted or
withheld by it as described in the immediately preceding sentence as a result of
any changes after the Effective Date in any applicable law, treaty, governmental
rule, regulation, guideline or order, or in the interpretation thereof, relating
to the deducting or withholding of such Taxes.
(c) If the Borrower pays any additional amount under this Section
3.04 to a Lender and such Lender determines in its sole discretion that it has
actually received or realized in connection therewith any refund or any
reduction of, or credit against, its Tax liabilities in or with respect to the
taxable year in which the additional amount is paid, such Lender shall pay to
the Borrower an amount that the Lender shall, in its sole discretion, determine
is equal to the net benefit, after tax, which was obtained by the Lender in such
year as a consequence of such refund, reduction or credit.
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<PAGE>
SECTION 4. Conditions Precedent.
--------------------
4.01 Conditions Precedent to Closing Date. The obligation of the
------------------------------------
Lenders to make Loans on the Closing Date is subject to the satisfaction of each
of the following conditions at such time:
(a) Effectiveness; Notes. (i) The Effective Date shall have occurred
--------------------
and (ii) there shall have been delivered to the Administrative Agent for the
account of each Lender the appropriate Note or Notes executed by the Borrower,
in each case, in the amount, maturity and as otherwise provided herein.
(b) Opinions of Counsel. The Administrative Agent shall have received
-------------------
opinions, addressed to each Agent and each of the Lenders and dated the Closing
Date, from (i) Paul, Hastings, Janofsky & Walker LLP (and/or other counsel
reasonably acceptable to the Agents), special counsel to the Credit Parties,
which opinion shall cover the matters contained in Exhibit D-1 hereto (except to
the extent relating to any Acquisition not consummated on the Closing Date and
to any Person not a Subsidiary on the Closing Date), and (ii) White & Case LLP,
special counsel to the Agents, which opinion shall cover the matters contained
in Exhibit D-2 hereto, which opinions shall be in form and substance reasonably
satisfactory to the Agents.
(c) Corporate Proceedings. (i) The Administrative Agent shall have
---------------------
received a certificate, dated the Closing Date, signed by an Authorized Officer
of the Borrower in the form of Exhibit E with appropriate insertions and
deletions, together with (x) copies of the certificate of incorporation, by-laws
or other organizational documents of each Credit Party and (y) the resolutions
of each Credit Party referred to in such certificate and all of the foregoing
(including each such certificate of incorporation and by-laws) shall be
reasonably satisfactory to the Administrative Agent and (z) a statement that all
of the applicable conditions set forth in Section 4.03 have been satisfied as of
such date.
(ii) On the Closing Date, all corporate and legal proceedings and all
instruments and agreements in connection with the transactions contemplated by
this Agreement and the other Credit Documents shall be reasonably satisfactory
in form and substance to the Administrative Agent, and the Administrative Agent
shall have received all information and copies of all certificates, documents
and papers, including good standing certificates and any other records of
corporate proceedings and governmental approvals (other than those set forth on
Annex VIII), if any, which the Agents may have reasonably requested in
connection therewith, such documents and papers, where appropriate, to be
certified by proper corporate or governmental authorities.
-25-
<PAGE>
(d) Plans; etc. On or prior to the Closing Date, there shall have
-----------
been made available to the Administrative Agent:
(i) all Plans (and for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report (including, to the extent required, the related
financial and actuarial statements and other supporting statements,
certifications, schedules and information), and for each Plan that is a
"single-employer plan," as defined in Section 4001(a)(15) of ERISA, the
most recently prepared actuarial valuation therefor) and any other
"employee benefit plans," as defined in Section 3(3) of ERISA, and any
other material agreements, plans or arrangements, with or for the benefit
of current or former employees of the Borrower or any of its Subsidiaries
or any ERISA Affiliate (provided that the foregoing shall apply in the case
of any multiemployer plan, as defined in 4001(a)(3) of ERISA, only to the
extent that any document described therein is in the possession of the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate or
reasonably available thereto from the sponsor or trustee of any such plan);
(ii) any collective bargaining agreements or any other similar
agreement or arrangements covering the employment arrangements of the
employees of the Borrower or any of its Subsidiaries;
(iii) all agreements entered into by the Borrower or any Subsidiary
governing the terms and relative rights of its capital stock;
(iv) any material agreement with respect to the management of the
Borrower or any of its Subsidiaries;
(v) any material employment agreements entered into by the Borrower
or any of its Subsidiaries; and
(vi) any tax sharing, tax allocation and other similar agreements
entered into by the Borrower and/or any of its Subsidiaries with any entity
not a Credit Party;
with all of the foregoing to be reasonably satisfactory to the Administrative
Agent.
(e) Adverse Change, etc. Since February 18, 1998, nothing shall have
-------------------
occurred, and neither Agent shall have first become aware of any facts or
conditions not previously known, in each case which either Agent shall
reasonably determine (a) has had, or is reasonably likely to have, a material
adverse effect on the rights or remedies of the Lenders or the Agents hereunder
or under any other Credit Document, or on the ability of the Credit
-26-
<PAGE>
Parties taken as a whole to perform their obligations under the Credit Documents
or (b) has had or is reasonably likely to have a Material Adverse Effect.
(f) Litigation. There shall be no actions, suits or proceedings
----------
pending or, to the knowledge of the Borrower, threatened (a) with respect to
this Agreement or any other Credit Document or (b) which either Agent shall
reasonably determine has had or is reasonably likely to have (i) a Material
Adverse Effect or (ii) a material adverse effect on the rights or remedies of
the Lenders or the Agents hereunder or under any other Credit Document or on the
ability of the Credit Parties taken as a whole to perform their obligations
under the Credit Documents.
(g) Approvals. All necessary material governmental and third
---------
party approvals (other than those set forth on Annex VIII) in connection with
the Credit Documents (including, without limitation, all necessary material
approvals required by the FCC and the applicable PUCs) shall have been obtained
and remain in effect.
(h) Subsidiary Guaranty. Each Intermediary Holding Company that
-------------------
is a Subsidiary on the Closing Date shall have duly authorized, executed and
delivered a Subsidiary Guaranty in the form of Exhibit F hereto (as modified,
amended, amended and restated or supplemented from time to time in accordance
with the terms hereof and thereof, the "Subsidiary Guaranty"), and the
Subsidiary Guaranty shall be in full force and effect.
(i) Pledge Agreement. The Borrower and each Parent Company that
----------------
is a Subsidiary on the Closing Date shall have each duly authorized, executed
and delivered a Pledge Agreement in the form of Exhibit G (as modified, amended,
amended and restated or supplemented from time to time in accordance with the
terms thereof and hereof, the "Pledge Agreement") and shall have delivered to
the Collateral Agent, as pledgee thereunder, all of the certificates
representing the Pledged Securities owned by such Persons, endorsed in blank or
accompanied by executed and undated stock powers, and the Pledge Agreement shall
be in full force and effect.
(j) Solvency. The Borrower shall have delivered to the
--------
Administrative Agent, a solvency certificate, dated the Closing Date and in the
form of Exhibit H hereto.
(k) Capital Contribution Agreement. The Specified Shareholders
------------------------------
shall have duly authorized, executed and delivered an agreement (the "Capital
Contribution Agreement") in the form of Exhibit I hereto and such Capital
Contribution Agreement shall be in full force and effect.
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<PAGE>
(l) Consent Letter. The Administrative Agent shall have received
--------------
a letter from CT Corporation System, substantially in the form of Exhibit J
hereto, indicating its consent to its appointment by each Credit Party as its
agent to receive service of process.
(m) Refinancing. On the Closing Date and concurrently with the
-----------
incurrence of Loans on such date, (x) the Indebtedness to be Refinanced (other
than the CoBank Continuing Loans converted pursuant to Section 1.01(b)(B)) shall
have been repaid in full, together with interest thereon, (y) the CoBank
Continuing Loans shall have been converted into C Term Loans-Fixed Rate pursuant
to Section 1.01(b)(B) and (z) the creditors under the Indebtedness to be
Refinanced shall have terminated and released all security interests in and
Liens on the capital stock of and/or assets owned by the Borrower or any of its
Subsidiaries, and the Administrative Agent shall have received evidence
(including releases) in form, scope and substance satisfactory to it that the
matters set forth in this Section 4.01(m) have been satisfied at such time.
(n) Fees. The Borrower shall have paid to the Agents and the
----
Lenders all Fees and expenses agreed upon by such parties to be paid on or prior
to the Closing Date (for which, in the case of legal fees and expenses, the
Borrower shall have received in advance a written invoice in reasonable detail).
4.02 Conditions Precedent to Term Loans and RF Loans. The
-----------------------------------------------
obligation of the Lenders to make Term Loans and/or RF Loans on any date
(including on the Closing Date) to finance an Acquisition is subject, at the
time of such incurrence of such Loans, to the satisfaction of the following
conditions:
(a) Consummation of the Acquisition, etc. The Acquisition being
-------------------------------------
financed with the proceeds of such Term Loans and/or RF Loans (x) shall have
received all requisite board of directors and shareholder approval and (y) shall
have been consummated in accordance with the Acquisition Documents relating to
such Acquisition (the "Applicable Acquisition Documents") and all applicable
laws, and the Administrative Agent shall have received true and correct copies
of each of the Applicable Acquisition Documents, certified as such by an
Authorized Officer of the Borrower, each of which shall have been duly
authorized, executed and delivered by the parties thereto and shall be in full
force and effect and in form and substance reasonably satisfactory to the Agents
(it being agreed that the Acquisition Documents relating to the Ellensburg
Acquisition and the Taconic Acquisition in the form delivered to the Agents
prior to the Effective Date are satisfactory to the Agents except as modified by
schedules subsequently delivered and that any increase in the purchase price
under the Acquisition Documents relating to the Ellensburg Acquisition
unspecified in amount shall, to the extent in excess of $5 million, be
satisfactory to the Agents). On or prior to such time, all conditions precedent
set forth in the Applicable Acquisition Documents shall have been satisfied, or
waived or consented to with the consent of the Agents, not to be unreasonably
withheld (with all conditions stated to require the approval or satisfaction
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<PAGE>
of, or to be acceptable to, the Borrower and/or any Subsidiary to require the
approval or satisfaction of, or to be acceptable to, the Agents, not be
unreasonably withheld) and all applicable waiting periods with respect thereto
have expired without, in all such cases, any action being taken by any competent
authority which imposes material adverse conditions upon the consummation of
such Acquisition.
(b) Capital Contributions. If the Acquisition being financed is
---------------------
the Ellensburg Acquisition or the Taconic Acquisition, the Borrower shall have
received at the time of the consummation of such Acquisition additional cash
common equity investments from the Borrower's shareholders aggregating (without
duplication) $15.0 million in the case of the Ellensburg Acquisition and/or
$16.3 million in the case of the Taconic Acquisition, as the case may be.
(c) Opinions. The Administrative Agent shall have received an
--------
opinion or opinions, addressed to each Agent and each Lender, and dated the date
of such Loans, from Paul, Hastings, Janofsky & Walker LLP (and/or other counsel
reasonably acceptable to the Agents) covering the matters contained in Exhibit
D-1 relating to the Acquisition being financed and the Persons becoming Credit
Parties as a result thereof, which opinion shall be in form and substance
reasonably satisfactory to the Agents.
(d) Corporate Proceedings. The Administrative Agent shall have
---------------------
received a certificate dated the date of such Loans, signed by an Authorized
Officer of the Borrower in the form of Exhibit E hereto (but only to the extent
relating to the Acquisition being financed and the new Credit Parties resulting
from such Acquisition), together with all organizational documents and
resolutions referred to therein, and all the foregoing shall be reasonably
satisfactory to the Agents, (y) all the documentation specified in Section
4.01(d) to the extent relating to such new Credit Parties shall have been made
available to the Administrative Agent and (z) each of such new Credit Parties
shall have duly authorized, executed and delivered (i) a counterpart of the
Subsidiary Guaranty (if an Intermediary Holding Company) and/or (ii) a
counterpart of the Pledge Agreement (if a Parent Company) and, in such case,
shall have delivered to the Collateral Agent, as pledgee thereunder, all of the
certificates representing the Pledged Securities owned by such new Credit
Parties, endorsed in blank or accompanied by executed and undated stock powers.
(e) Litigation. There shall be no material actions, suits or
----------
proceedings pending or, to the knowledge of the Borrower, threatened (a) with
respect to the Acquisition being financed or (b) which either Agent shall
reasonably determine has had or is reasonably likely to have a Material Adverse
Effect.
(f) Audits and Financial Statements for Certain Acquisitions. (i)
--------------------------------------------------------
If the Acquisition being financed is the El Paso Acquisition or the Chouteau
Acquisition, each of the Lenders shall have received an audit of the financial
statements referred to in
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<PAGE>
Section 5.10(b)(iii) or (iv), as the case may be, prepared by Kiesling
Associates LLP (in the case of the financial statements of El Paso) and Sartain,
Fischbein & Company (in the case of the financial statements of Chouteau), which
accounting firm shall have delivered an unqualified opinion in respect thereof.
(ii) If the Acquisition being financed is the UI
Acquisition, each of the Lenders shall have received the consolidated balance
sheet of UI as at December 31, 1997 and the related consolidated statements of
operations and cash flows for the period ended as of said date, audited by an
independent accounting firm reasonably acceptable to the Agents, who shall have
delivered an unqualified opinion in respect thereof, which statements shall have
been prepared in accordance with GAAP and practices consistently applied, except
to the extent, if any, provided in the notes thereto and shall present fairly
the consolidated financial position of UI at the date thereof and the results
for the period covered thereby in accordance with GAAP, except to the extent, if
any, provided in the notes thereto.
(g) Refinancing. (i) Except to the extent such security interets
-----------
and Liens are otherwise permitted by Section 7.03, the creditors of the Acquired
Company or Companies to be acquired with the proceeds of such Loans shall have
terminated and released all security interests in and Liens on the capital stock
and/or assets owned by such Acquired Company or Companies to the satisfaction of
the Administrative Agent, (ii) the Administrative Agent shall have received
evidence (including releases) in form, scope and substance satisfactory in that
the matters set forth in clause (i) above have been satisfied at such time and
(iii) except in the case of any Acquisition consummated on the Closing Date, the
Borrower shall have delivered to the Administrative Agent a revised Annex V,
modified to include Liens on the assets of such Acquired Companies that are to
remain outstanding, that is satisfactory to the Administrative Agent.
4.03 Conditions Precedent to All Loans. The obligation of each
---------------------------------
Lender to make Loans (including Loans made on the Closing Date) is subject, at
the time of the making of each such Loan, to the satisfaction of the following
conditions:
(a) Notice of Borrowing. The Administrative Agent shall have
-------------------
received a Notice of Borrowing meeting the requirements of Section 1.03.
(b) No Default; Representations and Warranties. At the time of
------------------------------------------
each making of Loans and also after giving effect thereto, (i) there shall exist
no Default or Event of Default and (ii) all representations and warranties made
by any Credit Party contained herein or in the other Credit Documents shall be
true and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Loans, except to the extent that such representations and warranties expressly
relate to an earlier date, in which case such representations and warranties
shall be true and correct as of such earlier date.
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<PAGE>
(c) Senior Leverage Ratio. No Loans may be made at any time when
---------------------
the Senior Leverage Ratio is above 4.0 to 1.0 except for the incurrence of (i)
Loans to finance the Specified Purposes, (ii) RF Loans in an aggregate
outstanding amount not to exceed $30 million to be used solely to finance
working capital purposes and (iii) RF Loans in an aggregate amount at the time
of the incurrence thereof equal to an Interim Prepayment Amount outstanding at
such time to the extent such RF Loans are used to fund an Acquisition or a
Permitted Acquisition effected pursuant to the Reinvestment Election that
created such Interim Prepayment Amount and/or to repay Term Loans as required on
the Reinvestment Prepayment Date with respect to such Reinvestment Election.
The acceptance of the benefits of each Loan shall constitute a
representation and warranty by the Borrower that all of the applicable
conditions specified in Section 4.01 (in the case of Loans on the Closing Date),
4.02 (in the case of Term Loans and/or RF Loans incurred to finance
Acquisitions) and/or 4.03 (in the case of all Loans), as the case may be, have
been satisfied as of that time. All of the certificates, legal opinions and
other documents and papers referred to in Sections 4.01 and 4.02, unless
otherwise specified, shall be delivered to the Administrative Agent for the
benefit of each of the Lenders and, except for the Notes, in sufficient
counterparts for each of the Lenders and shall be reasonably satisfactory in
form and substance to the Agents.
SECTION 5. Representations, Warranties and Agreements. In order
------------------------------------------
to induce the Lenders to enter into this Agreement and to make the Loans, the
Borrower makes the following representations and warranties to, and agreements
with, the Lenders, all of which shall survive the execution and delivery of this
Agreement and the making of the Loans:
5.01 Corporate Status. Each of the Borrower and its Subsidiaries
----------------
(i) is a duly organized and validly existing corporation and is in good
standing, in each case under the laws of the jurisdiction of its organization
and has the corporate power and authority to own its property and assets and to
transact the business in which it is engaged and (ii) is duly qualified and is
authorized to do business and, to the extent relevant, is in good standing in
all jurisdictions where it is required to be so qualified and where the failure
to be so qualified, authorized or in good standing is reasonably likely to have
a Material Adverse Effect.
5.02 Corporate Power and Authority. Each Credit Party has the
-----------------------------
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is a party and has taken all
necessary action to authorize the execution, delivery and performance of the
Credit Documents to which it is a party. Each Credit Party has duly executed and
delivered each Credit Document to which it is a party and each such Credit
Document constitutes the legal, valid and binding obligation of such Person
enforceable in accordance with its terms, except to the extent that the
enforceability thereof
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<PAGE>
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting creditors' rights generally and
general equitable principles (regardless of whether enforcement is sought in
equity or at law).
5.03 No Violation. Neither the execution, delivery or performance
------------
by any Credit Party of the Credit Documents to which it is a party nor
compliance with the terms and provisions thereof, (i) will contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, (ii) will
(after giving effect to the Refinancing) conflict or be inconsistent with or
result in any breach of, any of the terms, covenants, conditions or provisions
of, or constitute a default under, or (other than pursuant to the Pledge
Agreement) result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of the Borrower or any of
its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust
or other material agreement or instrument to which the Borrower or any of its
Subsidiaries is a party or by which it or any of its property or assets are
bound or to which it may be subject or (iii) will violate any provision of the
organizational documents (including by-laws) of the Borrower or any of its
Subsidiaries.
5.04 Litigation. There are no actions, suits or proceedings
----------
pending or, to the knowledge of the Borrower, threatened with respect to the
Borrower or any of its Subsidiaries (i) that have had, or that are reasonably
likely to have, a Material Adverse Effect or (ii) that have, or that are
reasonably likely to have had, a material adverse effect on the rights or
remedies of the Lenders or on the ability of the Credit Parties taken as a whole
to perform their obligations under the Credit Documents.
5.05 Use of Proceeds; Margin Regulations. (a) The proceeds of
-----------------------------------
all Term Loans shall be utilized to finance the Acquisitions, to effect the
Refinancing, to retire Existing Warrants, to repurchase outstanding shares of
preferred stock of the Borrower having an aggregate liquidation preference of
$130,164 for an aggregate purchase price equal to such liquidation preference
plus accrued dividends of $12,131 (the "Preferred Repurchase") and to pay
certain fees and expenses relating to the Transaction (all of the foregoing,
collectively, the "Specified Purposes").
(b) (i) The proceeds of RF Loans may be used for working capital
and capital expenditure requirements (including to finance Permitted CLEC
Expenditures), to effect the Preferred Repurchase and to retire Existing
Warrants and, on and after the B Utilization Date, to finance Acquisitions and
Permitted Acquisitions.
(c) The proceeds of AF Loans may only be used (x) to finance
capital expenditure requirements and Permitted Acquisitions and/or (y) to repay
RF Loans to the extent that the proceeds of such RF Loans had been used to
finance capital expenditure requirements and/or Permitted Acquisitions.
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<PAGE>
(d) Neither the making of any Loan hereunder, nor the use of the
proceeds thereof, will violate the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System and no part of the proceeds of
any Loan will be used to purchase or carry any Margin Stock or to extend credit
for the purpose of purchasing or carrying any Margin Stock, provided that
proceeds of AF Loans may be utilized to purchase Margin Stock if (A) such
purchase (x) is pursuant to a Permitted Acquisition of the Person issuing such
Margin Stock and (y) is effected pursuant to a friendly transaction (as
determined by the Agents) not in violation of such Regulations G, T, U or X and
(B) at no time shall the market value of all Margin Stock held by the Borrower
and its Subsidiaries exceed 25% of the consolidated total assets of the Borrower
subject to Sections 7.02 and 7.03.
5.06 Governmental Approvals. Except for (x) such approvals set
----------------------
forth on Annex VIII as have not been obtained and (y) such consents, approvals
and filings as have been obtained or made on or prior to the Closing Date and
remain in full force and effect, no order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority
(including, without limitation, the FCC and applicable PUCs), or any subdivision
thereof, is required to authorize or is required in connection with (i) the
execution, delivery and performance of any Credit Document or (ii) the legality,
validity, binding effect or enforceability of any Credit Document.
5.07 Investment Company Act. Neither the Borrower nor any of its
----------------------
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
5.08 Public Utility Holding Company Act. Neither the Borrower nor
----------------------------------
any of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
5.09 True and Complete Disclosure. All factual information (taken
----------------------------
as a whole) heretofore or contemporaneously furnished by or on behalf of the
Borrower in writing to the Agents for purposes of or in connection with this
Agreement or any transaction contemplated herein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of any Credit
Party in writing to the Lenders hereunder will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact necessary to make such
information (taken as a whole) not misleading at such time in light of the
circumstances under which such information was provided. The projections and pro
---
forma financial information contained in such materials are based on good faith
- -----
estimates and assumptions believed by the Borrower to be reasonable at the time
made (it being recognized by the Lenders that such
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<PAGE>
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results and that such assumptions and estimates may prove to
be inaccurate).
5.10 Financial Condition; Financial Statements. (a) On and as of
-----------------------------------------
the Closing Date, on a pro forma basis after giving effect to the Transaction
--- -----
(determined as if each Acquisition (other than the UI Acquisition) was
consummated on the Closing Date) and all Indebtedness incurred, and to be
incurred (including, without limitation, the Loans and the application of the
proceeds thereof), and Liens created, and to be created, by each Credit Party in
connection therewith, (x) the fair valuation of all of the tangible and
intangible assets of the Borrower and its Subsidiaries (on a consolidated basis)
will exceed their debts, (y) the Borrower and its Subsidiaries will not have
incurred or intended to incur debts beyond their ability to pay such debts as
such debts mature and (z) the Borrower and its Subsidiaries will not have
unreason ably small capital with which to conduct their business. For purposes
of this Section 6.10, "debt" means any liability on a claim, and "claim" means
(i) the right to payment whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured; or (ii) the right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(b) (i) The consolidated balance sheet of Ellensburg as at
December 31, 1997 and the related consolidated statements of operations and cash
flows for the period ended as of said date, which have been audited by Moss-
Adams LLP, who delivered an unqualified opinion in respect thereof, (ii) the
consolidated balance sheet of Taconic as at December 31, 1997 and the related
consolidated statements of operations and cash flows for the period ended as of
said date, which have been audited by KPMG Peat Marwick LLP, who delivered an
unqualified opinion in respect thereof, (iii) the consolidated balance sheet of
El Paso as at December 31, 1997 and the related consolidated statements of
operations and cash flows for the period ended as of said date, and (iv) the
consolidated balance sheet of Chouteau as at December 31, 1997 and the related
consolidated statements of operations and cash flows for the period ended as of
said date, copies of all of which have heretofore been furnished to each Lender,
present fairly the consolidated financial position of the respective Acquired
Companies at the dates of said statements and the results for the periods
covered thereby in accordance with GAAP, except to the extent provided in the
notes to said financial statements. All such financial statements have been
prepared in accordance with GAAP and practices consistently applied except to
the extent provided in the notes to said financial statements. The pro forma
--- -----
consolidated balance sheet of the Borrower as of December 31, 1997, a copy of
which has heretofore been furnished to each Lender, presents a good faith
estimate of the consolidated pro forma financial condition of the Borrower
--- -----
(after giving effect to the Transaction, including the consummation of each
Acquisition (other than the UI Acquisition)
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<PAGE>
and all Indebtedness incurred or to be incurred in connection therewith) as at
the date thereof. Nothing has occurred since December 31, 1997 that has had or
is reasonably likely to have a Material Adverse Effect.
(c) Except as reflected in the financial statements described in
Section 5.10(b) or in the footnotes thereto, there were as of the Closing Date
no liabilities or obligations with respect to the Borrower or any of its
Subsidiaries (or any of the Acquired Companies) of a nature (whether absolute,
accrued, contingent or otherwise and whether or not due) which, either
individually or in aggregate, is reasonably likely to be material to the
Borrower and its Subsidiaries (after giving effect to each Acquisition other
than the UI Acquisition) taken as a whole, except as incurred in the ordinary
course of business consistent with past practices.
5.11 Security Interests. At any time on or after the Closing
------------------
Date, the Pledge Agreement creates, as security for the obligations purported to
be secured thereby, a valid and enforceable Lien on all of the Collateral
subject thereto at such time, at such time superior to and prior to the rights
of all third Persons and subject to no other Liens (except for Liens permitted
under Section 7.03(a)), in favor of the Collateral Agent for the benefit of the
Secured Creditors, which Lien has been perfected under applicable law. No
filings or recordings are required in order to perfect, or continue the
perfection of, the Lien on the Pledged Securities created under the Pledge
Agreement, except for filings or recordings required in connection with the
Pledge Agreement which shall have been made on or prior to the Closing Date or
as otherwise required in accordance with the terms of the Pledge Agreement.
5.12 Acquisitions. All representations and warranties by the
------------
Borrower or any Subsidiary thereof formed to effect any Acquisition set forth in
the Acquisition Documents relating to Acquisitions that have been consummated
and, to the knowledge of the Borrower, all representations and warranties made
by all other Persons in such Acquisition Documents, were true and correct in all
material respects as of the time such representations and warranties were made
and shall be true and correct in all material respects as of the date Term Loans
and/or RF Loans are incurred to finance such Acquisition as if such
representations and warranties were made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier date.
5.13 Tax Returns and Payments. Each of the Borrower and its
------------------------
Subsidiaries has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, except for
those contested in good faith and adequately disclosed and fully provided for on
the financial statements of the Borrower and its Subsidiaries if and to the
extent required by GAAP. Each of the Borrower and its Subsi diaries has at all
times paid, or has provided adequate reserves (in the good faith judgment of the
management of
-35-
<PAGE>
the Borrower) for the payment of, all federal, state and foreign income taxes
applicable for all prior fiscal years which are still open for audit and for the
current fiscal year to date. There is no action, suit, proceeding,
investigation, audit, or claim now pending or, to the knowledge of the Borrower,
threatened by any authority regarding any taxes relating to the Borrower or any
of its Subsidiaries which is reasonably likely to have a Material Adverse
Effect.
5.14 Compliance with ERISA. (i) Annex IV sets forth each Plan and
---------------------
Multiemployer Plan; (ii) except as set forth on Annex IV, each Plan (and each
related trust, insurance contract or fund) is in substantial compliance with its
terms and with all applicable laws, including without limitation ERISA and the
Code; each Plan which is intended to be qualified under Section 401(a) of the
Code has received a determination letter from the Internal Revenue Service to
the effect that it meets the requirements of Section 401(a) of the Code; except
as set forth on Annex IV, no Reportable Event has occurred with respect to a
Plan; to the knowledge of the Borrower, no Multiemployer Plan is insolvent or in
reorganization; except as set forth on Annex IV, no Plan has an Unfunded Current
Liability which, when added to the aggregate amount of Unfunded Current
Liabilities with respect to all other Plans, exceeds $750,000; no Plan which is
subject to Section 412 of the Code or Section 302 of ERISA has an accumulated
funding deficiency, within the meaning of such sections of the Code or ERISA, or
has applied for or received a waiver of an accumulated funding deficiency or an
extension of any amortization period, within the meaning of Section 412 of the
Code or Section 303 or 304 of ERISA; all contributions required to be made with
respect to a Plan or a Multiemployer Plan have been timely made; neither the
Borrower nor any Subsidiary nor any ERISA Affiliate has incurred any material
liability (including any indirect, contingent or secondary liability) to or on
account of a Plan or a Multiemployer Plan pursuant to Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section
401(a)(29), 4971 or 4975 of the Code or reasonably expects to incur any such
liability under any of the foregoing sections with respect to any Plan or any
Multiemployer Plan; no condition exists which presents a material risk to the
Borrower or any Subsidiary or any ERISA Affiliate of incurring a material
liability to or on account of a Plan or, to the knowledge of the Borrower, of
any Multiemployer Plan pursuant to the foregoing provisions of ERISA and the
Code; no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan which is subject to Title IV of ERISA; except as would not
result in any material liability, no action, suit, proceeding, hearing, audit or
investigation with respect to the administration, operation or the investment of
assets of any Plan (other than routine claims for benefits) is pending, or to
the best knowledge of the Borrower expected or threatened; using actuarial
assumptions and computation methods consistent with Part 1 of subtitle E of
Title IV of ERISA, the aggregate liabilities of the Borrower and its
Subsidiaries and its ERISA Affiliates to all Multiemployer Plans in the event of
a complete withdrawal therefrom, as of the close of the most recent fiscal year
of each such Plan ended prior to the date of the most recent Loan incurrence,
would not exceed $15,000; except as would not result in a material liability,
each group health plan (as defined
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<PAGE>
in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or
has covered employees or former employees of the Borrower, any Subsidiary or any
ERISA Affiliate has at all times been operated in compliance with the provisions
of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no
lien imposed under the Code or ERISA on the assets of the Borrower or any
Subsidiary or any ERISA Affiliate exists or is reasonably likely to arise on
account of any Plan; and the Borrower and its Subsidiaries do not maintain or
contribute to any employee welfare benefit plan (as defined in Section 3(1) of
ERISA) which provides benefits to retired employees or other former employees
(other than as required by Section 601 of ERISA) or any Plan the obligations
with respect to which could reasonably be expected to have a material adverse
effect on the ability of the Borrower to perform its obligations under this
Agreement.
5.15 Subsidiaries. On and as of the Closing Date and after giving
------------
effect to the consummation of the Acquisitions effected on such date, the
Borrower has no Subsidiaries other than those Subsidiaries listed on Annex III,
which correctly sets forth, as of the Closing Date and after giving effect to
the consummation of the Acquisitions effected on such date, the percentage
ownership (direct and indirect) of the Borrower in each class of capital stock
of each of its Subsidiaries and also identifies the direct owner thereof.
5.16 Intellectual Property. Each of the Borrower and its
---------------------
Subsidiaries owns or holds a valid transferable license to use all the patents,
trademarks, service marks, trade names, technology, know-how, copyrights,
licenses, franchises and formulas or rights with respect to the foregoing, that
are used in the operation of the business of the Borrower or such Subsidiary as
presently conducted and are material to such business where the failure to own
or hold a valid license is reasonably likely to have a Material Adverse Effect.
5.17 Environmental Matters. Each of the Borrower and its
---------------------
Subsidiaries is in material compliance with all applicable Environmental Laws
governing its business for which failure to comply is reasonably likely to have
a Material Adverse Effect, and neither the Borrower nor any of its Subsidiaries
is liable for any material penalties, fines or forfeitures for failure to comply
with any of the foregoing in the manner set forth above. All licenses, permits,
registrations or approvals required for the business of the Borrower and each of
its Subsidiaries under any Environmental Law have been secured and each of the
Borrower and its Subsidiaries is in substantial compliance therewith, except
such licenses, permits, registrations or approvals the failure to secure or to
comply therewith is not reasonably likely to have a Material Adverse Effect.
There are no Environmental Claims pending or, to the knowledge of the Borrower
threatened, against the Borrower or any of its Subsidiaries wherein any decision
ruling or finding is reasonably likely to have a Material Adverse Effect.
5.18 Labor Relations. No Credit Party is engaged in any unfair labor
---------------
practice that is reasonably likely to have a Material Adverse Effect. There is
(i) no unfair
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labor practice complaint pending against any Credit Party or, to the Borrower's
knowledge, threatened against any of them, before the National Labor Relations
Board, and no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against any Credit Party or, to
the Borrower's knowledge, threatened against any of them, (ii) no strike, labor
dispute, slowdown or stoppage pending against any Credit Party or, to the
Borrower's knowledge, threatened against any Credit Party and (iii) no union
representation question, to the Borrower's knowledge, existing with respect to
the employees of any Credit Party and no union organizing activities, to the
Borrower's knowledge, are taking place, except with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate, such as is not reasonably likely to have a Material Adverse Effect.
5.19 Compliance with Statutes, etc. Each of the Borrower and its
------------------------------
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the owner
ship of its property, except such non-compliance as has not had, and is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect.
SECTION 6. Affirmative Covenants. The Borrower hereby covenants and
---------------------
agrees that until the Commitments have terminated, no Notes are outstanding and
the Loans, together with interest, Fees and all other Obligations (other than
any indemnities described in Section 11.13 which are not then owing) incurred
hereunder, are paid in full:
6.01 Information Covenants. The Borrower will furnish to each
---------------------
Lender:
(a) Annual Financial Statements. Within 90 days after the close of
---------------------------
each fiscal year of the Borrower, the consolidated and consolidating balance
sheet of the Borrower and the Intermediary Holding Companies, as at the end of
such fiscal year and the related consolidated and consolidating statements of
operations and of cash flows for such fiscal year, and in each case setting
forth comparative consolidated and consolidating figures for the preceding
fiscal year, and (x) in the case of consolidated statements, examined by
independent certified public accountants of recognized national standing whose
opinion shall not be qualified as to the scope of audit and as to the status of
the Borrower as a going concern or (y) in the case of consolidating statements,
certified by the chief financial officer of the Borrower, together with a
certificate of such accounting firm stating that in the course of its regular
audit of the business of the Borrower and the Intermediary Holding Companies,
which audit was conducted in accordance with generally accepted auditing
standards, no Default or Event of Default which has occurred and is continuing
has come to their attention or, if such a Default or Event of Default has come
to their attention a statement as to the nature thereof.
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<PAGE>
(b) Quarterly Financial Statements. Within 45 days after the close
------------------------------
of each of the first three quarterly accounting periods in each fiscal year
commencing March 31, 1998, the consolidated and consolidating balance sheet of
the Borrower and the Intermediary Holding Companies, as at the end of such
quarterly period and the related consolidated and consolidating statements of
operations and of cash flows for such quarterly period and for the elapsed
portion of the fiscal year ended with the last day of such quarterly period, and
in each case setting forth comparative consolidated and consolidating figures
for the related periods in the prior fiscal year, all of which shall be in
reasonable detail and certified by the chief financial officer or controller of
the Borrower, subject to changes resulting from audit and normal year-end audit
adjustments.
(c) Monthly Reports. Commencing April 30, 1998, within 45 days after
---------------
after the end of each monthly accounting period of the fiscal years ended
December 31, 1998 and December 31, 1999 (other than the last monthly accounting
period in any such fiscal year), the internally prepared consolidating income
statements of the Borrower and the Intermediary Holding Companies for such
period, all of which shall be certified by the chief financial officer or
controller of the Borrower subject to changes resulting from audit and normal
year-end audit adjustments.
(d) Budgets; etc. Not more than 30 days after the commencement of
-------------
each fiscal year of the Borrower ending after the Closing Date, consolidated and
consolidating budgets of the Borrower and its Subsidiaries in reasonable detail
for each of the twelve months of such fiscal year as customarily prepared by
management for its internal use setting forth, with appropriate discussion, the
principal assumptions upon which such budgets are based. Together with each
delivery of consolidated financial statements pursuant to Sections 6.01(a), (b)
and (c), a comparison of the current year-to-date consolidated financial results
for the Borrower against the consolidated budget of the Borrower required to be
submitted pursuant to this clause (d) shall be presented.
(e) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Sections 6.01(a), (b) and (c), a
certificate of the chief financial officer, controller or other Authorized
Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and
extent thereof, which certificate in the case of the certificate delivered
pursuant to Sections 6.01(a) and (b), shall set forth the calculations required
to establish (I) the Leverage Ratio as at the last day of the fiscal year or
fiscal quarter covered by such financial statements and (II) whether the
Borrower and its Subsidiaries were in compliance with the provisions of Sections
7.11, 7.12 and 7.13 as at the end of such fiscal period.
(f) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within five Business Days after any officer of the Borrower obtains knowledge
thereof, notice of (x) the occurrence of any event which constitutes a Default
or Event of Default, which notice shall
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<PAGE>
specify the nature thereof, the period of existence thereof and what action the
Borrower proposes to take with respect thereto and (y) the commencement of, or
any significant adverse development in, any litigation or governmental
proceeding pending against the Borrower or any of its Subsidiaries which has had
or is reasonably likely to have a Material Adverse Effect or has had or is
reasonably likely to have a material adverse effect on the ability of the Credit
Parties to perform their obligations under the Credit Documents.
(g) Other Information. Promptly upon transmission thereof, copies of
-----------------
any filings and registrations with, and reports to, the Securities and Exchange
Commission or any successor thereto (the "SEC") by the Borrower or any of its
Subsidiaries, and with reasonable promptness, such other information or
documents (financial or otherwise) as the Administrative Agent on its own behalf
or on behalf of the Required Lenders may reasonably request from time to time.
6.02 Books, Records and Inspections. The Borrower will, and will
------------------------------
cause its Subsidiaries to, permit, upon reasonable notice to the chief financial
officer, controller or any other Authorized Officer of the Borrower, officers
and designated representatives of the Administrative Agent or the Required
Lenders to visit and inspect any of the properties or assets of the Borrower and
any of its Subsidiaries in their possession and to examine the books of account
of the Borrower and any of its Subsidiaries and discuss the affairs, finances
and accounts of the Borrower and of any of its Subsidiaries with, and be advised
as to the same by, its and their officers and independent accountants, all at
such reasonable times and intervals during normal business hours and to such
reasonable extent as the Administrative Agent or the Required Lenders may
desire.
6.03 Insurance. The Borrower will, and will cause each of its
---------
Subsidiaries to, at all times maintain in full force and effect insurance with
reputable and solvent insurers in such amounts, covering such risks and
liabilities and with such deductibles or self-insured retentions as are in
accordance with normal industry practice. The Borrower will, and will cause each
of its Subsidiaries to, furnish to the Administrative Agent on the Closing Date
and thereafter annually, upon request of the Administrative Agent, a summary of
the insurance carried.
6.04 Payment of Taxes. The Borrower will pay and discharge, and will
----------------
cause each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, would become a Lien or charge
upon any material properties of the Borrower or any of its Subsidiaries,
provided that neither the Borrower nor any Subsidiary shall be required to pay
any such tax, assessment, charge, levy or claim which is being contested in good
faith and by proper proceedings if it has maintained adequate reserves (in the
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<PAGE>
good faith judgment of the management of the Borrower) with respect thereto
in accordance with GAAP.
6.05 Corporate Franchises. The Borrower will do, and will cause each
--------------------
Subsidiary to do, or cause to be done, all things reasonably necessary to
preserve and keep in full force and effect its existence and to preserve its
material rights and franchises, other than those the failure to preserve which
could not reasonably be expected to have a Material Adverse Effect, provided
that any transaction permitted by Section 7.02 will not constitute a breach of
this Section 6.05.
6.06 Compliance with Statutes, etc. The Borrower will, and will
------------------------------
cause each Subsidiary to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign (including all Environmental Laws), in respect of the
conduct of its business and the ownership of its property other than those the
non-compliance with which is not reasonably likely to have a Material Adverse
Effect or have a material adverse effect on the ability of the Credit Parties to
perform their obligations under the Credit Documents.
6.07 ERISA. As soon as possible and, in any event, within 10 days
-----
after the Borrower knows or has reason to know of the occurrence of any of the
following, the Borrower will deliver to each of the Lenders a certificate of the
chief financial officer of the Borrower setting forth the full details as to
such occurrence and the action, if any, that the Borrower, any Subsidiary or any
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower, any
Subsidiary, any ERISA Affiliate, the PBGC, a Plan or Multiemployer Plan
participant or the Plan administrator with respect thereto: that a Reportable
Event has occurred (except to the extent that the Borrower has previously
delivered to the Lender a certificate and notices (if any) concerning such event
pursuant to the next clause hereof); that a contributing sponsor (as defined in
Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject
to the advance reporting requirement of PBGC Regulation Section 4043.61 (without
regard to subparagraph (b)(1) thereof), and an event described in sub section
.62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is
reasonably expected to occur with respect to such Plan within the following 30
days; that an accumulated funding deficiency, within the meaning of Section 412
of the Code or Section 302 of ERISA, has been incurred or an application may
reasonably be expected to be or has been made for a waiver or modification of
the minimum funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code or Section
303 or 304 of ERISA with respect to a Plan; that any contribution required to be
made with respect to a Plan or Multiemployer Plan has not been timely made; that
a Plan or Multiemployer Plan has been or may be reasonably be expected to be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability which, when added to the
aggregate amount of Unfunded Current Liabilities with respect to
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<PAGE>
all other Plans, exceeds the aggregate amount of such Unfunded Current
Liabilities that existed on the Closing Date by $100,000; that proceedings may
reasonably be expected to be or have been instituted to terminate or appoint a
trustee to administer a Plan which is subject to Title IV of ERISA; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Multiemployer Plan; that the Borrower, any
Subsidiary or any ERISA Affiliate will or may reasonably be expected to incur
any material liability (including any indirect, contingent, or secondary
liability) to or on account of the termination of or withdrawal from a Plan or
Multiemployer Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of
the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group
health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the
Code) under Section 4980B of the Code; or that the Borrower or any Subsidiary
may incur any material liability pursuant to any employee welfare benefit plan
(as defined in Section 3(1) of ERISA) that provides benefits to retired
employees or other former employees (other than as required by Section 601 of
ERISA) or any Plan in addition to the liability that existed on the Closing Date
pursuant to any such plan or plans. Upon request by any Lender, the Borrower
will deliver to such Lender a complete copy of the annual report (on Internal
Revenue Service Form 5500-series) of each Plan (including, to the extent
required, the related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information) required to be
filed with the Internal Revenue Service. In addition to any certificates or
notices delivered to the Lenders pursuant to the first sentence hereof, copies
of any records, documents or other information required to be furnished to the
PBGC, and any material notices received by the Borrower, any Subsidiary or any
ERISA Affiliate with respect to any Plan or Multiemployer Plan shall be
delivered to the Lender no later than 10 days after the date such records,
documents and/or information has been furnished to the PBGC or such notice has
been received by the Borrower, the Subsidiary or the ERISA Affiliate, as
applicable.
6.08 Good Repair. The Borrower will, and will cause each of its
-----------
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business are kept in good repair, working order and condition,
normal wear and tear excepted, and, subject to Section 7.05, that from time to
time there are made in such properties and equipment all needful and proper
repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto, to the extent and in the manner useful or customary for
companies in similar businesses.
6.09 End of Fiscal Years; Fiscal Quarters. The Borrower will, for
------------------------------------
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years and fourth fiscal quarters to end on December 31 of
each year and (ii) each of its, and each of its Subsidiaries', first three
fiscal quarters to end on the last day of March, June and September of each
year.
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<PAGE>
6.10 Interest Rate Agreement. The Borrower will enter into Interest
-----------------------
Rate Agreements reasonably satisfactory to the Agents (x) no later than the date
occurring 30 days after the Closing Date, to the extent, if any, necessary so
that at least 25% of the aggregate outstanding principal amount of the
Consolidated Debt at the time of the entering into of any such Interest Rate
Agreement has a fixed interest rate or is covered by such Interest Rate
Agreements for a period of at least two years following the Closing Date and (y)
no later than the date occurring nine months after the Closing Date, to the
extent, if any, necessary so that at least 50% of outstanding Consolidated Debt
at the time of the entering into of any such Interest Rate Agreement has a fixed
interest rate or is covered by such Interest Rate Agreements for a period of at
least two years following the Closing Date.
6.11 Approvals. The Borrower will use reasonable best efforts to
---------
obtain as promptly as practicable after (i) the Closing Date, the approvals set
forth in Annex VIII and (ii) the consummation of any Permitted Acquisition, any
approvals not obtained on or prior to the date of the consummation of such
Permitted Acquisition, provided that (x) it shall not be a default under this
Section 6.11 if the Borrower fails to obtain any such approval, after having
used reasonable best efforts to obtain same and (y) the Borrower may cease to
seek to obtain any such approvals if it has been advised by counsel or the
applicable governmental agency that it will not, or is not reasonably likely to,
obtain such approval, provided further that, in the event the Borrower is able
to obtain any approval required to be obtained in accordance with the terms of
this Section 6.11, the Borrower shall use reasonable best efforts to obtain as
promptly as practicable after receipt of such approval, an opinion of local
counsel reasonably satisfactory to the Administrative Agent covering the
regulatory aspects of the respective Acquisition or Permitted Acquistion, as the
case may be, which opinion shall be in form and substance reasonably
satisfactory to the Administrative Agent.
6.12 CoBank Capital. The Borrower will purchase such participation
--------------
certificates in CoBank as CoBank may require from time to time in accordance
with its bylaws. The Borrower hereby consents and agrees that the amount of any
distributions with respect to its patronage with CoBank that are made in
qualified written notices of allocation (as defined in 26 U.S.C. 1388) and that
are received by the Borrower from CoBank, will be taken into account by the
Borrower at their stated Dollar amounts whether the distribution be evidenced by
a participation certificate or other form of written notice that such
distribution has been made and recorded in the name of the Borrower on the
records of CoBank.
SECTION 7. Negative Covenants. The Borrower hereby covenants and
------------------
agrees that until the Commitments have terminated, no Notes are outstanding and
the Loans, together with interest, Fees and all other Obligations (other than
any indemnities described in Section 11.13 which are not then owing) incurred
hereunder, are paid in full:
7.01 Changes in Business. The Borrower will not permit at any time
-------------------
the business activities taken as a whole conducted by the Borrower and its
Subsidiaries to be
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<PAGE>
materially different from the business activities taken as a whole (including
incidental activities) conducted by the Borrower and its Subsidiaries on the
Closing Date (determined as if all the Acquisitions were consummated on such
date) and businesses reasonably related thereto (the "Business").
7.02 Consolidation, Merger, Sale or Purchase of Assets, etc. The
-------------------------------------------------------
Borrower will not, and will not permit any Subsidiary to, wind up, liquidate or
dissolve its affairs, or enter into any transaction of merger or consolidation,
or convey, sell, lease or otherwise dispose of all or any part of its property
or assets (other than inventory or obsolete equipment or excess equipment no
longer needed in the conduct of the business in the ordinary course of business)
or purchase, lease or otherwise acquire all or any part of the property or
assets of any Person (other than purchases or other acquisitions of inventory,
leases, materials and equipment in the ordinary course of business) or agree to
do any of the foregoing at any future time without a contingency relating to
obtaining any required approval hereunder, except that the following shall be
permitted:
(a) (i) any Subsidiary may be merged or consolidated with or into,
or be liquidated into, the Borrower or a Subsidiary Guarantor (so long as
the Borrower or such Subsidiary Guarantor is the surviving corporation), or
all or any part of its business, properties and assets may be conveyed,
sold or transferred to the Borrower or any Subsidiary Guarantor, provided
--------
that neither the Borrower nor any Subsidiary Guarantor may be a party to
any merger, consolidation or liquidation otherwise permitted by this clause
(a) (i) involving a Person that is not a Subsidiary except in connection
with a Permitted Acquisition, (ii) any Subsidiary that is not a Subsidiary
Guarantor may be merged or consolidated with or into, or convey, sell or
transfer its assets to, another Subsidiary that is not a Subsidiary
Guarantor, provided that if the stock of either such Person was pledged
pursuant to the Pledge Agreement the stock of the surviving entity or the
transferee entity, as the case may be, shall also be pledged pursuant to a
Pledge Agreement and (iii) each of Chautauqua & Erie Telephone Company and
ST Long Distance Corporation may transfer CLEC assets to MJD TeleChoice, so
long as the aggregate fair market value of all such assets so transferred
by such Persons (determined in good faith by senior management of the
Borrower) on and after the Closing Date does not exceed $5,000,000,
provided that no such merger or consolidation otherwise permitted above
between a Pledged Subsidiary and Non-Pledged Subsidiary, and no such
conveyance, sale or transfer by a Pledged Subsidiary to a Non-Pledged
Subsidiary, shall be permitted unless, after giving effect thereto, the Pro
Forma EBITDA Test is satisfied;
(b) capital expenditures to the extent within the limitations set
forth in Section 7.05 hereof;
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<PAGE>
(c) the investments, acquisitions and transfers or dispositions of
properties permitted pursuant to Section 7.06;
(d) each of the Borrower and any Subsidiary may lease (as lessee)
real or personal property in the ordinary course of business (so long as
such lease does not create a Capitalized Lease Obligation not otherwise
permitted by Section 7.04(c));
(e) licenses or sublicenses by the Borrower and its Subsidiaries of
intellectual property in the ordinary course of business, provided, that
--------
such licenses or sublicenses shall not interfere with the business of the
Borrower or any Subsidiary;
(f) (i) sales or dispositions of Non-Core Assets to the extent that
the aggregate Net Cash Proceeds received from all such sales and
dispositions permitted by this clause (f)(i) shall not exceed $40,000,000
in the aggregate and $25,000,000 in any fiscal year of the Borrower and
(ii) additional sales or dispositions of assets to the extent that the
aggregate Net Cash Proceeds received from all such sales and dispositions
permitted by this clause (f)(ii) shall not exceed $2,500,000 in any fiscal
year of the Borrower, provided that (x) each such sale or disposition
pursuant to this clause (f) shall be in an amount at least equal to the
fair market value thereof and for proceeds consisting of at least 85% cash
and (y) the Net Cash Proceeds of any such sale are applied to repay the
Loans to the extent required by Section 3.02(A)(c), provided further that
----------------
the sale or disposition of the capital stock of any Subsidiary of the
Borrower pursuant to this clause (f) shall be prohibited unless it is for
all of the outstanding capital stock of such Subsidiary owned by the
Borrower and its Subsidiaries;
(g) the Acquisitions;
(h) leases and subleases permitted under Section 7.03(d) and (g);
and
(i) Permitted Acquisitions.
7.03 Liens. The Borrower will not, and will not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of the Borrower or any such Subsidiary whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to the
Borrower or any of its Subsidiaries) or assign any right to receive income,
except:
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<PAGE>
(a) Liens for taxes not yet delinquent or Liens for taxes being
contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Borrower)
have been established;
(b) Liens in respect of property or assets of the Borrower or any of
its Subsidiaries imposed by law which were incurred in the ordinary course
of business, such as carriers', warehousemen's and mechanics' Liens,
statutory landlord's Liens, and other similar Liens arising in the ordinary
course of business, and (x) which do not in the aggregate materially
detract from the value of such property or assets or materially impair the
use thereof in the operation of the business of the Borrower or any of its
Subsidiaries or (y) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or sale of the property or asset subject to such Lien;
(c) Liens created by or pursuant to this Agreement or the other
Credit Documents;
(d) Liens created pursuant to (x) Capital Leases in respect of
Capitalized Lease Obligations permitted by Section 7.04(c) and (y) Capital
Leases securing Permitted MJD Capital Debt;
(e) Liens arising from judgments, decrees or attachments and Liens
securing appeal bonds arising from judgments, in each case in circumstances
not constituting an Event of Default under Section 8.09;
(f) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations incurred in the
ordinary course of business (exclusive of obligations in respect of the
payment for borrowed money);
(g) leases or subleases granted to others not interfering in any
material respect with the business of the Borrower or any of its
Subsidiaries;
(h) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(i) Liens arising from precautionary UCC financing statement filings
regarding operating leases entered into by the Borrower or any of its
Subsidiaries in the
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<PAGE>
ordinary course of business and statutory and common law landlords' liens
under leases to which the Borrower or any of its Subsidiaries is a party;
(j) purchase money Liens securing payables arising from the purchase
by the Borrower or any Subsidiary Guarantor of any equipment or goods in
the normal course of business, provided that such payables shall not
constitute Indebtedness;
(k) any interest or title of a lessor under any lease permitted by
this Agreement;
(l) Liens in existence on, and which are to continue in effect after,
the Closing Date which are listed, and the property subject thereto
described in, Annex V, plus extensions and renewals of such Liens, provided
that (x) the aggregate principal amount of the Indebtedness, if any,
secured by such Liens does not increase from that amount outstanding at the
time of any such extension or renewal and (y) any such extension or renewal
does not encumber any additional assets or properties of the Borrower or
any of its Subsidiaries;
(m) Liens arising pursuant to purchase money mortgages or security
interests securing Indebtedness representing the purchase price (or
financing of the purchase price within 90 days after the respective
purchase) of assets acquired by the Borrower or any Subsidiary after the
Closing Date, provided that (x) any such Liens attach only to the assets so
acquired, (y) the Indebtedness secured by any such Lien does not exceed
100%, nor is less than 70%, of the lesser of the fair market value or
purchase price of the property being purchased at the time of the
incurrence of such Indebtedness and (z) all Indebtedness secured by Liens
created pursuant to this clause (m) (other than Permitted MJD Capital Debt)
shall not exceed $5,000,000 at any time outstanding;
(n) if (x) the Taconic Acquisition is consummated, Liens on assets of
Taconic existing on the Closing Date and securing the Indebtedness of
Taconic permitted by Section 7.04(f)(i); and (y) the UI Acquisition is
consummated, Liens on assets of UI existing on the Closing Date and
securing the Indebtedness of UI permitted by Section 7.04(f)(iii); and
(o) Liens on property or assets acquired pursuant to a Permitted
Acquisition, or on property or assets of a Person in existence at the time
such Person is acquired pursuant to a Permitted Acquisition, in each case
securing Permitted Acquired Debt, provided that (x) such Liens do not
--------
attach to the capital stock of any Subsidiary of the Borrower and (y) such
Liens existed prior to, and were not incurred in contemplation of, such
Permitted Acquisition and do not attach to any other asset of the Borrower
or any of its Subsidiaries.
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<PAGE>
7.04 Indebtedness. The Borrower will not, and will not permit any
------------
of its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(b) Indebtedness owing by (i) any Subsidiary Guarantor to another
Subsidiary Guarantor or the Borrower, (ii) the Borrower to any Subsidiary
Guarantor, (iii) any Subsidiary that is not a Subsidiary Guarantor to any
other Subsidiary that is not a Subsidiary Guarantor, (iv) the Borrower or
any Subsidiary Guarantor to any Subsidiary that is not a Subsidiary
Guarantor, so long as such Indebtedness is subordinated to the Obligations
on a basis satisfactory to the Administrative Agent and/or (v) any
Subsidiary that is not a Subsidiary Guarantor to the Borrower and/or a
Subsidiary Guarantor, so long as such Indebtedness constitutes a senior
obligation and is evidenced by an intercompany note (which may be a grid
note) pledged to the Collateral Agent pursuant to the Pledge Agreement;
(c) Capitalized Lease Obligations initially incurred after the
Closing Date, provided that the aggregate Capitalized Lease Obligations
(exclusive of Permitted MJD Capital Debt) outstanding at any time under all
Capital Leases entered into after Closing Date shall not exceed $2,000,000;
(d) Indebtedness under Interest Rate Agreements to the extent
entered into in compliance with Section 6.10;
(e) Indebtedness incurred pursuant to purchase money mortgages
permitted by Section 7.03(m);
(f) if (i) the Taconic Acquisition is consummated and after giving
effect thereto, up to $7 million of Indebtedness of Taconic, to the extent
existing on the Closing Date, may remain outstanding after such
consummation, less the aggregate amount of all repayments of principal
thereon effected after the Closing Date, (ii) the Chouteau Acquisition is
consummated and after giving effect thereto, up to $7 million of
subordinated Indebtedness of the Borrower, in form and substance
satisfactory to the Agents, that is issued in connection with such
consummation less any repayments of principal made thereon and (iii) the UI
Acquisition is consummated and after giving effect thereto, up to $12.51
million of Indebtedness of UI, to the extent existing on the Closing Date,
may remain outstanding after such consummation, less the aggregate amount
of all repayments of principal thereon effected after the Closing Date;
-48-
<PAGE>
(g) Indebtedness (the "Existing Indebtedness") in existence on, and
which is to continue in effect after, the Closing Date and which is listed
on Annex VI hereto, without giving effect to any subsequent extension,
renewal or refinancing thereof except as permitted pursuant to Section
7.04(l);
(h) Indebtedness of the Borrower or any of its Subsidiaries which
may be deemed to exist in connection with agreements providing for
indemnification, purchase price adjustments and similar obligations in
connection with Permitted Acquisitions, Acquisitions or sales of assets
permitted by this Agreement (so long as any such obligations are those of
the Person making the respective acquisition or sale, and are not
guaranteed by any other Person);
(i) Permitted Acquired Debt;
(j) Permitted Subordinated Debt to the extent (I) the proceeds
thereof are utilized to repay Loans to the extent required by Section
3.02(A)(a)(iii) and/or 3.02(A)(d) and (II) after giving effect to any
incurrence of Permitted Subordinated Debt (and the use of the proceeds
thereof), Section 7.12 shall be complied with as of the last day of the
last fiscal quarter then ended (determined as if such Permitted
Subordinated Debt had been issued on such last day);
(k) Permitted MJD Capital Debt;
(l) Permitted Refinancing Indebtedness, so long as no Default or
Event of Default is in existence at the time of the incurrence thereof and
immediately after giving effect thereto;
(m) Indebtedness of the Borrower consisting of (i) CLEC Back-Stop
Letters of Credit and reimbursement obligations with respect thereto, so
long as the aggregate outstanding stated amounts of all such letters of
credit and reimbursement obligations do not exceed $1,000,000 at any time
and (ii) Permitted Letters of Credit and reimbursement obligations with
respect thereto, so long as the aggregate outstanding stated amounts of all
such letters of credit and reimbursement obligations do not exceed
$1,000,000 at any time; and
(n) additional unsecured Indebtedness of the Borrower and the
Subsidiary Guarantors not to exceed an aggregate outstanding principal
amount of $5.0 million at any time.
7.05 Capital Expenditures. (a) The Borrower will not, and will not
--------------------
permit any of its Subsidiaries to, incur Consolidated Capital Expenditures,
provided that the Borrower and its Subsidiaries may make (i) Permitted CLEC
Expenditures and (ii) Other
-49-
<PAGE>
Consolidated Capital Expenditures not to exceed in the aggregate in any fiscal
year an amount equal to 30% of Consolidated EBITDA for such fiscal year.
(b) In the event that the maximum amount which is permitted to be
expended in respect of Other Consolidated Capital Expenditures during any fiscal
year pursuant to Section 7.05(a) (without giving effect to this clause (b)) is
not fully expended during such fiscal year, the maximum amount which may be
expended during the immediately succeeding fiscal year pursuant to Section
7.05(a) shall be increased by such unutilized amount.
7.06 Advances, Investments and Loans. The Borrower will not, and
-------------------------------
will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to any
Person, except:
(a) the Borrower or any Subsidiary may invest in cash and Cash
Equivalents;
(b) the Borrower and any Subsidiary may acquire and hold receivables
owing to them, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms
and/or reasonable extensions thereof;
(c) the intercompany Indebtedness described in Section 7.04(b) shall
be permitted;
(d) loans and advances to officers, directors and employees in the
ordinary course of business (x) for relocation purposes and/or the purchase
from the Borrower of the capital stock (or options or warrants relating
thereto) of the Borrower and (y) otherwise in an aggregate principal amount
not to exceed $1 million at any time outstanding shall be permitted;
(e) the Borrower and each Subsidiary may acquire and own investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business;
(f) Interest Rate Agreements entered into pursuant to Section 6.10
shall be permitted;
(g) advances, loans and investments in existence on the Effective
Date and listed on Annex VII, without giving effect to any additions
thereto or replacements thereof, shall be permitted;
-50-
<PAGE>
(h) the Borrower and each Subsidiary may make capital contributions
(i) to any of their Subsidiaries to the extent a Subsidiary Guarantor and
(ii) to any Subsidiary that is not a Subsidiary Guarantor, if after giving
effect thereto the aggregate capital contributions (net of any return
thereon) made after the Closing Date permitted pursuant to this clause (ii)
shall not exceed an amount equal to 25% of the Consolidated Capital
Expenditures permitted to be made by the Borrower and its Subsidiaries
during the then fiscal year of the Borrower;
(i) Subsidiaries may be established or created in accordance with
the provisions of Section 7.07;
(j) Acquisitions and Permitted Acquisitions shall be permitted;
(k) investments constituting, or to be used to make, Permitted CLEC
Expenditures by the Borrower and its Subsidiaries in any corporation that
is (or, after giving effect to such investment, will be) directly or
indirectly wholly-owned by the Borrower to the extent such corporation is
engaged in no business other than the competitive local exchange carrier
business (any such corporation, a "CLEC Company");
(l) loans and investments not otherwise permitted by the foregoing
clauses (a) through (k), provided that the aggregate amount of the loans
and investments made pursuant to this clause (l) shall not exceed
$2,000,000; and
(m) the Borrower and its Subsidiaries may acquire and hold
investments consisting of non-cash consideration received from sales of
assets effected in accordance with the requirements of Sections 7.02(f).
7.07 Limitation on Creation of Subsidiaries. The Borrower will not,
--------------------------------------
and will not permit any Subsidiary to, establish, create or acquire any direct
Subsidiary; provided that the Borrower and its Subsidiaries shall be permitted
to establish, create or acquire Wholly-Owned Subsidiaries (or 90%-Owned
Subsidiaries in the case of Telcos), so long as (i) 100% of the capital stock of
such new Subsidiary (if a Parent Company) or at least 90% of the capital stock
of such new Subsidiary (if a TelCo) is pledged pursuant to the Pledge Agreement
(provided that the stock of any new TelCo acquired or created pursuant to a
Permitted Acquisition shall not have to be pledged if, after giving effect to
the acquisition or creation thereof, the Pro Forma EBITDA Test is satisfied) and
the certificates representing such stock, together with stock powers duly
executed in blank, are delivered to the Collateral Agent and (ii) such new
Subsidiary executes a counterpart of the Subsidiary Guaranty (in the case of a
new Intermediary Holding Company) and/or the Pledge Agreement (in the case of a
new Parent Company), in each case on the same basis (and to the same extent) as
such
-51-
<PAGE>
Subsidiary would have executed such Credit Documents if it were a Credit Party
on the Closing Date.
7.08 Modifications. The Borrower will not, and will not permit any
-------------
of its Subsidiaries to:
(a) make (or give any notice in respect thereof) any voluntary or
optional payment or prepayment or redemption or acquisition for value of
(including, without limitation, by way of depositing with the trustee with
respect thereto money or securities before due for the purpose of paying
when due) or exchange of any Permitted Acquired Debt, any Indebtedness
permitted by Section 7.04(f), any Permitted Subordinated Debt, any
Permitted Refinancing Indebtedness or any Existing Indebtedness, provided
that (i) the respective obligor may refinance any of the foregoing
Indebtedness with the proceeds of Permitted Refinancing Indebtedness so
long as no Default or Event of Default is in existence at the time of the
incurrence of such Permitted Refinancing Indebtedness and immediately after
giving effect thereto and (ii) in the event the Borrower has made a Special
PSD Election and the Ellensberg Acquisition has not been consummated prior
to the date occurring 45 days after such Special PSD Election, the Borrower
may effect the Permitted PSD Repurchase;
(b) amend or modify (or permit the amendment or modification of) in
any manner adverse to the interests of the Lenders, any provisions of any
Permitted Acquired Debt, any Permitted Refinancing Indebtedness, any
Indebtedness permitted by Section 7.04(f), any Permitted Subordinated Debt
or any Existing Indebtedness; and/or
(c) amend, modify or change in any manner adverse to the interests
of the Lenders the organizational documents (including by-laws) of any
Credit Party, the Existing Warrants, any agreement entered into by the
Borrower with respect to its capital stock, or any Acquisition Document or
enter into any new agreement in any manner adverse to the interests of the
Lenders with respect to the capital stock of the Borrower.
7.09 Dividends, etc. (a) The Borrower will not, and will not permit
---------------
any of its Subsidiaries to, declare or pay any dividends (other than dividends
payable solely in capital stock of such Person) or return any capital to, its
stockholders, members and/or other owners or authorize or make any other
distribution, payment or delivery of property or cash to its stockholders,
members and/or other owners as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for a consideration, any shares of any class of
its capital stock or other ownership interests now or hereafter outstanding (or
any warrants for or options or stock appreciation rights in respect of any of
such shares), or set aside any
-52-
<PAGE>
funds for any of the foregoing purposes, or permit any of its Subsidiaries to
purchase or otherwise acquire for consideration any shares of any class of the
capital stock or other ownership interests of the Borrower or any other
Subsidiary, as the case may be, now or hereafter outstanding (or any options or
warrants or stock appreciation rights issued by such Person with respect to its
capital stock) (all of the foregoing "Dividends"), except that:
(i) any Subsidiary may pay dividends or return capital or make
distributions and other similar payments with regard to its capital stock
or other membership interests to the Borrower or to another Subsidiary;
(ii) the Borrower or any of its Subsidiaries may purchase the
Minority Shares for an aggregate purchase price not to exceed $750,000;
(iii) the Borrower, STE or Sidney Telephone may retire or redeem all
the Existing Warrants on or after the Closing Date with the proceeds of
Loans for the price required by the terms thereof, provided that none of
the Borrower, STE or Sidney Telephone shall voluntarily agree to a price to
be paid for the Existing Warrants (as opposed to a determination of such
price by third parties as provided in the Existing Warrants) without the
consent of the Agents (which consent shall not be unreasonably withheld);
(iv) the Preferred Repurchase shall be permitted to be effected; and
(v) the Borrower may redeem or repurchase its stock (or options,
warrants and/or appreciation rights in respect thereof) from shareholders,
officers, employees, consultants and directors (or their estates) upon the
death, permanent disability, retirement or termination of employment of any
such Person or otherwise in accordance with any shareholder agreement,
stock option plan or any employee stock ownership plan provided that (x) no
Default or Event of Default is then in existence or would arise therefrom
and (y) the aggregate amount of all cash paid in respect of all such
shares, options, warrants and rights so redeemed or repurchased in any
calendar year, does not exceed $1 million;
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist (other than as a
result of a requirement of law) any encumbrance or restriction which prohibits
or otherwise restricts (A) the ability of any Subsidiary to (a) pay dividends or
make other distributions or pay any Indebtedness owed to the Borrower or any
Subsidiary, (b) make loans or advances to the Borrower or any Subsidiary, (c)
transfer any of its properties or assets to the Borrower or any Subsidiary or
(B) the ability of any Subsidiary to create, incur, assume or suffer to exist
any Lien upon its property or assets to secure the Obligations, other than
prohibitions or restrictions existing under or by reason of: (i) this Agreement
and the other Credit Documents; (ii) applicable law; (iii)
-53-
<PAGE>
customary non-assignment provisions entered into in the ordinary course of
business and consistent with past practices; (iv) any restriction or encumbrance
with respect to a Subsidiary imposed pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
capital stock or assets of such Subsidiary, so long as such sale or disposition
is permitted under this Agreement; (v) Liens permitted under Sections 7.03(d),
(m) and/or (n) and any documents or instruments governing the terms of any
Indebtedness or other obligations secured by any such Liens, provided that such
prohibitions or restrictions apply only to the assets subject to such Liens and
(vi) any agreement or instrument governing Permitted Acquired Debt, to the
extent such restriction or encumbrance (x) is not applicable to any Person or
the properties or assets of any Person (other than the Person or the properties
or assets of the Person acquired pursuant to the respective Permitted
Acquisition) and (y) was not created (or made more restrictive) in connection
with or in anticipation of the respective Permitted Acquisition.
7.10 Transactions with Affiliates. The Borrower will not, and will
----------------------------
not permit any Subsidiary to, enter into any transaction or series of
transactions after the Closing Date whether or not in the ordinary course of
business, with any Affiliate other than on terms and conditions substantially as
favorable to the Borrower or such Subsidiary as would be obtainable by the
Borrower or such Subsidiary at the time in a comparable arm's-length transaction
with a Person other than an Affiliate, provided that the foregoing restrictions
shall not apply to (i) transactions solely among Credit Parties and their 90%-
Owned Subsidiaries, (ii) employment arrangements entered into in the ordinary
course of business with officers of the Borrower and its Subsidiaries, (iii)
customary fees paid to members of the Board of Directors of the Borrower and of
its Subsidiaries, (iv) management fees paid to MJD Partners, Inc. during any
fiscal year not in excess of 2.5% of Consolidated EBITDA for such year and, so
long as no Default or Event of Default exists at the time of any such payment or
would result therefrom, advisory fees paid to Kelso and Carousel during any
fiscal year not in excess of 1% of Consolidated EBITDA for such year, (v)
arrangements with directors, officers and employees not otherwise prohibited by
this Agreement, (vi) payment of customary legal fees and expenses to Paul,
Hastings, Janofsky & Walker LLP and (vii) the transactions set forth on Annex IX
hereto.
7.11 Interest Coverage Ratio. (a) At any time prior to the Trigger
-----------------------
Date, the Borrower will not permit the ratio of (i) Consolidated Annualized
EBITDA as at the end of any fiscal quarter set forth below to (ii) Consolidated
Interest Expense for the four quarters then ending to be less than the ratio set
forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending:
---------------------
Ratio
-----
<S> <C>
September 30, 1998
</TABLE>
-54-
<PAGE>
<TABLE>
<S> <C>
through March 31, 1999 1.50 to 1.0
June 30, 1999
through September 30, 2000 1.75 to 1.0
Thereafter 2.00 to 1.0
</TABLE>
(b) At any time on and after the Trigger Date, the Borrower will not
permit the ratio of (i) Consolidated Annualized EBITDA as of the end of any
fiscal quarter set forth below to (ii) Consolidated Interest Expense for the
four quarters then ending to be less than the ratio set forth opposite such
fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending:
---------------------
Ratio
-----
<S> <C>
Trigger Date
through September 30, 2001 1.50 to 1.0
December 31, 2001
through September 30, 2002 1.70 to 1.0
December 31, 2002
through September 30, 2003 1.80 to 1.0
Thereafter 2.00 to 1.0
</TABLE>
7.12 Leverage Ratio. (a) At any time prior to the Trigger Date, the
--------------
Borrower will not permit the Leverage Ratio determined as at the end of any
fiscal quarter set forth below to be more than the ratio set forth opposite such
fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending:
---------------------
Ratio
-----
<S> <C>
June 30, 1998
through March 31, 1999 6.50 to 1.0
June 30, 1999
through September 30, 2000 5.75 to 1.0
December 31, 2000
through September 30, 2001 5.50 to 1.0
December 31, 2001
through September 30, 2002 5.25 to 1.0
December 31, 2002
through September 30, 2003 5.00 to 1.0
December 31, 2003
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
through September 30, 2004 4.50 to 1.0
Thereafter 4.25 to 1.0
</TABLE>
(b) At any time on and after the Trigger Date, the Borrower will not
permit the Leverage Ratio determined as at the end of any fiscal quarter set
forth below to be more than the ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending:
---------------------
Ratio
-----
<S> <C>
Trigger Date
through September 30, 2002 6.50 to 1.0
December 31, 2002
through September 30, 2003 6.00 to 1.0
Thereafter 5.50 to 1.0
</TABLE>
7.13 Senior Leverage Ratio. (a) At any time prior to the Trigger
---------------------
Date, the Borrower will not permit the Senior Leverage Ratio determined as at
the end of any fiscal quarter set forth below to be more than the ratio set
forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending:
---------------------
Ratio
-----
<S> <C>
June 30, 1998
through March 31, 1999 6.40 to 1.0
June 30, 1999
through September 30, 2000 5.50 to 1.0
December 31, 2000
through September 30, 2001 5.25 to 1.0
December 31, 2001
through September 30, 2002 5.00 to 1.0
December 31, 2002
through September 30, 2003 4.75 to 1.0
December 31, 2003
through September 30, 2004 4.25 to 1.0
Thereafter 4.00 to 1.0
</TABLE>
provided that if (x) a contribution has to be made to the Borrower under the
Capital Contribution Agreement as of June 30, 1999 pursuant to the terms
thereof, (y) the full $15 million available under the Capital Contribution
Agreement is so contributed and (z) after
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<PAGE>
giving effect to such contribution and the concurrent repayment of Loans, the
Senior Leverage Ratio on June 30, 1999 is 5.50 to 1.0 or above, then the maximum
Senior Leverage Ratio permitted on June 30, 1999 shall be increased to 6.00 to
1.0 and such maximum Senior Leverage Ratio shall stay in effect until June 30,
2000, at which time the maximum Senior Leverage Ratio will decrease to 5.50 to
1.0, with the above table to be thereafter applicable.
(b) At any time on and after the Trigger Date, the Borrower will not
permit the Senior Leverage Ratio determined as at the end of any fiscal quarter
set forth below to be more than the ratio set forth opposite such quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending:
---------------------
Ratio
-----
<S> <C>
Trigger Date
through September 30, 2001
4.00 to 1.0
December 31, 2001
through September 30, 2002 3.75 to 1.0
December 31, 2002
though September 30, 2003 3.50 to 1.0
Thereafter 3.25 to 1.0
</TABLE>
7.14 Limitation On Issuance of Stock. The Borrower will not permit any
-------------------------------
of its Subsidiaries, directly or indirectly, to issue any shares of such
Subsidiary's capital stock or other securities (or warrants, rights or options
to acquire shares or other equity securities), except (i) for replacements of
then outstanding shares of capital stock, (ii) for stock splits, stock dividends
and similar issuances which do not decrease the percentage ownership of the
Borrower and its Subsidiaries taken as a whole in any class of the capital stock
of such Subsidiary, (iii) for issuances to the Borrower or any of its
Subsidiaries in connection with the creation of new Subsidiaries permitted under
Section 7.07, (iv) to qualify directors to the extent required by applicable law
and (v) for shares of STE and Sidney Telephone issued in connection with the
exercise of any of the Existing Warrants.
7.15 Designated Senior Debt. The Borrower shall not designate any
----------------------
Indebtedness as Designated Senior Debt (as defined in the indenture governing
Permitted Subordinated Debt).
SECTION 8. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each, an "Event of Default"):
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<PAGE>
8.01 Payments. The Borrower shall (i) default in the payment when due of
--------
any principal of the Loans or (ii) default, and such default shall continue for
five or more Business Days, in the payment when due of any interest on the Loans
or any Fees or any other amounts owing hereunder or under any other Credit
Document; or
8.02 Representations, etc. Any representation, warranty or statement made
--------------------
by any Credit Party herein or in any other Credit Document or in any statement
or certificate delivered or required to be delivered pursuant hereto or thereto
shall prove to be untrue in any material respect on the date as of which made or
deemed made; or
8.03 Covenants. Any Credit Party shall (a) default in the due performance
---------
or observance by it of any term, covenant or agreement contained in Section 6.10
or 7, or (b) default in the due performance or observance by it of any term,
covenant or agreement (other than those referred to in Section 8.01, 8.02 or
clause (a) of this Section 8.03) contained in this Agreement and such default
shall continue unremedied for a period of at least 30 days after written notice
to the Borrower by the Administrative Agent or the Required Lenders; or
8.04 Default Under Other Agreements. (a) The Borrower or any of its
------------------------------
Subsidiaries shall (i) default in any payment with respect to any Indebtedness
(other than the Obligations) beyond the period of grace, if any, applicable
thereto or (ii) default in the observance or performance of any agreement or
condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause, any such
Indebtedness to become due prior to its stated maturity; or (b) any such
Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be
due and payable (or shall be required to be prepaid as a result of a default
thereunder or of an event of the type that constitutes an Event of Default)
prior to the stated maturity thereof, provided that it shall not constitute an
Event of Default pursuant to this Section 8.04 unless the aggregate principal
amount of all Indebtedness referred to in clauses (a) and (b) above exceeds $3.0
million in the aggregate at any one time; or
8.05 Bankruptcy, etc. The Borrower or any Material Subsidiary shall
---------------
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the
Borrower or any of its Material Subsidiaries and the petition is not
controverted within 20 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Borrower or any of its Material Subsidiaries; or the Borrower or any of its
Material Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt,
-58-
<PAGE>
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or any
of its Material Subsidiaries; or there is commenced against the Borrower or any
of its Material Subsidiaries any such proceeding which remains undismissed for a
period of 60 days; or the Borrower or any of its Material Subsidiaries is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Borrower or any of its
Material Subsidiaries suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or unstayed
for a period of 60 days; or the Borrower or any of its Material Subsidiaries
makes a general assignment for the benefit of creditors; or any corporate action
is taken by the Borrower or any of its Material Subsidiaries for the purpose of
effecting any of the foregoing; or
8.06 ERISA. (a) Any Plan or Multiemployer Plan shall fail to satisfy the
-----
minimum funding standard required for any plan year or part thereof under
Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or
extension of any amortization period is sought or granted under Section 412 of
the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred,
a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to sub paragraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan or Multiemployer Plan which is
subject to Title IV of ERISA is, shall have been or is likely to be terminated
or to be the subject of termination proceedings under ERISA, any Plan shall have
an Unfunded Current Liability, a contribution required to be made with respect
to a Plan, Multiemployer Plan has not been timely made, the Borrower or any
Subsidiary or any ERISA Affiliate has incurred or is likely to incur any
liability to or on account of a Plan or Multiemployer Plan under Section 409,
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health
plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code)
under Section 4980B of the Code, or the Borrower or any Subsidiary has incurred
or is likely to incur liabilities pursuant to one or more employee welfare
benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to
retired employees or other former employees (other than as required by Section
601 of ERISA) or Plans; (b) there shall result from any such event or events the
imposition of a lien, the granting of a security interest, or a liability or a
material risk of incurring a liability; and (c) such lien, security interest or
liability, individually, and/or in the aggregate, in the opinion of the Required
Lenders, has had, or is reasonably likely to have, a Material Adverse Effect; or
8.07 Pledge Agreement. (a) Except in each case to the extent resulting from
----------------
the negligent or willful failure of the Collateral Agent to continue to hold
Pledged Securities
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<PAGE>
under the Pledge Agreement, the Pledge Agreement shall cease to be, in any
material respect, in full force and effect, or shall cease, in any material
respect, to give the Collateral Agent the Liens, powers and privileges purported
to be created thereby in favor of the Collateral Agent, or (b) any Credit Party
shall default in the due performance or observance of any material term,
covenant or agreement on its part to be performed or observed pursuant to the
Pledge Agreement and such default shall continue for 15 or more days after
written notice to the respective Credit Party by the Administrative Agent; or
8.08 Subsidiary Guaranty. Any Subsidiary Guaranty or any material provision
-------------------
thereof shall cease to be in full force and effect, or any Subsidiary Guarantor
or any Person acting by or on behalf of such Subsidiary Guarantor shall deny or
disaffirm such Subsidiary Guarantor's obligations under any Subsidiary Guaranty;
or
8.09 Judgments. One or more judgments or decrees shall be entered against
---------
the Borrower or any of its Subsidiaries involving a liability (to the extent not
paid or covered by insurance) in excess of $3.0 million in the aggregate for all
such judgments and decrees for the Borrower and its Subsidiaries and all such
judgments and decrees in excess of such amount shall not have been vacated,
discharged or stayed or bonded pending appeal within 60 days from the entry
thereof;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Lenders, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Lender to enforce its claims against any Subsidiary
Guarantor or the Borrower, except as otherwise specifically provided for in this
Agreement (provided that, if an Event of Default specified in Section 8.05 shall
--------
occur with respect to the Borrower, the result which would occur upon the giving
of written notice by the Administrative Agent as specified in clauses (i) and
(ii) below shall occur automatically without the giving of any such notice): (i)
declare the Total Commitment terminated, whereupon the Commitment of each Lender
shall forthwith terminate immediately and any Fees shall forthwith become due
and payable without any other notice of any kind; (ii) declare the principal of
and any accrued interest in respect of all Loans and all obligations owing
hereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower; and (iii) enforce, as Collateral Agent (or
direct the Collateral Agent to enforce), any and all of the Liens and rights
created pursuant the Pledge Agreement.
SECTION 9. Definitions. As used herein, the following terms shall have the
-----------
meanings herein specified unless the context otherwise requires. Defined terms
in this Agreement shall include in the singular number the plural and in the
plural the singular:
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<PAGE>
"Acquired Companies" shall mean each of the parent corporations that
are acquired by the Borrower pursuant to the Acquisitions, and their respective
Subsidiaries.
"Acquisition Commitment" shall mean, with respect to each Lender, the
amount, if any, specified by such Lender in a written notice to the Borrower and
the Administrative Agent as its Acquisition Commitment in response to a written
request by the Borrower to some or all of the then existing Lenders and to other
Eligible Transferees acceptable to the Agents and the Borrower to provide
Acquisition Commitments (or such lesser amount as is allocated to such Lender by
the Agents if the aggregate Acquisition Commitments offered by all Lenders
exceed the maximum Acquisition Commitments requested by the Borrower (which
maximum shall not exceed $165 million) and which amount shall be set forth
opposite such Lender's name in a revised Annex I prepared by the Administrative
Agent directly below the column entitled "Acquisition Commitment," as the same
may be (x) reduced or terminated from time to time pursuant to Section 2.02,
2.03 and/or 8 or (y) adjusted from time to time as a result of assignments to or
from such Lender pursuant to Section 1.13 and/or 11.04.
"Acquisition Documents" shall mean, with respect to any Acquisition,
the Agreement and Plan of Merger executed by the Borrower, an Intermediary
Holding Company, an acquisition Subsidiary and the respective Acquired Company
(or other purchase or similar agreement) governing such Acquisition and all
other material agreements and documents relating to such Acquisition, in the
form delivered to the Administrative Agent pursuant to Section 4.02(a) and as
same may be amended, modified, amended and restated or supplemented from time to
time pursuant to the terms hereof and thereof.
"Acquisition Facility" shall mean the Facility evidenced by the Total
Acquisition Commitment.
"Acquisitions" shall mean the Chouteau Acquisition, the Ellensburg
Acquisition, the El Paso Acquisition, the Taconic Acquisition and the UI
Acquisition.
"Adjusted Total Acquisition Commitment" shall mean at any time the
Total Acquisition Commitment less the aggregate Acquisition Commitment of all
Defaulting Lenders.
"Adjusted Total Revolving Commitment" shall mean at any time the Total
Revolving Commitment less the aggregate Revolving Commitments of all Defaulting
Lenders.
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 10.09.
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<PAGE>
"AF Commitment Commission" shall have the meaning provided in Section
2.01(c).
"AF Lender" shall mean at any time each Lender with an Acquisition
Commitment or with outstanding AF Loans.
"AF Loan" shall have the meaning provided in Section 1.01(d).
"AF Note" shall have the meaning provided in Section 1.05(a).
"AF/RF Maturity Date" shall mean September 30, 2004.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Agents" shall have the meaning provided in the first paragraph of this
Agreement.
"Agreement" shall mean this Credit Agreement, as the same may be from time
to time further modified, amended, amended and restated and/or supplemented.
"Anticipated Reinvestment Amount" shall mean, with respect to any
Reinvestment Election, the amount specified in the Reinvestment Notice delivered
by the Borrower in connection therewith as the amount of the Net Cash Proceeds
from the related Asset Sale that the Borrower intends to use to finance one or
more Acquisitions or Permitted Acquisitions within 180 days.
"Applicable Acquisition Documents" shall have the meaning provided in
Section 4.02(a).
"Applicable Base Rate Margin" shall mean (i) in the case of AF Loans and RF
Loans, 1.50% less the Margin Reduction Discount, if any, (ii) in the case of B
----
Term Loans, 1.75% less the Margin Reduction Discount, if any and (iii) in the
----
case of C Term Loans-Floating Rate, 2.00% less the Margin Reduction Discount, if
----
any.
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<PAGE>
"Applicable CC Percentage" shall mean (i) .375% at any time the Applicable
Eurodollar Margin for RF Loans is 1.50%; and (ii) .50% at all other times.
"Applicable Eurodollar Margin" shall mean (i) in the case of AF Loans and
RF Loans, 2.50% less the Margin Reduction Discount, if any, (ii) in the case of
----
B Term Loans, 2.75% less the Margin Reduction Discount, if any and (iii) in the
----
case of C Term Loans-Floating Rate, 3.00% less the Margin Reduction Discount, if
----
any.
"Asset Sale" shall mean and include (x) the sale, transfer or other
disposition by the Borrower or any Subsidiary to any Person other than the
Borrower or any Subsidiary Guarantor of any asset of the Borrower or such
Subsidiary (other than sales, transfers or other dispositions in the ordinary
course of business of inventory and/or obsolete or excess equipment) and/or (y)
the receipt by the Borrower or any Subsidiary of any insurance, condemnation or
similar proceeds in connection with a casualty or taking of any of its assets in
excess of the costs incurred by the Borrower and its Subsidiaries in respect of
such event and of repairing or replacing the assets so damaged, destroyed or
taken but in all cases only to the extent that the aggregate Net Cash Proceeds
of all such sales, transfers, dispositions and receipts in any fiscal year are
in excess of $1,000,000.
"Assignment Agreement" shall mean the Assignment Agreement in the form of
Exhibit K (appropriately completed).
"Authorized Officer" shall mean any senior officer of the Borrower
designated as an authorized officer in writing to the Administrative Agent by
the Borrower.
"B Maturity Date" shall mean March 31, 2006.
"B Term Commitment" shall mean, with respect to each Lender, (A) the
amount, if any, set forth opposite such Lender's name on Annex I hereto directly
below the column entitled "B Term Commitment" as the same may be (x) reduced or
terminated from time to time pursuant to Section 2.02, 2.03 and/or 8 and/or (y)
adjusted from time to time as a result of assignments to or from such Lender
pursuant to Section 1.13 and/or 11.04 plus (B) the amount, if any, of a B Term
Commitment of such Lender committed to pursuant to a B Term Commitment Renewal.
"B Term Commitment Renewal" shall mean the providing of additional B Term
Commitments from time to time after any mandatory repayment of B Term Loans
and/or mandatory reduction of B Term Commitments pursuant to Section
2.03(b)(iii) or (iv) (each, a "B Reduction Event") in an aggregate amount (the
"Additional B Commitment Amount"), selected by the Borrower, not to exceed the
principal amount of the B Term Loans so repaid and the B Term Commitments so
reduced, with any B Term Commitment Renewal to be effected by: (i) the Borrower
requesting in writing some or all of the Lenders
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<PAGE>
and/or other Eligible Transferees acceptable to the Agents and the Borrower to
provide an additional B Term Commitment, which request shall be given within 90
days following the B Reduction Event but in any event prior to the date
occurring 255 days after the Closing Date and (ii) each such Lender or Eligible
Transferee who desires to do so, providing a written notice to the Borrower and
the Administrative Agent in response to such request setting forth the
additional B Term Commitment it will offer, with the amount so specified (or
such lesser amount as is allocated to such Lender by the Agents if the aggregate
offered additional B Term Commitments exceed the Additional B Commitment Amount)
to be such Person's additional B Term Commitment, it being agreed that any such
additional B Term Commitments shall terminate on the date occurring 270 days
after the Closing Date (after giving effect to the making of B Term Loans, if
any, on such date) and each such Person with an additional B Term Commitment
shall be a Lender.
"B Term Facility" shall mean the Facility evidenced by the Total B Term
Commitment.
"B Term Loan" shall have the meaning provided in Section 1.01(a).
"B Term Note" shall have the meaning provided in Section 1.05(a).
"B Termination Date" shall mean the date occurring 270 days after the
Closing Date.
"B TF Percentage" shall mean, at any time of determination thereof, a
fraction (expressed as a percentage) the numerator of which is equal to the sum
of (x) the aggregate principal amount of B Term Loans outstanding at such time
and (y) the Total B Term Commitment at such time and the denominator of which is
equal to the sum of (x) the aggregate principal amount of B Term Loans and C
Term Loans outstanding at such time and (y) the Total B Term Commitment at such
time.
"B Utilization Date" shall mean the date on which the Total B Term
Commitment is first reduced to zero (determined without giving effect to any
increase to the B Term Commitment pursuant to a B Term Commitment Renewal).
"Bankruptcy Code" shall have the meaning provided in Section 8.05.
"Base Rate" at any time shall mean the higher of (i) the rate which is 1/2
of 1% in excess of the Federal Funds Effective Rate and (ii) the Prime Lending
Rate.
"Base Rate Loan" shall mean each Loan (other than any C Term Loan-Fixed
Rate prior to the FRE Date applicable thereto) bearing interest at the rates
provided in Section 1.08(a).
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<PAGE>
"Borrower" shall mean MJD Communications, Inc., a Delaware corporation.
"Borrowing" shall mean the incurrence of Base Rate Loans or Eurodollar
Loans pursuant to a single Facility by the Borrower from the Lenders having
Commitments with respect to such Facility on a pro rata basis on a given date
--- ----
(or resulting from conversions on a given date), having in the case of
Eurodollar Loans the same Interest Period; provided that Base Rate Loans
incurred pursuant to Section 1.10(b) shall be considered part of any related
Borrowing of Eurodollar Loans.
"BTCo" shall mean Bankers Trust Company in its individual capacity.
"Business" shall have the meaning provided in Section 7.01.
"Business Day" shall mean (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which shall be
in the City of New York a legal holiday or a day on which banking institutions
are authorized by law or other governmental actions to close and (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in Dollar deposits in the interbank Eurodollar market.
"C Maturity Date" shall mean March 31, 2007.
"C Term Commitment" shall mean, with respect to each Lender, the amount, if
any, set forth opposite such Lender's name on Annex I hereto directly below the
column entitled "C Term Commitment" as the same may be terminated pursuant to
Section 2.03.
"C Term Facility" shall mean the Facility evidenced by the Total C Term
Commitment and the CoBank Commitment.
"C Term Loan-Fixed Rate" and "C Term Loan-Floating Rate" shall each have
the meaning provided in Section 1.01(b).
"C Term Loans" shall mean and include the C Term Loans-Floating Rate and
the C Term Loans-Fixed Rate.
"C Term Notes-Fixed Rate" and "C Term Note-Floating Rate" shall each have
the meaning provided in Section 1.05(a).
"C Term Notes" shall mean and include the C Term Notes-Fixed Rate and the C
Term Notes-Floating Rate.
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<PAGE>
"C TF Percentage" shall mean, at any time of determination thereof 100%
less the then B TF Percentage.
"Capital Contribution Agreement" shall have the meaning provided in Section
4.01(k).
"Capital Lease" as applied to any Person shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Capitalized Lease Obligations" shall mean all obligations under Capital
Leases of the Borrower or any of its Subsidiaries in each case taken at the
amount thereof accounted for as liabilities in accordance with GAAP.
"Carousel" shall mean Carousel Capital Partners, L.P., a Delaware limited
partnership.
"Carousel Affiliate" shall mean Carousel and each investment fund
controlled by Carousel.
"Cash Equivalents" shall mean (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (ii) Dollar denominated time
deposits, certificates of deposit and bankers' acceptances of (x) any Lender
that is a domestic commercial bank of recognized standing having capital and
surplus in excess of $500,000,000 or (y) any bank (or the parent company of such
bank) whose short-term commercial paper rating from Standard & Poor's Ratings
Services, a division of McGraw-Hill, Inc. ("S&P") is at least A-1 or the
equivalent thereof or from Moody's Investors Service, Inc. ("Moody's") is at
least P-1 or the equivalent thereof (any such bank, an "Approved Bank"), in each
case with maturities of not more than six months from the date of acquisition,
(iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (ii) above, (iv)
commercial paper issued by any Approved Bank or by the parent company of any
Approved Bank and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured debt
rating of at least A or A2, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing within six months after
the date of acquisition, (v) marketable direct obligations issued by any state
of the United States of America or any political subdivision of any such state
or any public instrumentality thereof
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<PAGE>
maturing within six months from the date of acquisition thereof and, at the time
of acquisition, having one of the two highest ratings obtainable from either S&P
or Moody's, and (vi) investments in money market funds substantially all of
whose assets are comprised of securities of the type described in clauses (i)
through (v) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale, the aggregate
cash payments (including any cash received by way of deferred payment pursuant
to a note receivable issued in connection with such Asset Sale, other than the
portion of such deferred payment constituting interest, but only as and when so
received) received by the Borrower and/or any Subsidiary from such Asset Sale.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.
-- ----
"Change of Control" shall mean at any time and for any reason (a) prior to
a Qualified IPO, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) on a fully diluted
basis in the aggregate of at least 50.1% of the total economic and voting
interest in the Borrower's capital stock, (b) on and after a Qualified IPO, (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in clause (a) above) on a fully diluted basis of
more than 25% of the total voting interest in the capital stock of the Borrower
or (ii) during any period of two consecutive years individuals who at the
beginning of such period constituted the Board of Directors of the Borrower
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Borrower was approved
by a vote of a majority of the directors of the Borrower then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Borrower then in office
or (c) a "change of control" or similar event shall occur as provided in any
other agreement governing or evidencing material Indebtedness of the Borrower.
"Chouteau" shall mean Chouteau Telephone Company, an Oklahoma corporation.
"Chouteau Acquisition" shall mean the acquisition by the Borrower of
Chouteau pursuant to the Applicable Acquisition Documents.
"CLEC" shall mean competitive local exchange carriers.
"CLEC Back-Stop Letters of Credit" shall mean each standby letter of credit
issued by a financial institution for the account of the Borrower in support of
the
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<PAGE>
reimbursement obligations of MJD TeleChoice under any letter of credit issued
for its account in support of obligations incurred in the ordinary course of
business with respect to customer deposits and other similar statutorily
mandated obligations.
"CLEC Company" shall have the meaning in Section 7.06(k) and shall in
any event include MJD TeleChoice.
"CLEC Expenditures" shall mean expenditures with respect to the
acquisition, creation and/or maintenance of any CLEC.
"Closing Date" shall mean the date on which the initial Loans under this
Agreement are made.
"CoBank" shall mean CoBank, ACB.
"CoBank Commitment" shall mean $51,506,404, as the same may be
terminated pursuant to Section 2.03.
"CoBank Continuing Loans" shall mean the principal amounts outstanding
under the CoBank loans identified below which are accruing interest at the fixed
rates identified below for periods ending on the dates identified below:
<TABLE>
<CAPTION>
Existing Principal Interest Period End
Loan No. Amount Date Current Interest Rate
- -------- ------------------ ------------------- ----------------------
<S> <C> <C> <C>
000084977 $10,000,000.00 09/02/02 9.96%
000085771 $15,000,000.00 09/05/00 9.23%
000084932 $11,077,685.00 09/02/02 9.96%
574742001 $ 2,674,839.89 08/30/04 10.37%
574742002 $ 9,513,879.29 09/30/04 10.57%
000085156 $ 3,240,000.00 09/02/02 9.76%
</TABLE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in the Pledge
Agreement.
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<PAGE>
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Lenders.
"Commitment" shall mean, with respect to each Lender, such Lender's Term
Commitment, Revolving Commitment, Acquisition Commitment and/or CoBank
Commitment.
"Commitment Commission" shall mean the TF Commitment Commission, the
RF Commitment Commission and the AF Commitment Commission.
"Consolidated Annualized EBITDA" shall mean, as of the last day of any
fiscal quarter, (x) Consolidated EBITDA for the six month's then ended
multiplied by (y) two.
"Consolidated Capital Expenditures" shall mean, for any period, the
aggregate of all cash expenditures (including in all events all amounts expended
under Capital Leases (other than Capital Leases evidencing MJD Capital Debt) but
excluding any amount representing capitalized interest) by the Borrower and its
Subsidiaries during that period that, in conformity with GAAP, are or are
required to be included in the property, plant or equipment reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries, provided that
Consolidated Capital Expenditures shall in any event (x) exclude the purchase
price paid in cash in connection with the acquisition of any Person (including
through the purchase of all of the capital stock or other ownership interests of
such Person or through merger or consolidation) pursuant to an Acquisition or a
Permitted Acquisition whether or not allocable to property, plant and equipment
and (y) exclude amounts expended with insurance proceeds.
"Consolidated Debt" shall mean, as of any date of determination, (i) the
aggregate stated balance sheet amount of all Indebtedness of the Borrower and
its Subsidiaries on a consolidated basis as determined in accordance with GAAP
plus (ii) any Indebtedness for borrowed money of any other Person as to which
the Borrower and/or any of its Subsidiaries has created a guarantee or other
Contingent Obligation (but only to the extent of such guarantee or other
Contingent Obligation).
"Consolidated EBIT" shall mean, for any period, (A) the sum of the amounts
for such period of (i) Consolidated Net Income, (ii) provisions for taxes based
on income, (iii) Consolidated Interest Expense, (iv) amortization or write-off
of deferred financing costs to the extent deducted in determining Consolidated
Net Income, (v) losses on sales of assets (excluding sales in the ordinary
course of business) and other extraordinary losses, (vi) non-core income
relating to Non-Core Assets to the extent not included in any determination of
Consolidated Net Income, (vii) to the extent Consolidated EBIT is being
determined for any period that includes all or a portion of the twelve-month
period ended December 31, 1997,
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<PAGE>
any non-recurring losses incurred during such twelve-month period associated
with the start-up of ST Long Distance Corporation to the extent same do not
exceed $1.4 million for the twelve-month period ended December 31, 1997, (viii)
dividends paid by CoBank to the Borrower on common stock of CoBank held by the
Borrower to the extent not included in any determination of Consolidated Net
Income and (ix) the non-cash cash portion of any retirement or pension plan
expense incurred by the Borrower or any of its Subsidiaries less (B) gains on
sales of assets (excluding sales in the ordinary course of business) and other
extraordinary gains and other one-time non-cash gains, all as determined on a
consolidated basis in accordance with GAAP.
"Consolidated EBITDA" shall mean, for any period, the sum of the
amounts for such period of (i) Consolidated EBIT, (ii) depreciation expense and
(iii) amortization expense including any amortization or write-off related to
the write-up of any assets as a result of purchase accounting, provided that
Consolidated EBITDA for any such period during which an Acquisition or a
Permitted Acquisition was consummated or a disposition of a business was
effected shall be determined on a pro forma basis as if such Acquisition or
--- -----
Permitted Acquisition were consummated or disposition effected, as the case may
be, on the first day of such period and, in the event the Borrower delivers to
the Administrative Agent within 20 Business Days following the consummation of
an Acquisition or a Permitted Acquisition a Cost Adjustment Certificate, as if
the savings based on the cost reduction synergies set forth therein were
achieved for each day during such pre-consummation period (such pro forma
--- ----
determination to be made on the basis that a one day pro rata share of the cost
--- ----
reduction synergies set forth in such Cost Adjustment Certificate to be achieved
during the first full 12 months following such consummation will apply to each
day during such pre-consummation period).
"Consolidated Interest Expense" shall mean, for any period, total
interest expense (including the portion that is attributable to Capital Leases
in accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated
basis with respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries (including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and without duplication net costs and/or net benefits under
Interest Rate Agreements, but excluding, however, amortization of deferred
financing costs to the extent included in total interest expense), provided that
for the purposes of determining Consolidated Interest Expense as used in Section
7.11, Consolidated Interest Expense for any date of determination prior to March
31, 1999 shall mean Consolidated Interest Expense for the period from the
Closing Date to such date of determination as so determined, that is annualized.
"Consolidated Net Income" shall mean for any period, the net income
(or loss) of the Borrower and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined in conformity with
GAAP, provided that there shall be
--------
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<PAGE>
excluded from the calculation thereof (without duplication) (i) the income (or
loss) of any Person (other than Subsidiaries of the Borrower) in which any other
Person (other than the Borrower or any of its Subsidiaries) has a joint
interest, except to the extent of the amount of dividends or other distributions
actually paid to the Borrower or any of its Subsidiaries by such Person during
such period, (ii) the income (or loss) of any Person accrued prior to the date
it becomes a Subsidiary of the Borrower or is merged into or consolidated with
the Borrower or any of its Subsidiaries or that Person's assets are acquired by
the Borrower or any of its Subsidiaries, (iii) the income of any Subsidiary of
the Borrower to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary, (iv) all one time costs and expenses paid during such period in
respect of the Transaction and (v) non-cash costs arising from implementation of
SFAS 106 and SFAS 109.
"Contingent Obligations" shall mean as to any Person any obligation of
such Person guaranteeing or intending to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof, provided, however, that
the term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated
maximum of the Contingent Obligation or, if none, the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if there is no stated or determinable amount of the primary
obligation, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Cost Adjustment Certificate" shall mean, with respect to an
Acquisition or a Permitted Acquisition, a certificate executed by an Authorized
Officer of the Borrower setting forth the factually supportable and identifiable
cost reduction synergies estimated in good faith to result from such Acquisition
or Permitted Acquisition, as the case may be, during the 12 months following the
date of the consummation of such Acquisition or Permitted Acquisition, as the
case may be, which certificate shall be in form and substance reasonably
satisfactory to the Agents.
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"Credit Documents" shall mean this Agreement, the Notes, the Pledge
Agreement and the Subsidiary Guaranty.
"Credit Party" shall mean the Borrower and each Subsidiary party to a
Credit Document.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.
"Dividends" shall have the meaning provided in Section 7.09.
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"Effective Date" shall have the meaning provided in Section 11.10.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution or other institutional "accredited investor" as defined
in SEC Regulation D.
"Ellensburg" shall mean Ellensburg Telephone Company, a Washington
corporation.
"Ellensburg Acquisition" shall mean the acquisition of Ellensburg by
the Borrower pursuant to the Applicable Acquisition Documents.
"El Paso" shall mean Ravenswood Communications, Inc., an Illinois
corporation.
"El Paso Acquisition" shall mean the acquisition of El Paso by the
Borrower pursuant to the Applicable Acquisition Documents.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations (other than internal reports prepared
by the Borrower or any of its Subsidiaries solely in the ordinary course of such
Person's business and not in response to any third party action or request of
any kind) or proceedings relating to any Environmental Law or any permit issued,
or any approval given, under any such Environmental Law (hereafter, "Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions
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or damages pursuant to any applicable Environmental Law, and (b) any and all
Claims by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from Hazardous Materials
arising from alleged injury or threat of injury to health, safety or the
environment.
"Environmental Law" means any applicable federal, state, foreign or
local statute, law, rule, regulation, ordinance, code and rule of common law now
or hereafter in effect and in each case as amended, and any binding judicial or
administrative interpretation thereof, including any binding judicial or
administrative order, consent decree or judgment, relating to the environment or
Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. (S) 1251 et seq.; the
-- ----
Toxic Substances Control Act, 15 U.S.C. (S) 7401 et seq.; the
-- ----
Clean Air Act, 42 U.S.C. (S) 2601 et seq.; the Safe Drinking Water Act, 42
-- ----
U.S.C. (S) 300F et seq.; the Oil Pollution Act of 1990, 33 U.S.C. (S) 2701 et
-- ---- --
seq.; and any applicable state and local or foreign counterparts or equivalents.
- ----
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary would be deemed to be
a "single employer" within the meaning of Section 414(b) or (c) of the Code and
with respect to Sections 412 and 4971 of the Code and Section 302 of ERISA,
Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" shall mean each Loan (other than any C Term Loan-
Fixed Rate prior to the FRE Date applicable thereto) bearing interest at the
rates provided in Section 1.08(b).
"Eurodollar Rate" shall mean with respect to each Interest Period for
a Eurodollar Loan, (i) the offered quotation to first-class banks in the
interbank Eurodollar market by the Administrative Agent for dollar deposits of
amounts in same day funds comparable to the outstanding principal amount of the
Eurodollar Loans for which an interest rate is then being determined with
maturities comparable to the Interest Period to be applicable to such Eurodollar
Loans, determined as of 10:00 A.M. (New York time) on the date which is two
Business Days prior to the commencement of such Interest Period divided (and
rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage
equal to 100% minus the then stated maximum rate of all reserve requirements
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves) applicable to
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any member bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D (or any successor category of liabilities
under Regulation D).
"Event of Default" shall have the meaning provided in Section 8.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Existing Indebtedness" shall have the meaning provided in Section
7.04(g).
"Existing Warrants" shall mean warrants to purchase up to 12,500
shares of common stock of STE and up to 7.69 shares of common stock of Sidney
Telephone, in each case as such number of shares may be adjusted pursuant to the
terms of such warrants after the Closing Date, as the same may be amended,
modified or supplemented after the Closing Date pursuant to the terms thereof
and hereof.
"Expiration Date" shall mean June 30, 1998.
"Facility" shall mean any of the credit facilities established under
this Agreement, i.e., the B Term Facility, the C Term Facility, the Revolving
----
Facility or the Acquisition Facility.
"FCC" shall mean the Federal Communications Commission and any
successor regulatory body.
"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 2.01.
"Fixed Rate Loans" shall mean the C Term Loans-Fixed Rate.
"FRE Date," with respect to any C Term Loan-Fixed Rate, shall have the
meaning provided in the C Term Note-Fixed Rate evidencing such C Term Loan-
Fixed Rate.
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"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect on the date of this Agreement; it being
understood and agreed that determinations in accordance with GAAP for purposes
of Section 7, including defined terms as used therein, are subject (to the
extent provided therein) to Section 11.07(a).
"Hazardous Materials" shall mean (a) petroleum or petroleum products,
radioactive materials, asbestos in any form that is friable, urea formaldehyde
foam insulation, and radon gas; (b) any chemicals, materials or substance
defined as or included in the definition of "hazardous substances," "hazardous
waste", "hazardous materials," "extremely hazardous substances," restricted
hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or
"pollutants," or words of similar import, under any applicable Environmental
Law; and (c) any other chemical, material or substance, the release of which is
prohibited, limited or regulated by any governmental authority.
"Indebtedness" of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase
price of assets or services which in accordance with GAAP would be shown on
the liability side of the balance sheet of such Person, (iii) the face amount of
all letters of credit issued for the account of such Person and, without
duplication, all drafts drawn there under, (iv) all indebtedness of a second
Person secured by any Lien on any property owned by such first Person, whether
or not such indebtedness has been assumed (to the extent of the fair market
value of such property), (v) all Capitalized Lease Obligations of such Person,
(vi) all obligations of such Person to pay a specified purchase price
for goods or services whether or not delivered or accepted, i.e., take-or-pay
----
and similar obligations, (vii) all net obligations of such Person under
Interest Rate Agreements and (viii) all Contingent Obligations of such Person
(other than Contingent Obligations arising from the guaranty by such Person
of the obligations of the Borrower and/or its Subsidiaries to the extent such
guaranteed obligations do not constitute Indebtedness and are otherwise
permitted hereunder), provided that Indebtedness shall not include trade
--------
payables, accrued expenses and receipt of progress and advance payments, in
each case arising in the ordinary course of business.
"Indebtedness to be Refinanced" shall mean Indebtedness of the
Borrower and its Subsidiaries owing to CoBank (exclusive of the CoBank
Continuing Loans), Rural Telephone Financing Corp. and Fleet Equity Partners in
such aggregate principal amounts as are set forth in the pay-off letters
delivered by such Persons to the Administrative Agent on the Closing Date.
"Initial AF Borrowing Date" shall mean the date upon which the initial
incurrence of AF Loans occurs.
"Interest Period" with respect to any Loan shall mean the interest
period applicable thereto, as determined pursuant to Section 1.09.
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"Interim Prepayment Amount" shall mean, at any time, (i) the
Anticipated Reinvestment Amount specified in a Reinvestment Notice delivered no
earlier than 180 days prior to such time less (ii) the aggregate principal
amount of RF Loans made after the delivery of such Reinvestment Notice and prior
to such time to finance Permitted Acquisitions or Acquisitions effected pursuant
to the related Reinvestment Election.
"Interest Rate Agreement" shall mean any interest rate swap agreement,
any interest rate cap agreement, any interest rate collar agreement or other
similar agreement or arrangement designed to protect the Borrower or any
Subsidiary against fluctuations in interest rates.
"Intermediary Holding Company" shall mean MJD Holdings Corp., MJD
Ventures, Inc., MJD Services Corp., STE and any other Subsidiary first acquired
or created after the Closing Date that is not an operating company (but that
owns directly or indirectly one or more operating companies) and is not subject
to regulatory restrictions on borrowings or issuances of guaranties of
indebtedness for borrowed money.
"Kelso" shall mean Kelso Investment Associates V, L.P., a Delaware
limited partnership, and Kelso Equity Partners V, L.P., a Delaware limited
partnership.
"Kelso Affiliate" shall mean Kelso and each investment fund controlled
by Kelso.
"Lender" shall have the meaning provided in the first paragraph of
this Agreement.
"Lender Default" shall mean (i) the refusal (which has not been
retracted) or failure of a Lender to make available its portion of any
incurrence of Loans or (ii) a Lender having notified the Administrative Agent
and/or the Borrower that it does not intend to comply with the obligations under
Section 1.01, in the case of either clause (i) or (ii) as a result of the
appointment of a receiver or conservator with respect to such Lender at the
direction or request of any regulatory agency or authority.
"Lender Register" shall have the meaning provided in Section 11.16.
"Leverage Ratio" shall mean, at any date of determination, the ratio
of (x) the remainder of (i) Consolidated Debt on such date less (ii) the
----
amount, if positive, of (A) the aggregate amount of cash or Cash Equivalents
held by the Borrower and its Subsidiaries on such date less (B) all overdue
accounts payable of the Borrower and its Subsidiaries at such time not paid in
accordance with past practice as determined as of the Closing Date to (y)
Consolidated Annualized EBITDA as of the last day of the fiscal quarter then or
last ended.
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"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"Loan" shall have the meaning provided in Section 1.01.
"Management Affiliate" shall mean Messrs. Duda, Leach, Thomas, Johnson
and Bergstein or (to the extent same are controlled by one or more of the
foregoing Persons) Bugger Associates and MJD Partners, L.P.
"Margin Reduction Discount" shall mean zero, provided that the Margin
--------
Reduction Discount shall be increased to .25% per annum (in the case of B Term
Loans and C Term Loans-Floating Rate) or .50%, .75% or 1.00% per annum (in the
case of RF Loans and AF Loans), as specified in clauses (i), (ii), (iii) or (iv)
below, as the case may be, when, and for so long as, the ratio set forth in such
clause has been satisfied as at the end of the then Relevant Fiscal Quarter:
(i) the Margin Reduction Discount for B Term Loans and C Term Loans-
Floating Rate shall be .25% per annum in the event that as of the end of
the Relevant Fiscal Quarter the Leverage Ratio is less than 5.00 to 1; or
(ii) the Margin Reduction Discount for RF Loans and AF Loans shall
be .50% per annum in the event that as of the end of the Relevant Fiscal
Quarter the Leverage Ratio is less than 5.50 to 1 but equal to or greater
than 5.00 to 1;
(iii) the Margin Reduction Discount for RF Loans and AF Loans shall
be .75% per annum in the event that as of the end of the Relevant Fiscal
Quarter the Leverage Ratio is equal to or greater than 4.50 to 1 but less
than 5.00 to 1; and
(iv) the Margin Reduction Discount for RF Loans and AF Loans shall
be 1.00% per annum in the event that as of the end of the Relevant Fiscal
Quarter the Leverage Ratio is less than 4.50 to 1.
The Leverage Ratio shall be determined as of the last day of the Relevant Fiscal
Quarter, by delivery of an officer's certificate of the Borrower to the Lenders
pursuant to Section 6.01(e), which certificate shall set forth the calculation
of the Leverage Ratio. The Margin Reduction Discount so determined shall apply,
except as set forth below, from the date on which such officer's certificate is
delivered to the Administrative Agent to the earlier of (x) the date on which
the next certificate is delivered to the Administrative Agent pursuant to
Section 6.01(e) and (y) the 45th day following the end of the fiscal quarter in
which such first certificate was delivered to the Administrative Agent (or the
90th day if such fiscal quarter was the last fiscal quarter of a fiscal year).
Notwithstanding anything to the contrary contained above, the
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Margin Reduction Discount shall be zero (x) if no officer's certificate has
been delivered to the Lenders pursuant to Section 6.01(e) which sets forth the
Leverage Ratio as of the last day of the Relevant Fiscal Quarter or the
financial statements upon which any such calculations are based have not been
delivered, until such a certificate and/or financial statements are delivered
and (y) at all times when there shall exist a Default under Section 8.01 or an
Event of Default. It is understood and agreed that the Margin Reduction Discount
as provided above shall in no event be cumulative and only the Margin Reduction
Discount available pursuant to any of clauses (i), (ii), (iii) or (iv) if any,
contained in this definition shall be applicable.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, property, assets, liabilities or condition (financial or otherwise)
of the Borrower and its Subsidiaries taken as a whole after giving effect to the
Transaction.
"Material Subsidiary" shall mean any Subsidiary having gross assets at
any time with a value of at least 5% of consolidated gross assets of the
Borrower and its Subsidiaries and/or gross revenues for the last four fiscal
quarters of at least 5% of the consolidated gross revenues of the Borrower and
its Subsidiaries.
"Minimum Borrowing Amount" shall mean (i) in the case of B Term Loans,
$10,000,000 (or, if the Total B Term Commitment is less than $10,000,000, the
greater of the then remaining Total B Term Commitment and $1,000,000) and (ii)
in the case of C Term Loans, AF Loans and RF Loans (x) maintained as Base Rate
Loans, $500,000 and (y) maintained as Eurodollar Loans, $1,000,000.
"Minority Shares" shall mean up to 15% of the capital stock of Odin
Telephone Company held by Richfield Associates on the Closing Date and the four
shares of Sunflower Telephone Inc. held on the Closing Date by Frank and Matilda
Schreck and Foulston & Siefkin Trust Account for H.A. and Mary Simpson.
"MJD Capital" shall mean MJD Capital Corp., a South Dakota
corporation.
"MJD TeleChoice" shall mean MJD TeleChoice, Inc., a Delaware
corporation.
"Multiemployer Plan" shall mean any multiemployer plan as defined in
section 4001(a)(3) of ERISA which is contributed to by (or to which there is an
obligation to contribute of) the Borrower or any of its Subsidiaries or an ERISA
Affiliate and each such plan for the five year period immediately following the
latest date on which the Borrower,
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any such Subsidiary or ERISA Affiliate contributed to or had an obligation to
contribute to such plan.
"NationsBank" shall mean NationsBank of Texas, N.A.
"Net Cash Proceeds" shall mean, with respect to any Asset Sale, the
Cash Proceeds resulting therefrom net (without duplication) of expenses of sale
(including payment of principal, premium and interest of Indebtedness secured by
the assets the subject of the Asset Sale and required to be, and which is,
repaid under the terms thereof as a result of such Asset Sale), and incremental
taxes paid or payable as a result thereof.
"90%-Owned Subsidiary" shall mean any Subsidiary to the extent at
least 90% of the capital stock or other ownership interests in such Subsidiary
is owned directly or indirectly by the Borrower.
"Non-Core Assets" shall mean (i) assets of the Borrower and its
Subsidiaries not used in their core business of providing local exchange carrier
services (e.g., assets used in the operation of the cable television business,
----
cellular telephone business and radio stations) and (ii) the stock and/or other
equity interests in any Subsidiary not primarily engaged in the core business of
providing local exchange carrier services, in the case of either clause (i) or
(ii) to the extent such assets are certified as non-core assets by an Authorized
Officer of the Borrower in an officer's certificate delivered to the
Administrative Agent.
"Non-Defaulting Lender" shall mean a Lender that is not a Defaulting
Lender.
"Non-Pledged Subsidiary" shall mean any Subsidiary that is not a
Pledged Subsidiary.
"Note" shall mean and include each B Term Note, each C Term Note, each
RF Note and each AF Note.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent at
130 Liberty Street, New York, New York or such other office as the
Administrative Agent may designate to the Borrower in writing from time to time.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Administrative
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Agent, the Collateral Agent, or any Lender pursuant to the terms of this
Agreement or any other Credit Document.
"Other Consolidated Capital Expenditures" shall mean all Consolidated
Capital Expenditures other than CLEC Expenditures.
"Parent Company" shall mean at any time each Subsidiary (including
each Intermediary Holding Company that is a Subsidiary at such time) that owns
the capital stock of any Subsidiary that is a TelCo.
"Payment Office" shall mean the office of the Administrative Agent at
130 Liberty Street, New York, New York or such other office as the
Administrative Agent may designate to the Borrower and the Lenders in writing
from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquired Debt" shall mean Indebtedness of a Subsidiary
acquired after the Closing Date pursuant to a Permitted Acquisition, to the
extent such Indebtedness was outstanding prior to the consummation of the
Permitted Acquisition and remains outstanding as Indebtedness of the respective
Subsidiary after giving effect thereto, provided that (i) such Indebtedness was
not incurred in connection with or in anticipation of such Permitted Acquisition
or the respective Person becoming Subsidiary of the Borrower, (ii) such
Indebtedness does not constitute Indebtedness of the Borrower or any of its
Subsidiaries other than the respective Subsidiary acquired pursuant to the
respective Permitted Acquisition and shall not be secured by any assets of any
Person other than assets of the Subsidiary so acquired serving as security
therefor at the time of the respective Permitted Acquisition, (iii) no Person
(other than the respective Subsidiary or a direct parent or a Subsidiary of the
respective Subsidiary to the extent such parent or Subsidiary is acquired in
connection with such Permitted Acquisition) shall have any liability (contingent
or otherwise) with respect to any Permitted Acquired Debt and (iv) the aggregate
principal amount of all such Indebtedness shall not exceed at any time
outstanding more than 5% of the Senior Consolidated Debt as such time.
"Permitted Acquisition" shall mean any acquisition by the Borrower or
any Subsidiary Guarantor of a company, business, division or product line
located in the United States if (i) immediately prior to, and after giving
effect to, such acquisition all the covenants contained in this Agreement
(including Sections 7.11, 7.12 and 7.13) shall be complied with on a pro forma
--- -----
basis (as if the acquisition had been consummated on the first day of the six
month period then last ended) and (ii) the acquired company, business, division
or product line is in the Business and, after giving effect to such acquisition,
constitutes a Subsidiary or
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(in the case of a business, division or product line) is owned by a Subsidiary,
provided that no Acquisition shall constitute a Permitted Acquisition.
"Permitted CLEC Expenditures" shall mean CLEC Expenditures to the
extent that such CLEC Expenditures shall not exceed $5 million per fiscal year
($15 million per fiscal year during any period in which the Senior Leverage
Ratio is 4.0 to 1.0 or less), provided that if the aforesaid maximum amount
which is permitted for CLEC Expenditures for any fiscal year is not expended
then the maximum amount of Permitted CLEC Expenditures which may be expended
during any year of the immediately succeeding two fiscal years shall be
increased in the aggregate by such unused amount.
"Permitted Holders" shall mean each Carousel Affiliate, each Kelso
Affiliate and each Management Affiliate.
"Permitted Letters of Credit" shall mean (i) each standby letter of
credit issued by a financial institution acceptable to the Administrative Agent
for the account of the Borrower or any of its Subsidiaries in support of
obligations arising in the ordinary course of business of the Borrower or such
Subsidiary and (ii) each trade letter of credit issued by a financial
institution acceptable to the Administrative Agent for the account of the
Borrower or any of its Subsidiaries and for the benefit of sellers of goods to
the Borrower or such Subsidiary in support of commercial transactions of the
Borrower or such Subsidiary in the ordinary course of business.
"Permitted Liens" shall mean Liens described in clauses (a) through
(o), inclusive, of Section 7.03.
"Permitted MJD Capital Debt" shall mean Indebtedness of MJD Capital
under Capital Leases and purchase money mortgages in respect of equipment
acquired by MJD Capital to lease or sublease to subsidiaries of the Borrower,
provided that the maximum amount of such Indebtedness incurred in any fiscal
year shall not exceed $2.5 million.
"Permitted PSD Repurchase" shall mean the obligation of the Borrower
to repurchase Permitted Subordinated Debt issued prior to the consummation of
the Ellensberg Acquisition in an aggregate principal amount not to exceed $74.0
million (i.e., the anticipated consideration required to effect the Ellensburg
-----
Acquisition) if such Acquisition is not consummated within 45 days of the
issuance of such Permitted Subordinated Debt in accordance with the terms of the
documentation governing the same.
"Permitted Refinancing Indebtedness" shall mean any Indebtedness of
the Borrower and/or any Subsidiary of the Borrower issued or given in exchange
for, or the proceeds of which are used to, extend, refinance, renew, replace,
substitute or refund any Indebtedness of such Person permitted pursuant to
Sections 7.04(f), (g), (i) and (j) or any
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Indebtedness of such Person issued to so extend, refinance, renew, replace,
substitute or refund any such Indebtedness, so long as (a) such Indebtedness has
a weighted average life to maturity greater than or equal to the weighted
average life to maturity of the Indebtedness being refinanced, (b) such
refinancing or renewal does not (i) increase the amount of such Indebtedness
outstanding immediately prior to such refinancing or renewal or (ii) add
guarantors, obligors or security from that which applied to such Indebtedness
being refinanced or renewed, (c) such refinancing or renewal Indebtedness has
substantially the same (or, from the perspective of the Lenders, more favorable)
subordination provisions, if any, as applied to the Indebtedness being renewed
or refinanced, and (d) all other terms of such refinancing or renewal
(including, without limitation, with respect to the amortization schedules,
redemption provisions, maturities, covenants, defaults and remedies), taken as a
whole, are not less favor able to the respective borrower than those previously
existing with respect to the Indebtedness being refinancing or renewed.
"Permitted Subordinated Debt" shall mean unsecured and unguaranteed
Indebtedness of the Borrower that is fully subordinated to the payment in full
of all of the Obligations, all of the terms and conditions of which shall be
reasonably satisfactory to the Agents.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of ERISA
(other than a multiemployer plan as defined in Section 3(37) of ERISA), which is
maintained or contributed to by (or to which there is an obligation to
contribute of) the Borrower or any of its Subsidiaries or an ERISA Affiliate and
that is subject to Title IV of ERISA, and each such plan for the five year
period immediately following the latest date on which the Borrower any such
Subsidiary of the Borrower or an ERISA Affiliate maintained, contributed to or
had an obligation to contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section 4.01(i).
"Pledged Securities" shall mean all the Pledged Securities as defined
in the Pledge Agreement.
"Pledged Subsidiary" shall mean each Subsidiary the capital stock of
which is pledged pursuant to the Pledge Agreement.
"Preferred Repurchase" shall have the meaning provided in Section
5.05(a).
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"Prime Lending Rate" shall mean the rate which BTCo announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. BTCo may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"Pro Forma EBITDA Test" shall be satisfied, after giving effect to any
merger, consolidation, conveyance, sale or transfer referred to in Section
7.02(a) or the creation or acquisition of a new TelCo pursuant to a Permitted
Acquisition the capital stock of which is not to be pledged under the Pledge
Agreement, if the percentage of Consolidated EBITDA for the 12 months last ended
at such time (determined in the case of the acquisition or creation of a new
TelCo pursuant to a Permitted Acquisition as if such Permitted Acquisition was
consummated on the first day of such 12 month period) attributable to all Non-
Pledged Subsidiaries does not exceed 10%.
"PUC" shall mean a public utility commission, public service
commission or any similar agency or commission.
"Qualified IPO" shall mean a registered initial public offering of the
common stock of the Borrower generating proceeds of at least $75,000,000.
"RCRA" shall mean the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. (S) 6901 et seq.
-- ----
"Refinancing" shall mean the refinancing transactions contemplated by
Section 4.01(m).
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing margin requirements.
"Reinvestment Election" shall have the meaning provided in Section
3.02(A)(c).
"Reinvestment Notice" shall mean a written notice signed by an
Authorized Officer of the Borrower stating that the Borrower, in good faith,
intends and expects that the Borrower and its Subsidiaries will use all or a
specified portion of the Net Cash Proceeds of
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an Asset Sale to finance a Permitted Acquisition or an Acquisition within 180
days following the consummation of such Asset Sale.
"Reinvestment Prepayment Amount" shall mean, with respect to any
Reinvestment Election, the amount, if any, on the Reinvestment Prepayment Date
relating thereto by which (a) the Anticipated Reinvestment Amount in respect of
such Reinvestment Election exceeds (b) the aggregate amount thereof expended by
the Borrower and its Subsidiaries to finance Permitted Acquisitions.
"Reinvestment Prepayment Date" shall mean, with respect to any
Reinvestment Election, the earliest of (i) the date, if any, upon which the
Administrative Agent, on behalf of the Required Lenders, shall have delivered a
written termination notice to the Borrower, provided that such notice may only
be given while an Event of Default under 8.01 exists and (ii) the date occurring
180 days after the date of the related Reinvestment Notice.
"Relevant Fiscal Quarter" shall mean, at any time, the last fiscal
quarter of the Borrower with respect to which an officer's certificate has been
delivered to the Lenders pursuant to Section 6.01(e).
"Replaced Lender" shall have the meaning provided in Section 1.13.
"Replacement Lender" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required AF Lenders" shall mean Non-Defaulting Lenders whose
outstanding Acquisition Commitments (or, after the termination thereof,
outstanding AF Loans) constitute greater than 50% of the Adjusted Total
Acquisition Commitment (or, after the termination thereof, the outstanding AF
Loans of Non-Defaulting Lenders).
"Required AF/RF Lenders" shall mean Non-Defaulting Lenders the sum of
whose outstanding Acquisition Commitments and Revolving Commitments (or, after
the termination thereof, outstanding AF Loans or RF Loans, as the case may be)
constitute greater than 50% of the sum of (i) the Adjusted Total Acquisition
Commitment (or, after the termination thereof, the outstanding AF Loans of Non-
Defaulting Lenders) and (ii) the Adjusted Total Revolving Commitment (or, after
the termination thereof, the outstanding RF Loans of Non-Defaulting Lenders).
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"Required B TF Lenders" shall mean Non-Defaulting Lenders the sum of
whose outstanding B Term Loans and B Term Commitments under such Facility
represents an amount greater than 50% of the sum of all outstanding B Term Loans
and B Term Commitments.
"Required C TF Lenders" shall mean Non-Defaulting Lenders the sum of
whose outstanding C Term Loans represents an amount greater than (i) in the
event that any single Lender holds outstanding C Term Loans representing an
amount greater than 45% of the sum of all outstanding C Term Loans, 75% of the
sum of all outstanding C Term Loans and (ii) in all other circumstances, 50% of
the sum of all outstanding C Term Loans.
"Required RF Lenders" shall mean Non-Defaulting Lenders whose
outstanding Revolving Commitments (or, after the termination thereof,
outstanding RF Loans) constitute greater than 50% of the Adjusted Total
Revolving Commitment (or, after the termination thereof, the outstanding RF
Loans of Non-Defaulting Lenders).
"Required Lenders" shall mean Non-Defaulting Lenders the sum of whose
Acquisition Commitments (or, after the termination thereof, outstanding AF
Loans), Revolving Commitments (or, after the termination thereof, outstanding RF
Loans), outstanding Term Loans and Term Commitments constitute greater than 50%
of the sum of (i) the Adjusted Total Acquisition Commitment (or, after the
termination thereof, the outstanding AF Loans of Non-Defaulting Lenders), (ii)
the Adjusted Total Revolving Commitment (or, after the termination thereof, the
outstanding RF Loans of Non-Defaulting Lenders), (iii) all outstanding Term
Loans of Non-Defaulting Lenders and (iv) all Term Commitments of Non-Defaulting
Lenders.
"Required TF Lenders" shall mean Non-Defaulting Lenders the sum of
whose outstanding Term Loans and Term Commitments represents an amount greater
than 50% of the sum of all outstanding Term Loans and Term Commitments of Non-
Defaulting Lenders.
"Revolving Commitment" shall mean, with respect to each Lender, the
amount set forth opposite such Lender's name in Annex I hereto directly below
the column entitled "Revolving Commitment," as the same may be (x) reduced or
terminated from time to time pursuant to Section 2.02, 2.03 and/or 8 or (y)
adjusted from time to time as a result of assignments to or from such Lender
pursuant to Section 1.13 and/or 11.04.
"Revolving Facility" shall mean the Facility evidenced by the Total
Revolving Commitment.
"RF Commitment Commission" shall have the meaning provided in Section
2.01(b).
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"RF Lender" shall mean at any time each Lender with a Revolving
Commitment or with outstanding RF Loans.
"RF Loan" shall have the meaning provided in Section 1.01(c).
"RF Note" shall have the meaning provided in Section 1.05(a).
"Scheduled Reduction" shall have the meaning provided in Section
2.03(d).
"Scheduled Repayment" shall have the meaning provided in Section
3.02(A)(b).
"SEC" shall have the meaning provided in Section 6.01(g).
"SEC Regulation D" shall mean Regulation D as promulgated under the
Securities Act of 1933, as amended, as the same may be in effect from time to
time.
"Section 3.04 Certificate" shall have the meaning provided in Section
3.04(b)(ii).
"Secured Creditor" shall mean and include any Secured Creditor as
defined in the Pledge Agreement.
"Senior Consolidated Debt" shall mean, at any time, (i) Consolidated
Debt at such time less (ii) any such Consolidated Debt that constitutes
Permitted Subordinated Debt, Indebtedness permitted by Section 7.04(f)(ii)
and/or Permitted Refinancing Indebtedness incurred to refinance the foregoing
types of Indebtedness.
"Senior Leverage Ratio" shall mean, at any date of determination, the
ratio of (x) the remainder of (i) Senior Consolidated Debt on such date less
----
(ii) the amount, if positive, of (A) the aggregate amount of all cash and Cash
Equivalents held by the Borrower and its Subsidiaries at such time less (B) all
overdue accounts payable of the Borrower and its Subsidiaries at such time not
paid in accordance with past practice as determined as of the Closing Date to
(y) Consolidated Annualized EBITDA as of the last day of the fiscal quarter then
or last ended.
"Sidney Telephone" shall mean Sidney Telephone Company, a Maine
corporation.
"Special PSD Election" shall have the meaning provided in Section
3.02(A)(d).
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"Special PSD Notice" shall mean a written notice signed by an
Authorized Officer of the Borrower stating that the Borrower, in good faith,
intends and expects that the Borrower and its Subsidiaries will use $74.0
million to finance the Ellensburg Acquisition within 45 days following the
incurrence of the Permitted Subordinated Debt or will apply such amount pursuant
to the Permitted PSD Repurchase if such Acquisition is not so consummated.
"Special PSD Prepayment Amount" shall mean the amount, if any, on the
date occurring 45 days after the Special PSD Election by which (a) $74.0 million
exceeds (b) the aggregate amounts expended by the Borrower and its Subsidiaries
to finance the Ellensburg Acquisition and/or to effect the Permitted PSD
Repurchase.
"Specified Purposes" shall have the meaning provided in Section
5.05(a).
"Specified Shareholders" shall mean Kelso and Carousel.
"STE" shall mean ST Enterprises, Ltd., a Kansas corporation.
"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time, provided that,
except for purposes of Sections 5.04, 5.13, 5.14, 6.01(f), 6.04, 6.07, 6.09,
7.10, 8.05, 8.06 and 8.09, neither MJD TeleChoice nor any other CLEC Company
shall constitute a Subsidiary. Unless otherwise expressly provided, all
references herein to "Subsidiary" shall mean a Subsidiary of the Borrower.
"Subsidiary Guarantors" shall mean each Subsidiary party to the
Subsidiary Guaranty.
"Subsidiary Guaranty" shall have the meaning provided in Section
4.01(h).
"Syndication Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Taconic" shall mean Taconic Telephone Corp., a New York corporation.
"Taconic Acquisition" shall mean the acquisition of Taconic by the
Borrower pursuant to the Applicable Acquisition Documents.
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"Taxes" shall have the meaning provided in Section 3.04(a).
"TelCo" shall mean any Subsidiary that is an operating company (except
to the extent same is a Non-Core Asset).
"Term Commitment" shall mean for any Lender the sum of its B Term
Commitment and its C Term Commitment.
"Term Loans" shall mean, collectively, the B Term Loans and the C Term
Loans.
"TF Commitment Commission" shall have the meaning provided in Section
2.01(a).
"Total Acquisition Commitment" shall mean the sum of the Acquisition
Commitments of each of the Lenders, provided that the Total Acquisition
Commitment shall not at any time exceed $165 million.
"Total B Term Commitment" shall mean the sum of the B Term Commitments
of each of the Lenders.
"Total C Term Commitment" shall mean the sum of the C Term Commitments
of each of the Lenders.
"Total Commitment" shall mean the sum of the Total B Term Commitment,
the Total C Term Commitment, the Total Revolving Commitment, the Total
Acquisition Commitment and the CoBank Commitment.
"Total Revolving Commitment" shall mean the sum of the Revolving
Commitments of each of the Lenders.
"Total Term Commitment" shall mean, at any time, the sum of the Total
B Term Commitment and Total C Term Commitment.
"Transaction" shall mean (i) the consummation of the Acquisitions,
(ii) the repayment of all Indebtedness of the Acquired Companies except as
permitted by Section 7.04 and (iii) the incurrence of Term Loans on the Closing
Date.
"Trigger Date" shall mean the date, which shall be the last day of a
fiscal quarter ending after the Closing Date, as of which the Senior Leverage
Ratio is first determined to be 4.00 to 1.0 or less.
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"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan.
----
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in New York.
"UI" shall mean Utilities, Inc., a Maine corporation.
"UI Acquisition" shall mean the acquisition by the Borrower of UI
pursuant to the Applicable Acquisition Documents.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year, determined in accordance
with actuarial assumptions at such time consistent with Statement of Financial
Accounting Standards No. 87, exceeds the market value of the assets allocable
thereto.
"U.S." shall mean the United States of America.
"Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary of
such Person to the extent all of the capital stock or other ownership interests
in such Subsidiary, other than directors' qualifying shares, is owned directly
or indirectly by such Person.
"Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, facsimile transmission, telegraph or
cable.
SECTION 10. The Agents.
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10.01 Appointment. The Lenders hereby designate BTCo as
-----------
Administrative Agent (for purposes of this Section 10, the terms "Administrative
Agent" shall include BTCo in its capacity as Collateral Agent pursuant to the
Pledge Agreement) and NationsBank as Syndication Agent to act as specified
herein and in the other Credit Documents. Each Lender hereby irrevocably
authorizes, and each holder of any Note by the acceptance of such Note shall be
deemed irrevocably to authorize, the respective Agents to take such action on
its behalf under the provisions of this Agreement, the other Credit Documents
and any other instruments and agreements referred to herein or therein and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the respective Agent by the terms
hereof and thereof and such other powers as are reasonably incidental thereto.
The respective Agent may perform any of its duties hereunder by or through their
respective officers, directors, agents, employees or affiliates.
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10.02 Nature of Duties. The respective Agent shall not have any
----------------
duties or responsibilities except those expressly set forth in this Agreement
and the other Credit Documents. Neither the respective Agent nor or any of its
respective officers, directors, agents, employees or affiliates shall be liable
for any action taken or omitted by them hereunder or under any other Credit
Document or in connection herewith or therewith, unless caused by their gross
negligence or willful misconduct. The duties of the respective Agent shall be
mechanical and administrative in nature; the respective Agent shall not have by
reason of this Agreement or any other Credit Document a fiduciary relationship
in respect of any Lender or the holder of any Note; and nothing in this
Agreement or any other Credit Document, expressed or implied, is intended to or
shall be so construed as to impose upon any Agent any obligations in respect of
this Agreement or any other Credit Document except as expressly set forth herein
or therein.
10.03 Lack of Reliance on the Agents. Independently and without
------------------------------
reliance upon either Agent, each Lender and the holder of each Note, to the
extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Borrower
and its Subsidiaries in connection with the making and the continuance of the
Loans and the taking or not taking of any action in connection herewith and (ii)
its own appraisal of the creditworthiness of the Borrower and its Subsidiaries
and, except as expressly provided in this Agreement, neither Agent shall have
any duty or responsibility, either initially or on a continuing basis, to
provide any Lender or the holder of any Note with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter. Neither Agent shall be
responsible to any Lender or the holder of any Note for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of this Agreement or any other Credit
Document or the financial condition of the Borrower and its Subsidiaries or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of this Agreement or any other Credit
Document, or the financial condition of the Borrower and its Subsidiaries or the
existence or possible existence of any Default or Event of Default.
10.04 Certain Rights of the Administrative Agent. If the
------------------------------------------
Administrative Agent shall request instructions from the Required Lenders with
respect to any act or action (including failure to act) in connection with this
Agreement or any other Credit Document, the Administrative Agent shall be
entitled to refrain from such act or taking such action unless and until the
Administrative Agent shall have received instructions from the Required Lenders;
and the Administrative Agent shall not incur liability to any Person by reason
of so refraining. Without limiting the foregoing, neither any Lender nor the
holder of any Note shall have any right of action whatsoever against the
Administrative Agent as a result of the
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Administrative Agent acting or refraining from acting hereunder or under any
other Credit Document in accordance with the instructions of the Required
Lenders.
10.05 Reliance. The Administrative Agent shall be entitled to rely,
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and shall be fully protected in relying, upon any note, writing, resolution,
notice, statement, certificate, telex, teletype, facsimile or telecopier
message, cablegram, radiogram, order or other document or telephone message
signed, sent or made by any Person that the Administrative Agent believed to be
the proper Person, and, with respect to all legal matters pertaining to this
Agreement and any other Credit Document and its duties hereunder and thereunder,
upon advice of counsel selected by the Administrative Agent.
10.06 Indemnification. To the extent an Agent is not reimbursed and
---------------
indemnified by the Borrower, each Defaulting Lender (to the extent so able) and
the Non-Defaulting Lenders will reimburse and indemnify the Administrative
Agent, in proportion to their respective Loans and Commitments, for and against
any and all liabilities, obligations, losses, damages, penalties, claims,
actions, judgments, costs, expenses or disbursements of whatsoever kind or
nature which may be imposed on, asserted against or incurred by such Agent in
performing its respective duties hereunder or under any other Credit Document,
in any way relating to or arising out of this Agreement or any other Credit
Document; provided that no Lender shall be liable for any portion of such
--------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of an Agent.
10.07 Each Agent in its Individual Capacity. With respect to its
-------------------------------------
obligation to make Loans under this Agreement, each Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any similar terms
shall, unless the context clearly otherwise indicates, include each Agent in its
individual capacity. Each Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with any Credit
Party or any Affiliate of any Credit Party as if it were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrower, or any other Credit Party for services in connection with this
Agreement and otherwise without having to account for the same to the Lenders.
10.08 Holders. The Administrative Agent may deem and treat the
-------
payee of any Note as the owner thereof for all purposes hereof unless and until
a written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or indorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
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10.09 Resignation by the Administrative Agent. (a) The
---------------------------------------
Administrative Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
15 Business Days' prior written notice to the Borrower and the Lenders. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Lenders shall
appoint a successor Administrative Agent hereunder or thereunder who shall be a
commercial bank or trust company reasonably acceptable to the Borrower (such
consent not to be unreasonably withheld).
(c) If a successor Administrative Agent shall not have been so
appointed within such 15 Business Day period, the Administrative Agent, with the
consent of the Borrower (such consent not to be unreasonably withheld), shall
then appoint a successor Administrative Agent who shall serve as Administrative
Agent hereunder or thereunder until such time, if any, as the Required Lenders
appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed pursuant
to clause (b) or (c) above by the 30th Business Day after the date such notice
of resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Required Lenders shall thereafter
perform all the duties of the Administrative Agent hereunder and/or under any
other Credit Document until such time, if any, as the Required Lenders appoint a
successor Administrative Agent as provided above.
(e) The Syndication Agent may resign from its duties hereunder at any
time upon four Business Days' prior written notice to the Borrower and the
Administrative Agent.
SECTION 11. Miscellaneous.
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11.01 Payment of Expenses, etc. The Borrower agrees to: (i)
-------------------------
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agents in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein and any amendment, waiver or
consent relating thereto (including, without limitation, the reasonable fees and
disbursements of White & Case LLP) and of each Agent and each of the Lenders in
connection with the enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and disbursements of counsel for the Agents and for each of the Lenders);
(ii) pay and hold each of the Lenders harmless from and against any and all
present and future stamp and other similar taxes with respect to the foregoing
matters and save each of the Lenders harmless from and
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against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to such Lender) to pay such
taxes; and (iii) indemnify each Lender (including in its capacity as Agent), its
officers, directors, employees, representatives and agents from and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses incurred by any of them as a result of, or arising out of, or in any
way related to, or by reason of, (a) any investigation, litigation or other
proceeding (whether or not any Agent or any Lender is a party thereto and
whether or not any such investigation, litigation or other proceeding is between
or among any Agent, any Lender, any Credit Party or any third Person or
otherwise (except to the extent between or among any Lenders in their capacity
as such)) related to the entering into and/or performance of any Credit Document
or the use of the proceeds of any Loans hereunder or the Transaction or the
consummation of any transactions contemplated in any Credit Document, or (b) the
actual or alleged presence of Hazardous Materials in the air, surface water or
ground water or on the surface or subsurface of any property owned or operated
at any time by Borrower or any of its Subsidiaries or the generation, storage,
transportation, handling or disposal of Hazardous Materials by the Borrower or
any of its Subsidiaries at any location, or the noncompliance by the Borrower or
any of its Subsidiaries with any Environmental Law or any Environmental Claim in
connection with the Borrower or any of its Subsidiaries or business or
operations or any property owned or operated at any time by the Borrower or any
of its Subsidiaries, including, in each case, without limitation, the reasonable
fees and disbursements of counsel incurred in connection with any such
investigation, litigation or other proceeding (but excluding any such losses,
liabilities, claims, damages or expenses to the extent incurred by reason of the
gross negligence or willful misconduct of the Person to be indemnified or of any
other indemnitee who is such Person or an affiliate of such Person).
11.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, if an Event of Default then exists, each Lender is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Credit Party or to any other Person,
any such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special but not trust accounts) and any
other Indebtedness at any time held or owing by such Lender (including, without
limitation, by branches and agencies of such Lender wherever located) to or for
the credit or the account of any Credit Party against and on account of the
Obligations and liabilities of such Credit Party to such Lender under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations of such Credit Party purchased by such
Lender pursuant to Section 11.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Lender shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.
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11.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier, facsimile or cable communication) and
mailed, telegraphed, telexed, telecopied, faxed, cabled or delivered, if to the
Borrower at the address specified opposite its signature below, if to any
Lender, at its address specified for such Lender on Annex II hereto; or, at such
other address as shall be designated by any party in a written notice to the
other parties hereto. All such notices and communications shall be mailed,
telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and
shall be effective when received.
11.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, provided that the Borrower may not assign or
--------
transfer any of its rights or obligations hereunder without the prior written
consent of the Lenders. Each Lender may at any time grant participations in any
of its rights hereunder or under any of the Notes to another financial
institution, provided that in the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant's rights against such Lender in respect of
such participation to be those set forth in the agreement executed by such
Lender in favor of the participant relating thereto) and all amounts payable by
the Borrower hereunder shall be determined as if such Lender had not sold such
participation, except that the participant shall be entitled to the benefits of
Sections 1.10 and 3.04 of this Agreement to the extent that such Lender would be
entitled to such benefits if the participation had not been entered into or
sold, and, provided further, that no Lender shall transfer, grant or assign any
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (i) extend the final scheduled
maturity of any Loan or Note in which such participant is participating (it
being understood that any waiver of any prepayment of, or the method of any
application of any prepayment to, the Loans shall not constitute an extension of
the final maturity date), or reduce the rate or extend the time of payment of
interest or Fees (except in connection with a waiver of the applicability of any
post-default increase in interest rates), or reduce the principal amount
thereof, or increase such participant's participating interest in any Commitment
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment
or a mandatory prepayment shall not constitute a change in the terms of any
Commitment), (ii) release all or substantially all of the Collateral or (iii)
consent to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement or any other Credit Document.
(b) Notwithstanding the foregoing, (x) any Lender may assign all or a
portion of its outstanding B Term Loans and/or C Term Loans, its B Term
Commitment, Revolving Commitment and/or Acquisition Commitment and its rights
and obligations hereunder (which
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assignment does not have to be pro rata among the Facilities) to (i) one or more
--------
Lenders and/or Affiliates of such Lender which are Eligible Transferees or (ii)
in the case of any Lender that is a fund that invests in loans, any other fund
that invests in loans and is managed and/or advised by the same investment
advisor of such Lender or by an Affiliate of such investment advisor, and (y)
with the consent of the Administrative Agent and, if no Default under Section
8.01 or 8.05 or Event of Default exists, the Borrower (which consents shall not
be unreasonably withheld), any Lender may assign all or a portion of its
outstanding B Term Loans and/or C Term Loans, its B Term Commitment, Revolving
Commitment and/or Acquisition Commitment and its rights and obligations
hereunder to one or more Eligible Transferees (treating any fund that invests in
loans and any other fund that invests in loans and is managed and/or advised by
the same investment advisor of such fund or by an Affiliate of such investment
advisor of such fund or by an Affiliate of such investment advisor as a single
Eligible Transferee). No assignment pursuant to the immediately preceding
sentence shall to the extent such assignment represents an assignment to an
institution other than one or more Lenders hereunder, be in an aggregate amount
less than $5,000,000 unless the entire Commitment and Loans of the assigning
Lender is so assigned. If any Lender so sells or assigns all or a part of its
rights hereunder or under the Notes, any reference in this Agreement or the
Notes to such assigning Lender shall thereafter refer to such Lender and to the
respective assignee to the extent of their respective interests and the
respective assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights and benefits as it would if it were
such assigning Lender. Each assignment pursuant to this Section 11.04(b) shall
be effected by the assigning Lender and the assignee Lender executing an
Assignment Agreement and giving the Administrative Agent written notice thereof.
At the time of any such assignment, (i) either the assigning or the assignee
Lender shall pay to the Administrative Agent a nonrefundable assignment fee of
$3,500 (provided that only one assignment fee shall be payable in respect of any
reasonably contemporaneous assignment by a fund that invests in loans to any one
or more funds that invests in loans and are managed and/or advised by the same
investment advisor of such fund or by an Affiliate of such investment advisor),
(ii) Annex I shall be deemed to be amended to reflect the Commitments and Loans
of the respective assignee (which shall result in a direct reduction to the
Commitment of the assigning Lender) and of the other Lenders, and (iii) upon
surrender of the old Notes the Borrower will, at its own expense, issue new
Notes to the respective assignee and to the assigning Lender in conformity with
the requirements of Section 1.05, provided further that such transfer or
----------------
assignment will not become effective until recorded by the Administrative Agent
on the Lender Register pursuant to Section 11.16. To the extent of any
assignment pursuant to this Section 11.04(b) to a Person which is not already a
Lender hereunder and which is not a United States Person (as such term is
defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the
respective assignee Lender shall provide to the Borrower and the Administrative
Agent the appropriate Internal Revenue Service Forms (and, if applicable, a
Section 3.04 Certificate) described in Section 3.04(b). To the extent that an
assignment pursuant to this Section 11.04(b) would, at the time of such
assignment, result in increased costs under Section 1.10 or 3.04 from those
-95-
<PAGE>
being charged by the respective assigning Lender prior to such assignment, then
the Borrower shall not be obligated to pay such increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
assignment). Nothing in this clause (b) shall prevent or prohibit any Lender
from pledging its Notes or Loans to a Federal Reserve Bank in support of
borrowings made by such Lender from such Federal Reserve Bank and, with the
consent of the Administrative Agent and the Borrower (which consents shall not
be unreasonably withheld), any Lender which is a fund may pledge all or any
portion of its Loans and Notes to its trustee in support of its obligations to
its trustee.
(c) Notwithstanding any other provisions of this Section 11.04, no
transfer or assignment of the interests or obligations of any Lender hereunder
or any grant of participation therein shall be permitted if such transfer,
assignment or grant would require the Borrower or any of its Subsidiaries to (i)
file a registration statement with the SEC, (ii) qualify the Loans under the
"Blue Sky" laws of any State or (iii) integrate such transfer or assignment with
a separate securities offering of securities of the Borrower or any of its
Subsidiaries.
(d) Each Lender initially party to this Agreement hereby represents,
and each Person that became a Lender pursuant to an assignment permitted by this
Section 11 will, upon its becoming party to this Agreement, represent that it is
an Eligible Transferee which makes or invests in loans in the ordinary course of
its business and that it will make or acquire Loans for its own account in the
ordinary course of such business, provided that subject to the preceding clauses
--------
(a) and (b), the disposition of any promissory notes or other evidences of or
interests in Indebtedness held by such Lender shall at all times be within its
exclusive control.
11.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Administrative Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between any Credit Party and the Administrative Agent or any Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Administrative Agent or any Lender would otherwise have. No notice to or demand
on any Credit Party in any case shall entitle any Credit Party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
11.06 Payments Pro Rata. (a) The Administrative Agent agrees that
-----------------
promptly after its receipt of each payment from or on behalf of any Credit
Party in respect
-96-
<PAGE>
of any Obligations of such Credit Party hereunder, it shall distribute such
payment to the Lenders (other than any Lender that has expressly waived its
right to receive its pro rata share thereof) pro rata based upon their
--- ----
respective shares, if any, of the Obligations with respect to which such payment
was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations of the respective Credit Party to such Lenders in such amount as
shall result in a proportional participation by all of the
Lenders in such amount, provided that if all or any portion of such excess
--------
amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 11.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
11.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in
writing by the Borrower to the Lenders), provided that (x) except as otherwise
specifically provided herein, all computations determining compliance with
Sections 7.11, 7.12 and 7.13, including definitions used therein, shall utilize
accounting principles and policies in effect at the time of the preparation of,
and in conformity with those used to prepare, the December 31, 1997 historical
financial statements of the Acquired Companies delivered to the Lenders pursuant
to Section 5.10(b) and (y) that if at any time such computations utilize
accounting principles different from those utilized in the financial statements
furnished to the Lenders, such financial statements shall be accompanied by
reconciliation work-sheets.
(b) All computations of interest and Fees hereunder shall be made on
the actual number of days elapsed over a year of 360 days (365-366 days in
the case of interest on Base Rate Loans).
-97-
<PAGE>
11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of
-----------------------------------------------------------
Jury Trial. (a) This Agreement and the other Credit Documents and the rights
- ----------
rights and obligations of the parties hereunder and thereunder shall be
construed in accordance with and be governed by the law of the State of New
York. Any legal action or proceeding with respect to this Agreement or any other
Credit Document may be brought in the courts of the State of New York sitting in
the Borough of Manhattan or of the United States for the Southern District of
New York, and, by execution and delivery of this Agreement, each Credit Party
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each Credit Party
further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to each Credit Party
located outside New York City and by hand delivery to each Credit Party located
within New York City, at its address for notices pursuant to Section 11.03, such
service to become effective 30 days after such mailing. Each Credit Party hereby
irrevocably designates appoints and empowers CT Corporation System, with offices
on the date hereof located at 1633 Broadway, New York, New York 10019, as its
agent for service of process in respect of any such action or proceeding.
Nothing herein shall affect the right of the Administrative Agent, any Lender to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against any Credit Party in any other
jurisdiction.
(b) Each Credit Party hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Agreement or
any other Credit Document brought in the courts referred to in clause (a) above
and hereby further irrevocably waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably waives
all right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this Agreement, the other Credit Documents or the
transactions contemplated hereby or thereby.
11.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
11.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which the Borrower and each of the Lenders shall
have signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Administrative Agent at the Payment Office of the
Administrative Agent or, in the case of
-98-
<PAGE>
the Lenders, shall have given to the Administrative Agent telephonic (confirmed
in writing), written telex or facsimile transmission notice (actually received)
at such office that the same has been signed and mailed to it. The
Administrative Agent will give the Borrower and each Lender prompt written
notice of the occurrence of the Effective Date.
11.11 Headings Descriptive. The headings of the several sections
--------------------
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
11.12 Amendment or Waiver. Neither this Agreement nor any other
-------------------
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the Borrower, the Required AF/RF Lenders and the Required
TF Lenders, provided that no such change, waiver, discharge or termination
shall, without the consent of each Lender (other than a Defaulting Lender)
directly affected thereby, (i) extend the AF/RF Maturity Date, the B Maturity
Date or the C Maturity Date (it being understood that any waiver of any
prepayment of, or the method of application of any prepayment to, the Loans
shall not constitute any such extension), or reduce the rate or extend the time
of payment of interest (other than as a result of waiving the applicability of
any post-default increase in interest rates) or Fees, or reduce the principal
amount thereof, or increase the Commitment of any Lender over the amount thereof
then in effect (it being understood that a waiver of any Default or Event of
Default or of a mandatory reduction in the Total Commitment shall not constitute
a change in the terms of any Commitment of any Lender), (ii) amend, modify or
waive any provision of this Section 11.12, (iii) reduce the percentage specified
in, or (except to give effect to any additional facilities hereunder) otherwise
modify, the definition of Required Lenders, (iv) consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement, (v) release all or substantially all of the Collateral or (vi)
release all or substantially all of the Subsidiary Guaranties; provided further,
that no such change, waiver, discharge or termination shall, (t) without the
consent of the Required AF/RF Lenders, reduce the percentage specified in, or
otherwise modify, the definition of Required AF/RF Lenders, (u) without the
consent of the Required TF Lenders, reduce the percentage specified in, or
otherwise modify, the definition of Required TF Lenders, (v) without the consent
of the Required AF Lenders, reduce the percentage specified in, or otherwise
modify, the definition of Required AF Lenders or amend, waive or reduce any
Scheduled Reduction applicable to the Acquisition Facility, (w) without the
consent of the Required RF Lenders, reduce the percentage specified in, or
otherwise modify, the definition of Required RF Lenders or amend, waive or
reduce any Scheduled Reduction applicable to the Revolving Facility, (x) without
the consent of the Required B TF Lenders, reduce the percentage specified in, or
otherwise modify, the definition of Required B TF Lenders or amend, waive or
reduce any Scheduled Repayment applicable to the B Term Facility, (y) without
the consent of the Required C TF Lenders, reduce the percentage specified in, or
otherwise modify, the definition of Required C TF Lenders or amend, waive or
-99-
<PAGE>
reduce any Scheduled Repayment applicable to the C Term Facility or (z) without
the consent of any Agent affected thereby, amend any provision of Section 10.
11.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Section 1.10, 1.11, 3.04, 10.06 or 11.01 shall survive the
execution and delivery of this Agreement and the making and repayment of the
Loans.
11.14 Domicile of Loans. Each Lender may transfer and carry its
-----------------
Loans at, to or for the account of any branch office, subsidiary or affiliate of
such Lender, provided that the Borrower shall not be responsible for costs
arising under Section 1.10 or 3.04 resulting from any such transfer (other than
a transfer pursuant to Section 1.12) to the extent not otherwise applicable to
such Lender prior to such transfer.
11.15 Confidentiality. Each of the Lenders agrees that it will use
---------------
its best efforts not to disclose without the prior consent of the Borrower
(other than to its employees, auditors, counsel or other professional advisors,
to affiliates or to another Lender if the Lender or such Lender's holding or
parent company in its sole discretion determines that any such party should have
access to such information) any information with respect to the Borrower or any
of its Subsidiaries which is furnished pursuant to any Credit Document and which
is designated by the Borrower or the Borrower to the Lenders in writing as
confidential; provided, that any Lender may disclose any such information (a) as
has become generally available to the public, (b) as may be required or
appropriate in any report, statement or testimony sub mitted to any municipal,
state or Federal regulatory body having or claiming to have jurisdiction over
such Lender or to the Federal Reserve Board or the Federal Deposit Insurance
Corporation or similar organiza tions (whether in the United States or
elsewhere) or their successors or to the National Association of Insurance
Commissioners, (c) as may be required or appropriate in response to any summons
or subpoena or in connection with any litigation (notice of which will be
promptly sent to the Borrower to the extent permitted by Law), (d) in order to
comply with any law, order, regulation or ruling applicable to such Lender, and
(e) to any prospective transferee that is an Eligible Transferee that is
acceptable to the Borrower in connection with any contemplated transfer of any
of the Notes or any interest therein by such Lender to the extent that such
prospective transferee is notified of the confidentiality requirements relating
thereto. No Lender shall be obligated or required to return any materials
furnished by the Borrower or any Subsidiary. The Borrower hereby agrees that the
failure of a Lender to comply with the provisions of this Section 11.15 shall
not relieve the Credit Parties of any of their obligations to such Lender under
this Agreement and the other Credit Documents.
-100-
<PAGE>
11.16 Lender Register. The Borrower hereby designates the
---------------
Administrative Agent to serve as the Borrower's agent, solely for purposes of
this Section 11.16, to maintain a register (the "Lender Register") on which it
will record the Commitments from time to time of each of the Lender (including
Acquisition Commitments, if effected, and any B Term Commitments resulting from
a B Term Commitment Renewal), the Loans made by each of the Lenders and each
repayment in respect of the principal amount of the Loans of each of the
Lenders. Failure to make any such recordation, or any error in such recordation
shall not affect the Borrower's obligations in respect of such Loans. With
respect to any Lender, the transfer of the Commitments (or the post-Closing Date
effectiveness of new Commitments) or Loans of such Lender and the rights to the
principal of, and interest on, such Loans or any Loan made pursuant to such
Commitments shall not be effective until such transfer is recorded on the Lender
Register maintained by the Administrative Agent with respect to ownership of
such Commitments and Loans and prior to such recordation all amounts owing to
the transferor with respect to such Commitments and Loans shall remain owing to
the transferor. The registration of assignment or transfer of all or part of any
Commitments and Loans shall be recorded by the Administrative Agent on the
Lender Register only upon the acceptance by the Administrative Agent of a
properly executed and delivered Assignment Agreement pursuant to Section
11.04(b). The Borrower agrees to indemnify the Administrative Agent from and
against any and all losses, claims, damages and liabilities of whatsoever nature
which may be imposed on, asserted against or incurred by the Administrative
Agent in performing its duties under this Section 11.16 (but excluding such
losses, claims, liabilities or liabilities incurred by reason of the
Administrative Agent's gross negligence or willful misconduct).
-101-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
MJD COMMUNICATIONS, INC.
By /s/ Walter Leach
--------------------------------------
Title: Vice President, Secretary and
Chief Financial Officer
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By /s/ G. Andrew Keith
--------------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.,
By /s/ Pamela S. Kurtzman
--------------------------------------
Title: Vice President
COBANK, ACB
By /s/ Rick L. Freeman
--------------------------------------
Title: Assistant Vice President
<PAGE>
FIRST UNION NATIONAL BANK
By /s/ Jim Redman
--------------------------------------
Title: Senior Vice President
PRIME INCOME TRUST
By /s/ Sheila Finnerty
--------------------------------------
Title: Assistant Vice President
HELLER FINANCIAL, INC.
By /s/ Patrick Hayes
--------------------------------------
Title: Vice President
THE TRAVELERS INSURANCE COMPANY
By /s/ Robert M. Mills
--------------------------------------
Title: Investment Officer
UNION BANK OF CALIFORNIA, N.A.
By /s/ Christine P. Ball
--------------------------------------
Title: Vice President
<PAGE>
CENTURA BANK
By /s/ Gregory Greer
--------------------------------------
Title: Corporate Banking Officer
TORONTO DOMINION (TEXAS), INC.
By /s/ David G. Parker
--------------------------------------
Title:
FLEET NATIONAL BANK
By /s/ Tanya M. Crossley
--------------------------------------
Title: Vice President
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By /s/ Lynn C. Baranski
--------------------------------------
Title: Authorized Signatory
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Thomas Hunt
--------------------------------------
Title: Assistant Porfolio Manager
<PAGE>
ANNEX I
-------
COMMITMENTS
-----------
<TABLE>
<CAPTION>
B Term C Term CoBank Revolving
Lender Commitment Commitment Commitment Commitment
------ ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C>
Bankers Trust Company $ 47,500,000 $ 7,993,595.94 $ 0 $15,000,000
NationsBank of Texas,
N.A. $ 10,000,000 $ 0 $ 0 $15,000,000
CoBank, ACB $ 0 $ 0 $51,506,404.18 $ 0
First Union National Bank $ 10,000,000 $ 0 $ 0 $15,000,000
Prime Income Trust $ 15,000,000 $ 3,999,999.97 $ 0 $ 0
Heller Financial, Inc. $ 5,000,000 $ 0 $ 0 $ 7,500,000
The Travelers Insurance $ 15,000,000 $ 4,999,999.96 $ 0 $ 0
Company
Union Bank of California, $ 7,500,000 $ 0 $ 0 $ 9,000,000
N.A.
Centura Bank $ 10,000,000 $ 0 $ 0 $14,500,000
Toronto Dominion (Texas),
Inc. (for First Dominion $ 5,000,000 $ 1,999,999.98 $ 0 $ 0
Capital)
Fleet National Bank $ 7,500,000 $ 0 $ 0 $ 9,000,000
Merrill Lynch Senior
Floating Rate Fund, Inc. $ 10,000,000 $ 1,499,999.98 $ 0 $ 0
Pilgrim America Prime
Rate Trust $ 12,500,000 $ 2,999,999.98 $ 0 $ 0
------------ -------------- -------------- -----------
$155,000,000 $23,493,595.82 $51,506,404.18 $85,000,000
============ ============== ============== ===========
</TABLE>
<PAGE>
ANNEX II
--------
ADDRESSES
---------
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Mary Kay Coyle
Telephone No.: (212) 250-2500
Telecopier No.: (212) 250-7218
NationsBank of Texas, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Attention: Pam Kurtzman
Telephone No.: (214) 508-0997
Telecopier No.: (214) 508-9390
CoBank ACB
200 Galleria Parkway N.W., Suite 1900
Atlanta, Georgia 30339
Attention: Rick Freeman
Telephone No.: (770) 618-3200
Telecopier No.: (770) 618-3202
First Union National Bank
One First Union Center
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Jeff Haristy
Telephone No.: (704) 374-4999
<PAGE>
ANNEX II
Page 2
Telecopier No.: (704) 374-4092
Prime Income Trust (Dean Witter)
Two World Trade Center, 72nd Floor
New York, New York 10048
Attention: Sheila Finnerty
Telephone No.: (212) 392-5686
Telecopier No.: (212) 392-5345
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Patrick Hayes
Telephone No.: (312) 441-7035
Telecopier No.: (312) 441-7357
Heller Financial, Inc.
900 Circle 7S Parkway
Suite 900
Atlanta, Georgia 30339
Attention: Betsy Edelman
Telephone No.: (770) 980-6016
Telecopier No.: (770) 980-6315
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183-2030
Attention: Allen Cantrell
Telephone No.: (860) 954-2396
<PAGE>
ANNEX II
Page 3
Telecopier No.: (860) 954-5243
Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, California 90071
Attention: Ryan Flanagan
Telephone No.: (713) 236-7001
Telecopier No.: (713) 236-5747
Centura Bank
200 Providence Road, 3rd Floor
P.O. Box 626
Charlotte, North Carolina 28207
Attention: Gregory Greer
Telephone No.: (704) 331-1478
Telecopier No.: (704) 331-1761
First Dominion Capital
1330 Avenue of the Americas
New York, New York 10019
Attention: Andrew H. Marsh
Telephone No.: (212) 258-1010
Telecopier No.: (212) 258-1019
Copy to:
Toronto Dominion (Texas), Inc.
909 Fannin Street
Houston, TX 77010
Attention: David Parker
<PAGE>
ANNEX II
Page 4
Telephone No.: (713) 653-8248
Telecopier No.: (713) 652-2647
Fleet National Bank
1185 Avenue of the Americas, MCS16K
16th Floor
New York, New York 10167
Attention: Tanya Crossley
Telephone No.: (212) 819-6047
Telecopier No.: (212) 819-6202
Merrill Lynch Senior Floating Rate Fund, Inc.
800 Scudder Mill Road
Sec. 1
Plainsboro, New Jersey 08536
Attention: Lynn Baraski
Telephone No.: (609) 282-5013
Telecopier No.: (609) 282-2756
Attention: George Pelose
Telephone No.: (609) 282-2060
Telecopier No.: (609) 282-0727
Pilgrim America Prime Rate Trust
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
Attention: Tim Hunt
Telephone No.: (602) 417-8257
<PAGE>
ANNEX II
Page 5
Telecopier No.: (602) 417-8327
<PAGE>
EXHIBIT 10.2
------------
FORM OF B TERM NOTE
-------------------
$________ New York, New York
_________ ___, ___
FOR VALUE RECEIVED, MJD COMMUNICATIONS, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of ________________ (the
"Lender"), in lawful money of the United States of America in immediately
available funds, at the Payment Office (as defined in the Agreement referred to
below) initially located at 130 Liberty Street, New York, New York 10006, on the
B Maturity Date (as defined in the Agreement) the principal sum of ___________
DOLLARS ($________) or, if less, the then unpaid principal amount of all B Term
Loans (as defined in the Agreement referred to below) made by the Lender
pursuant to the Agreement.
The Borrower also promises to pay interest on the unpaid principal amount
hereof in like money at said office from the date hereof until paid at the rates
and at the times provided in Section 1.08 of the Agreement.
This Note is one of the B Term Notes referred to in the Credit Agreement,
dated as of March 30, 1998, among the Borrower, the lenders from time to time
party thereto (including the Lender), NationsBank of Texas, N.A., as Syndication
Agent, and Bankers Trust Company, as Administrative Agent (as amended, amended
and restated, modified or supplemented from time to time, the "Agreement"), and
is entitled to the benefits thereof and of the other Credit Documents (as
defined in the Agreement). This Note is secured pursuant to the Pledge Agreement
(as defined in the Agreement). As provided in the Agreement, this Note is
subject to voluntary prepayment and mandatory repayment prior to the B Maturity
Date, in whole or in part.
In case an Event of Default (as defined in the Agreement) shall occur and
be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.
The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
<PAGE>
EXHIBIT B-1
Page 2
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
MJD COMMUNICATIONS, INC.
By
________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.3
------------
FORM OF C TERM NOTE-FLOATING RATE
---------------------------------
$________ New York, New York
__________ __, ____
FOR VALUE RECEIVED, MJD COMMUNICATIONS, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of ________________ (the
"Lender"), in lawful money of the United States of America in immediately
available funds, at the Payment Office (as defined in the Agreement referred to
below) initially located at 130 Liberty Street, New York, New York 10006, on the
C Maturity Date (as defined in the Agreement) the principal sum of ___________
DOLLARS ($________) or, if less, the then unpaid principal amount of all C Term
Loans-Floating Rate (as defined in the Agreement referred to below) made by the
Lender pursuant to the Agreement.
The Borrower also promises to pay interest on the unpaid principal amount
hereof in like money at said office from the date hereof until paid at the rates
and at the times provided in Section 1.08 of the Agreement.
This Note is one of the C Term Notes-Floating Rate referred to in the
Credit Agreement, dated as of March 30, 1998, among the Borrower, the lenders
from time to time party thereto (including the Lender), NationsBank of Texas,
N.A., as Syndication Agent, and Bankers Trust Company, as Administrative Agent
(as amended, amended and restated, modified or supplemented from time to time,
the "Agreement"), and is entitled to the benefits thereof and of the other
Credit Documents (as defined in the Agreement). This Note is secured pursuant
to the Pledge Agreement (as defined in the Agreement). As provided in the
Agreement, this Note is subject to voluntary prepayment and mandatory repayment
prior to the C Maturity Date in whole or in part.
In case an Event of Default (as defined in the Agreement) shall occur and
be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.
The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
<PAGE>
EXHIBIT B-2
Page 2
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
MJD COMMUNICATIONS, INC.
By______________________________
Name:
Title:
<PAGE>
EXHIBIT 10.4
------------
FORM OF C TERM NOTE - FIXED RATE
--------------------------------
$________ New York, New York
________ ___, ___
FOR VALUE RECEIVED, MJD COMMUNICATIONS, INC., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of CoBank, ACB (the
"Lender"), in lawful money of the United States of America in immediately
available funds, at the Payment Office (as defined in the Agreement referred to
below) initially located at 130 Liberty Street, New York, New York 10006, the
principal sum of ___________ DOLLARS ($________), which aggregate amount shall
be payable as provided on Schedule I hereto. Capitalized terms used and not
otherwise defined herein shall have the meanings ascribed to them in the
Agreement referred to below.
The Borrower also promises to pay interest on the unpaid principal
amount hereof in like money at said office from the date hereof until paid at
the rates and at the times provided in Section 1 of this Note. All payments of
principal, interest and all other amounts due under this Note shall be made in
the manner provided in Section 3.03 of the Agreement referred to below.
This Note is one of the C Term Notes-Fixed Rate referred to in the
Credit Agreement, dated as of March 30, 1998, among the Borrower, the lenders
from time to time party thereto (including the Lender), NationsBank of Texas,
N.A., as Syndication Agent, and Bankers Trust Company, as Administrative Agent
(as amended, amended and restated, modified or supplemented from time to time,
the "Agreement"), and is entitled to the benefits thereof and of the other
Credit Documents (as defined in the Agreement). This Note is secured equally
and ratably with all other Notes issued pursuant to the Agreement and is subject
to voluntary prepayment as set forth in Section 2 below.
In case an Event of Default shall occur and be continuing, the
principal of and accrued interest on this Note may be declared to be or become
due and payable in the manner and with the effect provided in the Agreement.
SECTION 1. Interest. During the period commencing on the Closing
--------
Date and ending on the FRE Date identified on Schedule I hereto (the "Fixed Rate
Period"), interest shall accrue on the unpaid principal amount of this Note at a
rate of ________ percent (____%) per annum and shall be payable quarterly in
arrears on the last Business Day of each March, June, September and December
commencing on June 30, 1998 and on any
<PAGE>
EXHIBIT B-3
Page 2
prepayment, at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand. From and after the FRE Date, interest shall be payable on
this Note as provided in the Agreement for Eurodollar Loans and/or Base Rate
Loans as the Loans evidenced hereby shall be maintained from time to time.
SECTION 2. Voluntary Prepayment. During the Fixed Rate Period, the
--------------------
Borrower may, on one Business Day's prior notice, prepay in full, but not in
part, the outstanding principal balance of this Note. Notwithstanding the
foregoing, the Borrower's right to prepay shall be conditioned upon the payment
of a surcharge as defined and calculated below (the "Surcharge") on the date
such prepayment is made. The Surcharge shall be an amount equal to the sum of:
(a) the present value of any funding losses incurred or imputed by CoBank to be
incurred as a result of such prepayment, plus, (b) .5% of the amount prepaid.
----
Such Surcharge, including the amount of any funding losses incurred by CoBank,
shall be determined and calculated in accordance with methodology established by
CoBank and notified in writing to the Borrower. After the FRE Date, this Note
may be prepaid as provided in the Agreement.
SECTION 3. Application of Mandatory Prepayments. All mandatory
------------------------------------
prepayments of Term Loans required pursuant to Section 3.02(A)(c) through (g) of
the Agreement that are to be applied to the C Term Loans-Fixed Rate (x) will
first be applied to those C Term Loans-Fixed Rate as to which the FRE Date has
occurred (all in accordance with the Agreement) and (y) to the extent (after
giving effect to all payments under clause (x)) such prepayments are to be
applied to C Term Loans-Fixed Rate as to which the FRE Date has not occurred,
such prepayment amount shall, unless otherwise agreed by the Borrower and
CoBank, be allocated among the outstanding principal amounts of such C Term
Loans-Fixed Rate, as determined by CoBank. To the extent any such prepayment is
applied to the outstanding principal balance of this Note during the Fixed Rate
Period, a Surcharge shall be payable in connection with such prepayment.
SECTION 4. Application of Scheduled Repayments. Each Scheduled
-----------------------------------
Repayment of C Term Loans-Fixed Rate made by the Borrower shall be allocated to
this Note in accordance with the repayment schedule set forth on Schedule I
hereto.
SECTION 5. Waiver. The Borrower hereby waives presentment, demand,
------
protest or notice of any kind in connection with this Note.
SECTION 6. Governing Law. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND BE GOVERNED BY
<PAGE>
EXHIBIT B-3
Page 3
THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF
LAWS.
MJD COMMUNICATIONS, INC.
By___________________________
Name:
Title:
<PAGE>
EXHIBIT 10.5
------------
FORM OF RF NOTE
---------------
$_________ New York, New York
_________ __, ____
FOR VALUE RECEIVED, MJD COMMUNICATIONS, INC., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of _______________________
(the "Lender"), in lawful money of the United States of America in immediately
available funds, at the Payment Office (as defined in the Agreement referred to
below) initially located at 130 Liberty Street, New York, New York 10006, on the
AF/RF Maturity Date (as defined in the Agreement) the principal sum of
_________________ DOLLARS ($_________) or, if less, the then unpaid principal
amount of all RF Loans (as defined in the Agreement) made by the Lender pursuant
to the Agreement.
The Borrower promises also to pay interest on the unpaid principal
amount hereof in like money at said office from the date hereof until paid at
the rates and at the times provided in Section 1.08 of the Agreement.
This Note is one of the RF Notes referred to in the Credit Agreement,
dated as of March 30, 1998, among the Borrower, the lenders from time to time
party thereto (including the Lender), NationsBank of Texas, N.A., as Syndication
Agent, and Bankers Trust Company, as Administrative Agent (as amended, amended
and restated, modified or supplemented from time to time, the "Agreement"), and
is entitled to the benefits thereof and of the other Credit Documents (as
defined in the Agreement). This Note is secured pursuant to the Pledge
Agreement (as defined in the Agreement). As provided in the Agreement, this
Note is subject to voluntary prepayment and mandatory repayment prior to the
AF/RF Maturity Date, in whole or in part.
In case an Event of Default (as defined in the Agreement) shall occur
and be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.
The Borrower hereby waives presentment, demand, protest or notice of
any kind in connection with this Note.
<PAGE>
EXHIBIT 10.5
Page 2
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
MJD COMMUNICATIONS, INC.
By__________________________________
Title:
<PAGE>
EXHIBIT 10.6
------------
FORM OF AF NOTE
---------------
_________$ New York, New York
_________ ___, ___
FOR VALUE RECEIVED, MJD COMMUNICATIONS, INC., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of _______________________
(the "Lender"), in lawful money of the United States of America in immediately
available funds, at the Payment Office (as defined in the Agreement referred to
below) initially located at 130 Liberty Street, New York, New York 10006, on the
AF/RF Maturity Date (as defined in the Agreement) the principal sum of
_________________ DOLLARS ($_________) or, if less, the then unpaid principal
amount of all AF Loans (as defined in the Agreement) made by the Lender pursuant
to the Agreement.
The Borrower promises also to pay interest on the unpaid principal
amount hereof in like money at said office from the date hereof until paid at
the rates and at the times provided in Section 1.08 of the Agreement.
This Note is one of the AF Notes referred to in the Credit Agreement,
dated as of March 30, 1998, among the Borrower, the lenders from time to time
party thereto (including the Lender), NationsBank of Texas, N.A., as Syndication
Agent, and Bankers Trust Company, as Administrative Agent (as amended, amended
and restated, modified or supplemented from time to time, the "Agreement"), and
is entitled to the benefits thereof and of the other Credit Documents (as
defined in the Agreement). This Note is secured pursuant to the Pledge
Agreement (as defined in the Agreement). As provided in the Agreement, this
Note is subject to voluntary prepayment and mandatory repayment prior to the
AF/RF Maturity Date, in whole or in part.
In case an Event of Default (as defined in the Agreement) shall occur
and be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.
The Borrower hereby waives presentment, demand, protest or notice of
any kind in connection with this Note.
<PAGE>
EXHIBIT 10.6
Page 2
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
MJD COMMUNICATIONS, INC.
By_________________________________
Title:
<PAGE>
EXHIBIT 10.7 CONFORMED
AS EXECUTED
SUBSIDIARY GUARANTY
-------------------
SUBSIDIARY GUARANTY, dated as of March __, 1998 (as amended, amended
and restated, modified or supplemented from time to time, this "Guaranty"), made
by each of the undersigned (each, a "Guarantor" and together with any other
entity that becomes a party hereto pursuant to Section 26 hereof, collectively,
the "Guarantors"). Except as otherwise defined herein, terms used herein and
defined in the Credit Agreement (as defined below) shall be used herein as
therein defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS MJD Communications, Inc. (the "Borrower"), the lenders from
time to time party thereto (the "Lenders"), Nationsbank of Texas, N.A., as
Syndication Agent (the "Syndication Agent"), and Bankers Trust Company, as
Administrative Agent (the "Administrative Agent", and together with the Lenders,
the Syndication Agent and the Collateral Agent, the "Lender Creditors"), have
entered into a Credit Agreement, dated as of March __, 1998 (as amended, amended
and restated, modified or supplemented from time to time, the "Credit
Agreement"), providing for the making of Loans as contemplated therein;
WHEREAS, the Borrower may from time to time be party to one or more
Interest Rate Agreements (each such Interest Rate Agreement with an Interest
Rate Creditor (as defined below), a "Secured Interest Rate Agreement") with
Bankers Trust Company, in its individual capacity ("BTCo"), any Lender or a
syndicate of financial institutions organized by BTCo or such Lender or an
affiliate of BTCo or such Lender (even if BTCo or any such Lender ceases to be a
Lender under the Credit Agreement for any reason), and any institution that
participates therein, and in each case their subsequent assigns (collectively,
the "Interest Rate Creditors," and together with the Lender Creditors,
collectively, the "Creditors");
WHEREAS, each Guarantor is a wholly-owned direct or indirect
Subsidiary of the Borrower;
WHEREAS, it is a condition to the making of Loans under the Credit
Agreement that each Guarantor shall have executed and delivered this Guaranty;
and
<PAGE>
WHEREAS, each Guarantor will obtain benefits from the incurrence of
Loans by the Borrower under the Credit Agreement and the entering into of
Secured Interest Rate Agreements and, accordingly, desires to execute this
Guaranty in order to satisfy the conditions described in the preceding paragraph
and to induce the Lenders to make Loans to the Borrower and Interest Rate
Creditors to enter into Secured Interest Rate Agreements;
NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to each Guarantor, the receipt and sufficiency of which are hereby
acknowledged, each Guarantor hereby makes the following representations and
warranties to the Creditors and hereby covenants and agrees with each Creditor
as follows:
1. Each Guarantor irrevocably and unconditionally, and jointly and
severally, guarantees:
(i) to the Lender Creditors, the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of (a) the
principal of and interest on the Notes issued by, and the Loans made to,
the Borrower under the Credit Agreement and (b) all other obligations
(including obligations which, but for any automatic stay under Section
362(a) of the Bankruptcy Code, would become due) and liabilities owing by
the Borrower to the Lender Creditors under the Credit Agreement and the
other Credit Documents (including, without limitation, indemnities, Fees
and interest thereon) now existing or hereafter incurred under, arising out
of or in connection with the Credit Agreement or any other Credit Document
and the due performance and compliance with the terms of the Credit
Documents by the Borrower (all such principal, interest, liabilities and
obligations, the "Credit Document Obligations"); and
(ii) to the Interest Rate Creditors, the full and prompt payment
when due (whether at the stated maturity, by acceleration or otherwise) of
all obligations (including obligations which, but for any automatic stay
under Section 362(a) of the Bankruptcy Code, would become due) and
liabilities owing by the Borrower under any Secured Interest Rate
Agreement, whether now in existence or hereafter arising, and the due
performance and compliance by the Borrower with all terms, conditions and
agreements contained therein (all such obligations and liabilities, the
"Interest Rate Obligations", and the Interest Rate Obligations together
with the Credit Document Obligations, collectively, the "Guaranteed
Obligations").
-2-
<PAGE>
Each Guarantor understands, agrees and confirms that the Creditors may enforce
this Guaranty up to the full amount of the Guaranteed Obligations against each
Guarantor without proceeding against the Borrower, any other Guarantor or any
security for the Guaranteed Obligations, or under any other guaranty covering
all or a portion of the Guaranteed Obligations. All payments by each Guarantor
under this Guaranty shall be made on the same basis as payments by the Borrower
under Sections 3.03 and 3.04 of the Credit Agreement.
2. Additionally, each Guarantor, jointly and severally,
unconditionally and irrevocably, guarantees the payment of any and all
Guaranteed Obligations to the Credits whether or not due or payable by the
Borrower upon the occurence in respect of the Borrower of any of the events
specified in Section 8.05 of the Credit Agreement, and unconditionally and
irrevocably, jointly and severally, promises to pay such Guaranteed Obligations
to the Creditors, on demand, in lawful money of the United States of America.
3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the indebtedness of the
Borrower whether executed by such Guarantor, any other Guarantor, any other
guarantor or by any other party, and the liability of each Guarantor hereunder
shall not be affected or impaired by (a) any direction as to application of
payment by the Borrower or by any other party, (b) any other continuing or other
guaranty, undertaking or maximum liability of a guarantor or of any other party
as to the indebtedness of the Borrower, (c) any payment on or in reduction of
any such other guaranty or undertaking, (d) any dissolution, termination or
increase, decrease or change in personnel by the Borrower or (e) any payment
made to any Creditor on the indebtedness which any Creditor repays to the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and each Guarantor waives any
right to the deferral or modification of its obligations hereunder by reason of
any such proceeding.
4. The obligations of each Guarantor hereunder are independent of the
obligations of any other Guarantor, any other guarantor or the Borrower, and a
separate action or actions may be brought and prosecuted against each Guarantor
whether or not action is brought against any other Guarantor, any other
guarantor or the Borrower and whether or not any other Guarantor, any other
guarantor of the Borrower or the Borrower be joined in any such action or
actions.
5. Each Guarantor hereby waives notice of acceptance of this Guaranty
and notice of any liability to which it may apply, and waives promptness,
diligence, presentment, demand of payment, protest, notice of dishonor or
nonpayment of any such liabilities, suit or taking of other action by the
Administrative Agent or any other Creditor
-3-
<PAGE>
against, and any other notice to, any party liable thereon (including such
Guarantor or any other guarantor of the Borrower).
6. Any Creditor may at any time and from time to time without the
consent of, or notice to, any Guarantor, without incurring responsibility to
such Guarantor, without impairing or releasing the obligations of such Guarantor
hereunder, upon or without any terms or conditions and in whole or in part:
(i) change the manner, place or terms of payment of, and/or change
or extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the guaranty herein made shall apply to
the Guaranteed Obligations as so changed, extended, renewed or altered;
(ii) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner and in any order any property by whomsoever at any
time pledged or mortgaged to secure, or howsoever securing, the Guaranteed
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset
thereagainst;
(iii) exercise or refrain from exercising any rights against the
Borrower, any other guarantor or others or otherwise act or refrain from
acting;
(iv) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to creditors of the Borrower
(other than the Creditors);
(v) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Creditors regardless of
what liabilities of the Borrower remain unpaid;
(vi) consent to or waive any breach of, or any act, omission or
default under, any of the Credit Documents, the Secured Interest Rate
Agreements or any of the instruments or agreements referred to therein, or
otherwise amend, modify or supplement any of the Credit Documents, the
Secured Interest Rate Agreements or any of such other instruments or
agreements; and/or
-4-
<PAGE>
(vii) act or fail to act in any manner referred to in this Guaranty
which may deprive such Guarantor of its right to subrogation against the
Borrower to recover full indemnity for any payments made pursuant to this
Guaranty.
7. No invalidity, irregularity or unenforceability of all or any part
of the Guaranteed Obligations or of any security therefor shall affect, impair
or be a defense to this Guaranty, and this Guaranty shall be primary, absolute
and unconditional notwithstanding the occurrence of any event or the existence
of any other circumstances which might constitute a legal or equitable discharge
of a surety or guarantor except payment in full of the Guaranteed Obligations.
8. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of any
Creditor in exercising any right, power or privilege hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
expressly specified are cumulative and not exclusive of any rights or remedies
which any Creditor would otherwise have. No notice to or demand on any
Guarantor in any case shall entitle such Guarantor to any other further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of any Creditor to any other or further action in any circumstances without
notice or demand. It is not necessary for any Creditor to inquire into the
capacity or powers of the Borrower or any of its Subsidiaries or the officers,
directors, partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
9. Any indebtedness of the Borrower now or hereafter held by any
Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Creditors; and such indebtedness of the Borrower to any Guarantor, if the
Collateral Agent so requests after an Event of Default (as hereinafter defined)
has occurred, shall be collected, enforced and received by such Guarantor as
trustee for the Creditors and be paid over to the Creditors on account of the
indebtedness of the Borrower to the Creditors, but without affecting or
impairing in any manner the liability of such Guarantor under the other
provisions of this Guaranty. Prior to the transfer by any Guarantor of any note
or negotiable instrument evidencing any indebtedness of the Borrower to such
Guarantor, such Guarantor shall mark such note or negotiable instrument with a
legend that the same is subject to this subordination.
10. (a) Each Guarantor hereby waives any right (except as shall be
required by applicable statute and cannot be waived) to require the Creditors
to: (i)
-5-
<PAGE>
proceed against the Borrower, any other Guarantor, any other guarantor of the
Borrower or any other party; (ii) proceed against or exhaust any security held
from the Borrower, any other Guarantor, any other guarantor of the Borrower or
any other party; or (iii) pursue any other remedy in the Creditors' power
whatsoever. Each Guarantor waives any defense based on or arising out of any
defense of the Borrower, any other Guarantor, any other guarantor of the
Borrower or any other party other than payment in full of the Guaranteed
Obligations, including, without limitation, any defense based on or arising out
of the disability of the Borrower, any other Guarantor, any other guarantor of
the Borrower or any other party, or the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower other than payment in full of the Guaranteed
Obligations. The Creditors may, at their election, foreclose on any security
held by the Administrative Agent, the Collateral Agent or the other Creditors by
one or more judicial or nonjudicial sales, whether or not every aspect of any
such sale is commercially reasonable (to the extent such sale is permitted by
applicable law), or exercise any other right or remedy the Creditors may have
against the Borrower or any other party, or any security, without affecting or
impairing in any way the liability of any Guarantor hereunder, except to the
extent the Guaranteed Obligations have been paid in full. Each Guarantor waives
any defense arising out of any such election by the Administrative Agent, the
Collateral Agent and the other Creditors, even though such election may operate
to impair or extinguish any right of reimbursement or subrogation or other right
or remedy of such Guarantor against the Borrower, any other Guarantor or any
other party or any security.
(b) Each Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
Indebtedness. Each Guarantor assumes all responsibility for being and keeping
itself informed of the Borrower's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which any Guarantor
assumes and incurs hereunder, and agrees that the Creditors shall have no duty
to advise such Guarantor of information known to them regarding such
circumstances or risks.
(c) Until such time as the Guaranteed Obligations have been paid in
full in cash or Cash Equivalents, each Guarantor hereby waives all rights of
subrogation which it may at any time otherwise have as a result of this Guaranty
(whether contractual, under Section 509 of the Bankruptcy Code, or otherwise) to
the claims of the Creditors against the Borrower, any other Guarantor or any
other guarantor of the Guaranteed Obligations and all contractual, statutory or
common law rights of reimbursement, contribution or
-6-
<PAGE>
indemnity from the Borrower or any other Guarantor which it may at any time
otherwise have as a result of this Guaranty.
11. If and to the extent that any Guarantor makes any payment to any
Creditor or to any other Person pursuant to or in respect of this Guaranty, any
claim which such Guarantor may have against the Borrower by reason thereof shall
be subject and subordinate to the prior payment in full of the Guaranteed
Obligations to each Creditor. Prior to the transfer by any Guarantor of any
note or negotiable instrument evidencing any indebtedness of the Borrower to
such Guarantor, such Guarantor shall mark such note or negotiable instrument
with a legend that the same is subject to this subordination.
12. Each Guarantor covenants and agrees that on and after the date
hereof and until the Total Commitment and all Secured Interest Rate Agreements
have been terminated, no Note remains outstanding and all Guaranteed Obligations
have been paid in full, such Guarantor shall take, or will refrain from taking,
as the case may be, all actions that are necessary to be taken or not taken so
that no violation of any provision, covenant or agreement contained in Section 6
or 7 of the Credit Agreement, and so that no Event of Default, is caused by the
actions of such Guarantor or any of its Subsidiaries.
13. Each Guarantor hereby jointly and severally agrees to pay, to the
extent not paid pursuant to Section 11.01 of the Credit Agreement, all
reasonable out-of-pocket costs and expenses (including, without limitation, the
reasonable fees and disbursements of counsel) of each Creditor in connection
with the enforcement of this Guaranty and of the Administrative Agent in
connection with any amendment, waiver or consent relating to this Guaranty.
14. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns to the extent permitted under the Credit Agreement.
15. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated except with the written consent of the Required
Lenders (or to the extent required by Section 11.12 of the Credit Agreement,
with the written consent of each Lender) and each Guarantor affected thereby (it
being understood that the addition or release of any Guarantor hereunder shall
not constitute a change, waiver, discharge or termination affecting any
Guarantor other than the Guarantor so added or released), provided that (x) no
--------
such change, waiver, modification or variance shall be made to this Section 15
without the consent of each Creditor affected thereby and (y) any change,
waiver, modification or variance affecting the rights and benefits of a single
Class (as defined below) of Creditors (and not all Creditors in a like or
similar manner) shall
-7-
<PAGE>
require the written consent of the Requisite Creditors (as defined below) of
such Class. For the purpose of this Guaranty, the term "Class" shall mean each
class of Creditors, i.e., whether (i) the Lender Creditors as holders of the
----
Credit Document Obligations or (ii) the Interest Rate Creditors as holders of
the Interest Rate Obligations. For the purpose of this Guaranty, the term
"Requisite Creditors" of any Class shall mean (i) with respect to the Credit
Document Obligations, the Required Lenders and (ii) with respect to the Interest
Rate Obligations, the holders of at least a majority of all obligations
outstanding from time to time under the Secured Interest Rate Agreements.
16. Each Guarantor acknowledges that an executed (or conformed) copy
of each of the Credit Documents and the Secured Interest Rate Agreements has
been made available to its principal executive officers and such officers are
familiar with the contents thereof.
17. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term
shall mean and include any "Event of Default" as defined in the Credit Agreement
or any payment default under any Secured Interest Rate Agreement continuing
after any applicable grace period), each Creditor is hereby authorized, at any
time or from time to time, without notice to any Guarantor or to any other
Person, any such notice being expressly waived, to set off and to appropriate
and apply any and all deposits (general or special) and any other indebtedness
at any time held or owing by such Creditor to or for the credit or the account
of any Guarantor, against and on account of the obligations and liabilities of
such Guarantor to such Creditor under this Guaranty, irrespective of whether or
not such Creditor shall have made any demand hereunder and although said
obligations, liabilities, deposits or claims, or any of them, shall be
contingent or unmatured. Each Creditor agrees to promptly notify the relevant
Guarantor after any such set off and application, provided that the failure to
--------
give such notice shall not affect the validity of such set off and application.
18. All notices, requests, demands or other communications provided
for hereunder made in writing (including communications by facsimile
transmission) shall be deemed to have been duly given or made when delivered to
the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guaranty, addressed to such
party at (i) in the case of any Lender Creditor, as provided in the Credit
Agreement, (ii) in the case of each Guarantor, at its address set forth opposite
its signature below and (iii) in the case of any Interest Rate Creditor, at such
address as such Interest Rate Creditor shall have specified in writing to the
Guarantors; or in any case at such other address as any of the Persons listed
above may hereafter notify the others in writing.
-8-
<PAGE>
19. If claim is ever made upon any Creditor for repayment or recovery
of any amount or amounts received in payment or on account of any of the
Guaranteed Obligations and any such Creditor repays all or part of said amount
by reason of (i) any judgment, decree or order of any court or administrative
body having jurisdiction over such Creditor or any of its property or (ii) any
settlement or compromise of any such claim effected by such Creditor with any
such claimant (including the Borrower), then and in such event each Guarantor
agrees that any such judgment, decree, order, settlement or compromise shall be
binding upon such Guarantor, notwithstanding any revocation hereof or other
instrument evidencing any liability of the Borrower, and each Guarantor shall be
and remain liable to such Creditor hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by any such Creditor.
20. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS. Any legal action or proceeding with respect to this Guaranty
or any other Credit Document may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Guaranty, each Guarantor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor
hereby irrevocably designates, appoints and empowers CT Corporation System with
offices on the date hereof at 1633 Broadway, New York, NY 10019, as its
designee, appointee and agent to receive, accept and acknowledge for and on its
behalf, and in respect of its property, service of any and all legal process,
summons, notices and documents which may be served in any such action or
proceeding. If for any reason such designee, appointee and agent shall cease to
be available to act as such, each Guarantor agrees to designate a new designee,
appointee and agent in New York City on the terms and for the purposes of this
provision satisfactory to the Administrative Agent under this Agreement. Each
Guarantor further irrevocably consents to the service of process out of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to each
Guarantor at its address set forth opposite its signature below, such service to
become effective 30 days after such mailing. Nothing herein shall affect the
right of any of the Creditors to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against any Guarantor
in any other jurisdiction.
(b) Each Guarantor hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings arising out of or in connection with this Guaranty or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further
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<PAGE>
irrevocably waives and agrees not to plead or claim in any such court that such
action or proceeding brought in any such court has been brought in an
inconvenient forum.
(c) Each Guarantor and each Creditor hereby irrevocably waive all
rights to a trial by jury in any action, proceeding or counterclaim arising out
of or relating to this Guaranty, the other Credit Documents or the transactions
contemplated hereby or thereby.
21. (a) After the Termination Date (as defined below), this Guaranty
shall terminate (provided that all indemnities set forth herein shall survive
any such termination) and the Administrative Agent, at the request and expense
of the respective Guarantor, will execute and deliver to such Guarantor a proper
instrument or instruments acknowledging the satisfaction and termination of this
Guaranty as provided above. As used in this Guaranty, "Termination Date" shall
mean the date upon which the Total Commitment and all Secured Interest Rate
Agreements have been terminated, no Note under the Credit Agreement is
outstanding (and all Loans have been paid in full) and all other Obligations (as
defined in the Credit Agreement) have been paid in full (other than arising from
indemnities for which no request has been made).
(b) In the event that (x) all of the capital stock of one or more
Guarantors is sold or otherwise disposed of (including by way of the merger or
consolidation of such Guarantor with or into another Person) or liquidated, in
any such case in compliance with the requirements of Section 7.02 of the Credit
Agreement (or such sale or other disposition or liquidation has been approved in
writing by the Required Lenders (or all Lenders if required by Section 11.12 of
the Credit Agreement)), and the proceeds of such sale, disposition or
liquidation are applied, to the extent applicable, in accordance with the
provisions of the Credit Agreement, such Guarantor shall be released from this
Guaranty and this Guaranty shall, as to each such Guarantor or Guarantors,
terminate, and have no further force or effect (it being understood and agreed
that the sale of one or more Persons that own, directly or indirectly, all of
the capital stock, partnership interests or other equity interests of any
Guarantor shall be deemed to be a sale of such Guarantor for the purposes of
this Section 21).
22. Each Guarantor, in addition to the subrogation rights it shall
have against the Borrower under applicable law as a result of any payment it
makes hereunder, shall also have a right of contribution against all other
Guarantors in respect of any such payment pro rata among same based on their
--- ----
respective net fair values as enterprises, provided any such right of
--------
contribution shall be subject and subordinate to the prior payment in full of
the Guaranteed Obligations (and such Guarantor's obligations in respect
thereof). It is the desire and intent of each Guarantor and the Creditors that
this Guaranty shall be enforced to the full extent permissible under the laws
and public
-10-
<PAGE>
policies applied in each jurisdiction in which enforcement is sought. If and to
the extent that the obligations of any Guarantor under this Guaranty would, in
the absence of this sentence, be adjudicated to be invalid or unenforceable
because of any applicable state or federal law relating to fraudulent
conveyances or transfers, then the amount of such Guarantor's liability
hereunder in respect of the Guaranteed Obligations shall be deemed to be reduced
ab initio to that maximum amount which would be permitted without causing such
- -- ------
Guarantor's obligations hereunder to be so invalidated.
23. The Creditors agree that this Guaranty may be enforced only by
the action of the Administrative Agent or the Collateral Agent, in each case
acting upon the instructions of the Required Lenders and that no other Creditor
shall have any right individually to seek to enforce or to enforce this Guaranty
or to realize upon the security to be granted by the Pledge Agreement, it being
understood and agreed that such rights and remedies may be exercised by the
Administrative Agent or the Collateral Agent for the benefit of the Creditors
upon the terms of this Guaranty and the Pledge Agreement. The Creditors further
agree that this Guaranty may not be enforced against any director, officer or
employee of any Guarantor.
24. This Guaranty may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Borrower and the Administrative
Agent.
25. All payments made by any Guarantor hereunder will be made without
setoff, counterclaim or other defense.
26. It is understood and agreed that any Subsidiary of the Borrower
that is required to execute a counterpart of this Guaranty pursuant to the
Credit Agreement shall automatically become a Guarantor hereunder by executing a
counterpart hereof and delivering the same to the Administrative Agent.
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<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
c/o MJD COMMUNICATIONS, INC. MJD HOLDINGS CORP.,
521 East Morehead Street as a Guarantor
Suite 250
Charlotte, NC 28202 By /s/ Walter Leach
--------------------------------------
Title: Vice President, Secretary and
Chief Financial Officer
c/o MJD COMMUNICATIONS, INC. MJD VENTURES, INC.,
521 East Morehead Street as a Guarantor
Suite 250
Charlotte, NC 28202
By /s/ Walter Leach
--------------------------------------
Title: Vice President, Secretary and
Chief Financial Officer
c/o MJD COMMUNICATIONS, INC. MJD SERVICES CORP.,
521 East Morehead Street as a Guarantor
Suite 250
Charlotte, NC 28202
By /s/ Walter Leach
--------------------------------------
Title: Vice President, Secretary and
Chief Financial Officer
c/o MJD COMMUNICATIONS, INC. ST ENTERPRISES LTD.,
521 East Morehead Street as a Guarantor
Suite 250
Charlotte, NC 28202
By /s/ Walter Leach
--------------------------------------
Title: Vice President, Secretary and
Chief Financial Officer
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<PAGE>
Accepted and Agreed to:
BANKERS TRUST COMPANY,
as Administrative Agent for the Lenders
By /s/ G. Andrew Keith
------------------------------------
Title: Vice President
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<PAGE>
EXHIBIT 10.8 CONFORMED
AS EXECUTED
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT, dated as of March 30, 1998 (as amended, amended and
restated, modified or supplemented from time to time, the "Agreement"), made by
each of the undersigned (each, a "Pledgor" and together with any other entity
that becomes a party hereto pursuant to Section 24 hereof, collectively, the
"Pledgors"), in favor of BANKERS TRUST COMPANY, as Collateral Agent (including
any successor collateral agent, the "Pledgee") for the benefit of the Secured
Creditors (as defined below). Except as otherwise defined herein, terms used
herein and defined in the Credit Agreement (as defined below) shall be used
herein as therein defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MJD Communications, Inc. (the "Borrower"), the lenders from
time to time party thereto (the "Lenders"), NationsBank of Texas, N.A., as
Syndication Agent (the "Syndication Agent"), and Bankers Trust Company, as
Administrative Agent (the "Administrative Agent" and together with the Lenders,
the Syndication Agent, the Collateral Agent and the Pledgee, the "Lender
Creditors"), have entered into a Credit Agreement, dated as of March 30, 1998
(as amended, modified or supplemented from time to time, the "Credit
Agreement"), providing for the making of Loans as contemplated therein;
WHEREAS, the Borrower may from time to time be a party to one or more
Interest Rate Agreements (each such Interest Rate Agreement with an Interest
Rate Creditor (as defined below), a "Secured Interest Rate Agreement") with
Bankers Trust Company, in its individual capacity ("BTCo"), any Lender or a
syndicate of financial institutions organized by BTCo or such Lender or an
affiliate of BTCo or such Lender (even if BTCo or any such Lender ceases to be a
Lender under the Credit Agreement for any reason), and any institution that
participates therein, and in each case their subsequent assigns (collectively,
the "Interest Rate Creditors," and together with the Lender Creditors,
collectively, the "Secured Creditors");
WHEREAS, pursuant to the Subsidiary Guaranty, dated as of March 30,
1998 (as amended, modified or supplemented from time to time, the "Subsidiary
Guaranty"), each Pledgor that is a Subsidiary Guarantor has jointly and
severally
<PAGE>
guaranteed to the Secured Creditors the payment when due of the Guaranteed
Obligations (as defined in the Subsidiary Guaranty);
WHEREAS, it is a condition precedent to the making of Loans under the
Credit Agreement that each Pledgor shall have executed and delivered to the
Pledgee this Agreement;
WHEREAS, each Pledgor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to each
Pledgor, the receipt and sufficiency of which are hereby acknowledged, each
Pledgor hereby makes the following representations and warranties to the Pledgee
and hereby covenants and agrees with the Pledgee as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor
------------------------
for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations (including
obligations which, but for the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due) and liabilities of such Pledgor, now
existing or hereafter incurred under, arising out of or in connection with
any Credit Document to which such Pledgor is a party and the due
performance of and compliance by such Pledgor with the terms of each such
Credit Document by such Pledgor (all such obligations and liabilities under
this clause (i), except to the extent consisting of obligations or
indebtedness with respect to Secured Interest Rate Agreements, being herein
collectively called the "Credit Document Obligations");
(ii) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations (including
obligations which, but for the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due) and liabilities of such Pledgor, now
existing or hereafter incurred under, arising out of or in connection with
any Secured Interest Rate Agreement, including all obligations, if any, of
such Pledgor under its Guaranty (if any) in respect of Secured Interest
Rate Agreements (all such obligations and liabilities under this clause
(ii) being herein collectively called the "Interest Rate Obligations");
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<PAGE>
(iii) any and all sums advanced by the Pledgee in order to preserve
the Collateral (as hereinafter defined) and/or its security interest
therein;
(iv) in the event of any proceeding for the collection of the
Obligations (as defined below) or the enforcement of this Agreement, after
an Event of Default (such term, as used in this Agreement, shall mean any
Event of Default under the Credit Agreement or any payment default by the
Borrower under any Secured Interest Rate Agreement after the expiration of
any applicable grace period) shall have occurred and be continuing, the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling or otherwise disposing of or realizing on the Collateral, or of any
exercise by the Pledgee of its rights hereunder, together with reasonable
attorneys' fees and court costs; and
(v) all amounts paid by any Secured Creditor as to which such
Secured Creditor has the right to reimbursement under Section 11 of this
Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations".
2. DEFINITION OF STOCK, NOTES, PARTNERSHIP INTERESTS, MEMBERSHIP
-------------------------------------------------------------
INTERESTS, SECURITIES, ETC. As used herein, (i) the term "Stock" shall mean (x)
- ---------------------------
all of the issued and outstanding shares of stock at any time owned by any
Pledgor of any corporation (other than (I) any Excluded Entity and (II) a
corporation that is not organized under the laws of the United States or any
State or territory thereof (a "Foreign Corporation")) and (y) with respect to a
Foreign Corporation that is a first-tier Subsidiary (other than any Excluded
Entity), all of the issued and outstanding shares of capital stock at any time
owned by any Pledgor of such Foreign Corporation, provided that such Pledgor
--------
shall not be required to pledge hereunder (and the term "Stock" shall not
include) more than 65% of the total combined voting power of all classes of
capital stock of any Exempted Foreign Corporation entitled to vote; (ii) the
term "Notes" shall mean all promissory notes at any time issued to, or held by,
any Pledgor; (iii) the term "Partnership Interest" shall mean the entire
partnership interest (whether general and/or limited partnership interests) at
any time owned by any Pledgor in any partnership (other than (I) an Excluded
Entity and (II) a partnership that is not organized under the laws of the United
States or any State or territory thereof (a "Foreign Partnership")) and (y) with
respect to a Foreign Partnership (other than an Excluded Entity), the entire
partnership interest at any time owned by any Pledgor in such Foreign
Partnership, provided that such Pledgor shall not be required to pledge
--------
hereunder (and the term "Partnership Interest" shall not include) more than 65%
of the total voting power of all classes of partnership interests of any such
Foreign Partnership entitled to vote (with any partnership (other than an
Excluded Entity) in which any Pledgor owns a partnership interest being herein
called
-3-
<PAGE>
a "Pledged Partnership"); (iv) the term "Membership Interest" shall mean the
entire membership interest at any time owned by any Pledgor in any limited
liability company (other than (other than (I) an Excluded Entity and (II) a
limited liability company that is not organized under the laws of the United
States or any State or territory thereof (a "Foreign LLC")) and (y) with respect
to a Foreign LLC (other than an Excluded Entity), the entire membership interest
at any time owned by any Pledgor in such Foreign LLC, provided that such Pledgor
--------
shall not be required to pledge hereunder (and the term "Membership Interest"
shall not include) more than 65% of the total voting power of all classes of the
membership interests of any such Foreign LLC entitled to vote (with any limited
liability company (other than an Excluded Entity) in which any Pledgor owns a
membership interest being herein called a "Pledged LLC"); (v) the term
"Securities" shall mean all of the Stock, Notes, Partnership Interests and
Membership Interests; (vi) the term "Exempted Foreign Corporation" shall mean
any Foreign Corporation that is treated as a corporation or an association
taxable as a corporation for U.S. Federal income tax purposes and (vii) the term
"Excluded Entity" shall mean (w) any corporation, partnership, limited liability
company or association which is not a Parent Company, an Intermediary Holding
Company or a TelCo, (x) ST Enterprises, Ltd. to the extent (and only to the
extent) the Existing Warrants remain outstanding, (y) STE/NE Acquisition Corp.
(D/B/A Northland of Vermont), Big Sandy Telecom, Columbine Acquisition Corp. and
Sunflower Telephone Company, in each case to the extent (and only to the extent)
the relevant Pledgor has not obtained the appropriate regulatory approval to
pledge the capital stock of any such Person on the Closing Date and, thereafter,
in compliance with Section 6.11 of the Credit Agreement and (z) any TelCo
acquired or created pursuant to a Permitted Acquisition after the Closing Date
if (I) the relevant Pledgor has not obtained the appropriate regulatory approval
to pledge the capital stock or other equity interests of such Telco in
compliance with Section 6.11 of the Credit Agreement and (II) after giving
effect to the acquisition or creation of such TelCo, the Pro Forma EBITDA Test
is satisfied. Each Pledgor represents and warrants that on the date hereof: (a)
each Subsidiary of such Pledgor whose equity interest is required to be pledged
hereunder, and the direct ownership thereof, is listed on Annex A hereto; (b)
the Stock held by such Pledgor consists of the number and type of shares of the
stock of the corporations as described in Annex B hereto; (c) such Stock
constitutes that percentage of the issued and outstanding capital stock of the
issuing corporation as set forth in Annex B hereto; (d) the Notes held by such
Pledgor consist of the promissory notes described in Annex C hereto; (e) such
Pledgor is the holder of record and sole beneficial owner of the Stock and Notes
held by such Pledgor and there exists no options or preemption rights in respect
of any of the Stock; (f) the Partnership Interests and Membership Interests, as
the case may be, held by such Pledgor constitute that percentage of the entire
interest of the respective Pledged Partnership or Pledged LLC, as the case may
be, as is set forth under its name in Annex D hereto; and (g) on the date
hereof, such Pledgor owns or possesses no other Securities except as described
on Annexes B, C and D hereto.
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<PAGE>
3. PLEDGE OF SECURITIES, ETC.
--------------------------
3.1 Pledge. To secure the Obligations and for the purposes set forth
------
in Section 1, each Pledgor hereby:
(i) grants and pledges to the Pledgee a security interest in
all of the Collateral owned by such Pledgor;
(ii) pledges and deposits as security with the Pledgee the
Securities owned by such Pledgor on the date hereof, if any, and delivers
to the Pledgee certificates or instruments therefor, duly endorsed in blank
in the case of Notes and accompanied by undated stock or other powers duly
executed in blank by such Pledgor in the case of Stock, Partnership
Interests or Membership Interests, as the case may be, or such other
instruments of transfer as are acceptable to the Pledgee;
(iii) assigns, transfers, hypothecates, mortgages, charges and
sets over to the Pledgee all of such Pledgor's right, title and interest in
and to such Securities (and in and to all certificates or instruments
evidencing such Securities), to be held by the Pledgee, upon the terms and
conditions set forth in this Agreement;
(iv) grants, pledges, assigns and transfers to the Pledgee all
of such Pledgor's (x) Partnership Interest and all of such Pledgor's right,
title and interest in each Pledged Partnership and (y) Membership Interest
and all of such Pledgor's right, title and interest in each Pledged LLC, in
each case including, without limitation:
(a) all the capital thereof and its interest in all profits,
losses and other distributions to which such Pledgor shall at any
time be entitled in respect of such Partnership Interest and/or
Membership Interest;
(b) all other payments due or to become due to such Pledgor in
respect of such Partnership Interest and/or Membership Interest,
whether under any partnership agreement, limited liability
company agreement or otherwise, whether as contractual
obligations, damages, insurance proceeds or otherwise;
(c) all of its claims, rights, powers, privileges, authority,
options, security interest, liens and remedies, if any, under any
partnership
-5-
<PAGE>
agreement, limited liability company agreement or at law or
otherwise in respect of such Partnership Interest and/or
Membership Interest;
(d) all present and future claims, if any, of the Pledgor
against any Pledged Partnership and any Pledged LLC for moneys
loaned or advanced, for services rendered or otherwise;
(e) all of such Pledgor's rights under any partnership
agreement or limited liability company agreement or at law to
exercise and enforce every right, power, remedy, authority,
option and privilege of such Pledgor relating to the Partnership
Interest and/or Membership Interest, including any power to
terminate, cancel or modify any partnership agreement or any
limited liability company agreement, to execute any instruments
and to take any and all other action on behalf of and in the name
of such Pledgor in respect of any Partnership Interest or
Membership Interest and any Pledged Partnership and any Pledged
LLC to make determinations, to exercise any election (including,
but not limited to, election of remedies) or option or to give or
receive any notice, consent, amendment, waiver or approval,
together with full power and authority to demand, receive,
enforce, collect or receipt for any of the foregoing, to enforce
or execute any checks, or other instruments or orders, to file
any claims and to take any action in connection with any of the
foregoing;
(f) all other property hereafter delivered in substitution for
or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such other property and
all cash, securities, interest, dividends, rights and other
property at any time and from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or
all thereof; and
(g) to the extent not otherwise included, all proceeds of any
or all of the foregoing.
3.2 Subsequently Acquired Securities. If any Pledgor shall acquire
--------------------------------
(by purchase, stock dividend or otherwise) any additional Securities at any time
or from time to time after the date hereof, such Pledgor will forthwith pledge
and deposit such Securities (or certificates or instruments representing such
Securities) as security with the Pledgee and deliver to the Pledgee certificates
or instruments thereof, duly endorsed in blank in the case of Notes and
accompanied by undated stock or other powers duly executed in blank by such
Pledgor (and accompanied by any transfer tax stamps required
-6-
<PAGE>
in connection with the pledge of such Securities) in the case of Stock,
Partnership Interests or Membership Interests, as the case may be, or such other
instruments of transfer as are acceptable to the Pledgee, and will promptly
thereafter deliver to the Pledgee a certificate executed by a principal
executive officer of such Pledgor describing such Securities and certifying that
the same have been duly pledged with the Pledgee hereunder. No Pledgor shall be
required at any time to pledge hereunder any Securities which constitute more
than 65% of the total combined voting power of all classes of ownership
interests of any Exempted Foreign Corporation, Foreign Partnership or Foreign
LLC, as the case may be, entitled to vote.
3.3 Uncertificated Securities. Notwithstanding anything to the
-------------------------
contrary contained in Sections 3.1 and 3.2, if any Securities (whether or not
now owned or hereafter acquired) are uncertificated securities, the respective
Pledgor shall promptly notify the Pledgee thereof, and shall promptly take all
actions required to perfect the security interest of the Pledgee under
applicable law (including, in any event, under Articles 8 and 9 of the New York
Uniform Commercial Code if applicable). Each Pledgor further agrees to take
such actions as the Pledgee deems necessary or desirable to effect the foregoing
and to permit the Pledgee to exercise any of its rights and remedies hereunder,
and agrees to provide an opinion of counsel reasonably satisfactory to the
Pledgee with respect to any such pledge of uncertificated Securities promptly
upon request of the Pledgee.
3.4 Definitions of Pledged Stock, Pledged Notes, Pledged Partnership
----------------------------------------------------------------
Interests, Pledged Membership Interests, Pledged Securities and Collateral. All
- --------------------------------------------------------------------------
Stock at any time pledged or required to be pledged hereunder is hereinafter
called the "Pledged Stock, all Notes at any time pledged or required to be
pledged hereunder are hereinafter called the "Pledged Notes", all Partnership
Interests at any time pledged or required to be pledged hereunder are
hereinafter called the "Pledged Partnership Interests," all Membership Interests
at any time pledged or required to be pledged hereunder are hereinafter called
the "Pledged Membership Interests", all Pledged Stock, Pledged Notes, Pledged
Partnership Interests and Pledged Membership Interests, together are called the
"Pledged Securities"; and the Pledged Securities, together with all proceeds
thereof, including any securities and moneys received and at the time held by
the Pledgee hereunder, are hereinafter called the "Collateral."
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
---------------------------------------------
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Pledged Securities, which may be held (in the
discretion of the Pledgee) in the name of the relevant Pledgor, endorsed or
assigned in blank or in favor of the Pledgee or any nominee or nominees of the
Pledgee or a sub-agent appointed by the Pledgee.
-7-
<PAGE>
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until there
---------------------------------------
shall have occurred and be continuing an Event of Default, each Pledgor shall be
entitled to exercise all voting rights attaching to any and all Pledged
Securities owned by it, and to give consents, waivers or ratifications in
respect thereof, provided that no vote shall be cast or any consent, waiver or
--------
ratification given or any action taken which would violate, result in breach of
any covenant contained in, or be inconsistent with, any of the terms of this
Agreement, the Credit Agreement, any other Credit Document or any Secured
Interest Rate Agreement (collectively, the "Secured Debt Agreements"), or which
would have the effect of impairing the value of the Collateral or any part
thereof or the position or interests of the Pledgee or any other Secured
Creditor therein. All such rights of a Pledgor to vote and to give consents,
waivers and ratifications shall cease in case an Event of Default shall occur
and be continuing and Section 7 hereof shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until an Event of
---------------------------------
Default shall have occurred and be continuing, all cash dividends, distributions
or other amounts payable in respect of the Pledged Securities shall be paid to
the respective Pledgor, provided that all dividends, distributions or other
--------
amounts payable in respect of the Pledged Securities which are determined by the
Pledgee, in its absolute discretion, to represent in whole or in part an
extraordinary, liquidating or other distribution in return of capital not
permitted by the Credit Agreement shall be paid, to the extent so determined to
represent an extraordinary, liquidating or other distribution in return of
capital not permitted by the Credit Agreement, to the Pledgee and retained by it
as part of the Collateral (unless such cash dividends or distributions are
applied to repay the Obligations pursuant to Section 9 of this Agreement). The
Pledgee shall also be entitled to receive directly, and to retain as part of the
Collateral:
(i) all other or additional stock, or other securities or
property (other than cash) paid or distributed by way of dividend or
otherwise in respect of the Collateral;
(ii) all other or additional stock or other securities or property
(including cash) paid or distributed in respect of the Collateral by way of
stock-split, spin-off, split-up, reclassification, combination of shares or
similar rearrangement; and
(iii) all other or additional stock or other securities or property
(including cash) which may be paid in respect of the Collateral by reason of
any consolidation, merger, exchange of stock, conveyance of assets,
liquidation or similar corporate reorganization (other than the Net Cash
Proceeds from any Asset Sale applied to repay Loans and/or reinvested in
accordance with the relevant provisions of the Credit Agreement).
-8-
<PAGE>
Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive the proceeds of the Collateral in any form in
accordance with Section 3 of this Agreement. All dividends, distributions or
other payments which are received by the respective Pledgor contrary to the
provisions of this Section 6 or Section 7 shall be received in trust for the
benefit of the Pledgee, shall be segregated from other property or funds of such
Pledgor and shall be forthwith paid over to the Pledgee as Collateral in the
same form as so received (with any necessary endorsement).
7. REMEDIES IN CASE OF AN EVENT OF DEFAULT. (a) In case an Event of
---------------------------------------
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or any other Secured Debt Agreement or by law) for the protection and
enforcement of its rights in respect of the Collateral, including, without
limitation, all the rights and remedies of a secured party upon default under
the Uniform Commercial Code of the State of New York, and the Pledgee shall be
entitled, without limitation, to exercise any or all of the following rights,
which each Pledgor hereby agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the Collateral
otherwise payable under Section 6 to such Pledgor;
(ii) to transfer all or any part of the Collateral into the
Pledgee's name or the name of its nominee or nominees;
(iii) to accelerate any Pledged Note which may be accelerated in
accordance with its terms, and take any other lawful action to collect upon
any Pledged Note (including, without limitation, to make any demand for
payment thereon);
(iv) to vote all or any part of the Pledged Stock, Pledged
Partnership Interests and Pledged Membership Interests (whether or not
transferred into the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (each Pledgor hereby
irrevocably constituting and appointing the Pledgee the proxy and attorney-
in-fact of such Pledgor, with full power of substitution to do so); and
(v) at any time or from time to time to sell, assign and deliver,
or grant options to purchase, all or any part of the Collateral, or any
interest therein, at any public or private sale, without demand of
performance, advertisement or notice of intention to sell or of the time or
place of sale or adjournment thereof or to redeem
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<PAGE>
or otherwise (all of which are hereby waived by each Pledgor), for cash, on
credit or for other property, for immediate or future delivery without any
assumption of credit risk, and for such price or prices and on such terms as
the Pledgee in its absolute discretion may determine, provided that at least
--------
10 days' notice of the time and place of any such sale shall be given to
such Pledgor. The Pledgee shall not be obligated to make such sale of
Collateral regardless of whether any such notice of sale has theretofore
been given. Each purchaser at any such sale shall hold the property so sold
absolutely free from any claim or right on the part of any Pledgor, and each
Pledgor hereby waives and releases to the fullest extent permitted by law
any right or equity of redemption with respect to the Collateral, whether
before or after sale hereunder, all rights, if any, of marshalling the
Collateral and any other security for the Obligations or otherwise, and all
rights, if any, of stay and/or appraisal which it now has or may at any time
in the future have under rule of law or statute now existing or hereafter
enacted. At any such sale, unless prohibited by applicable law, the Pledgee
on behalf of all Secured Creditors (or certain of them) may bid for and
purchase (by bidding in Obligations or otherwise) all or any part of the
Collateral so sold free from any such right or equity of redemption. Neither
the Pledgee nor any Secured Creditor shall be liable for failure to collect
or realize upon any or all of the Collateral or for any delay in so doing
nor shall it be under any obligation to take any action whatsoever with
regard thereto.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
--------------------------
Pledgee provided for in this Agreement or any other Secured Debt Agreement, or
other Secured Debt Agreement or now or hereafter existing at law or in equity or
by statute or otherwise shall not preclude the simultaneous or later exercise by
the Pledgee or any other Secured Creditor of all such other rights, powers or
remedies, and no failure or delay on the part of the Pledgee or any other
Secured Creditor to exercise any such right, power or remedy shall operate as a
waiver thereof. Unless otherwise required by the Credit Documents, no notice to
or demand on any Pledgor in any case shall entitle it to any other or further
notice or demand in similar other circumstances or constitute a waiver of any of
the rights of the Pledgee or any other Secured Creditor to any other further
action in any circumstances without demand or notice. The Secured Creditors
agree that this Agreement may be enforced only by the action of the
Administrative Agent or the Pledgee, in each case acting upon the instructions
of the Required Lenders (or, after the date on which all Credit Document
Obligations have been paid in full, the holders of at least the majority of the
outstanding Interest Rate Obligations) and that no other Secured
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<PAGE>
Creditor shall have any right individually to seek to enforce or to enforce this
Agreement or to realize upon the security to be granted hereby, it being
understood and agreed that such rights and remedies may be exercised by the
Administrative Agent or the Pledgee or the holders of at least a majority of the
outstanding Interest Rate Obligations, as the case may be, for the benefit of
the Secured Creditors upon the terms of this Agreement.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee
-----------------------
or the Collateral Agent upon any sale or other disposition of the Collateral,
together with all other moneys received by the Pledgee or the Collateral Agent
hereunder, shall be applied as follows:
(i) first, to the payment of all Obligations owing to the Pledgee
or the Collateral Agent of the type described in clauses (iii) and (iv) of
the definition of "Obligations" contained in Section 1 hereof;
(ii) second, to the extent proceeds remain after the application
pursuant to preceding clause (i), an amount equal to the outstanding
Obligations to the Secured Creditors shall be paid to the Secured Creditors
as provided in Section 9(c) with each Secured Creditor receiving an amount
equal to its out standing Obligations or, if the proceeds are insufficient
to pay in full all such Obligations, its Pro Rata Share of the amount
--- ----
remaining to be distributed to be applied, with respect to the Credit
Document Obligations, firstly to the payment of interest in respect of the
unpaid principal amount of Loans outstanding, secondly to the payment of
principal of Loans outstanding, then to the other Credit Document
Obligations; and
(iii) third, to the extent proceeds remain after the application
pursuant to the preceding clauses (i) and (ii) and following the
termination of this Agreement pursuant to Section 18 hereof, to the
relevant Pledgor or, to the extent directed by such Pledgor or a court of
competent jurisdiction, to whomever may be lawfully entitled to receive
such surplus.
(b) For purposes of this Agreement, "Pro Rata Share" shall mean, when
--- ----
calculating a Secured Creditor's portion of any distribution or amount, the
amount (expressed as a percentage) equal to a fraction the numerator of which is
the then outstanding amount of the relevant Obligations owed such Secured
Creditor and the denominator of which is the then outstanding amount of all
Obligations.
(c) All payments required to be made to the (i) Lender Creditors
hereunder shall be made to the Administrative Agent for the account of the
respective Lender Creditors and (ii) Interest Rate Creditors hereunder shall be
made to the paying
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<PAGE>
agent under the applicable Secured Interest Rate Agreement or, in the case of
Secured Interest Rate Agreements without a paying agent, directly to the
applicable Interest Rate Creditor.
(d) For purposes of applying payments received in accordance with
this Section 9, the Pledgee and the Collateral Agent shall be entitled to rely
upon (i) the Administrative Agent for a determination (which the Administrative
Agent agrees to provide upon request to the Pledgee and the Collateral Agent) of
the outstanding Credit Document Obligations and (ii) any Interest Rate Creditor
for a determination (which each Interest Rate Creditor agrees to provide upon
request to the Pledgee and the Collateral Agent) of the outstanding Interest
Rate Obligations owed to such Interest Rate Creditor. Unless it has actual
knowledge (including by way of written notice from a Secured Creditor) to the
contrary, the Administrative Agent under the Credit Agreement, in furnishing
information pursuant to the preceding sentence, and the Pledgee and the
Collateral Agent, in acting hereunder, shall be entitled to assume that (x) no
Credit Document Obligations other than principal, interest and regularly
accruing fees are owing to any Lender Creditor and (y) no Secured Interest Rate
Agreements or Interest Rate Obligations with respect thereto are in existence.
(e) It is understood that the Pledgors shall remain jointly and
severally liable to the extent of any deficiency between (x) the amount of the
Obligations for which it is liable directly or as a Guarantor that are satisfied
with proceeds of the Collateral and (y) the aggregate outstanding amount of the
Obligations.
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the
------------------------
Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to
---------
indemnify and hold harmless the Pledgee and the other Secured Creditors from and
against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever kind or nature, and (ii) to
reimburse the Pledgee for all reasonable costs and expenses, including
reasonable attorneys' fees, arising in connection with any amendment, waiver or
modification to this Agreement and the Pledgee and the other Secured Creditors
for all reasonable costs and expenses (including reasonable attorney's fees)
growing out of or resulting from the exercise by the Pledgee of any right or
remedy granted to it hereunder or under any other Secured Debt Agreement except,
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with respect to clauses (i) and (ii) above, for those arising from the Pledgee's
gross negligence or willful misconduct. In no event shall the Pledgee be
liable, in the absence of gross negligence or willful misconduct on its part,
for any matter or thing in connection with this Agreement other than to account
for moneys or other property actually received by it in accordance with the
terms hereof. If and to the extent that the obligations of any Pledgor under
this Section 11 are unenforceable for any reason, such Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
12. FURTHER ASSURANCES; POWER OF ATTORNEY. (a) Each Pledgor agrees
-------------------------------------
that it will join with the Pledgee in executing and, at such Pledgor's own
expense, file and refile under the Uniform Commercial Code such financing
statements, continuation statements and other documents in such offices as the
Pledgee may deem necessary or appropriate and wherever required or permitted by
law in order to perfect and preserve the Pledgee's security interest in the
Collateral hereunder and hereby authorizes the Pledgee to file financing
statements and amendments thereto relative to all or any part of the Collateral
without the signature of such Pledgor where permitted by law, and agrees to do
such further acts and things and to execute and deliver to the Pledgee such
additional conveyances, assignments, agreements and instruments as the Pledgee
may reasonably require or deem advisable to carry into effect the purposes of
this Agreement or to further assure and confirm unto the Pledgee its rights,
powers and remedies hereunder or thereunder.
(b) Each Pledgor hereby appoints the Pledgee, such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor and
in the name of such Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Pledgee's reasonable
discretion to take any action and to execute any instrument which the Pledgee
may reasonably deem necessary or advisable to accomplish the purposes of this
Agreement.
13. THE PLEDGEE AS COLLATERAL AGENT. The Pledgee will hold in
-------------------------------
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. It is expressly understood and agreed that the
obligations of the Pledgee as holder of the Collateral and interests therein and
with respect to the disposition thereof, and otherwise under this Agreement, are
only those expressly set forth in this Agreement. The Pledgee shall act
hereunder on the terms and conditions set forth herein and in Section 11 of the
Credit Agreement.
14. TRANSFER BY THE PLEDGORS. No Pledgor will sell or otherwise
------------------------
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
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encumber any of the Collateral or any interest therein (except in accordance
with the terms of this Agreement and the other Secured Debt Agreements).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGORS. (a)
---------------------------------------------------------
Each Pledgor represents, warrants and covenants that:
(i) it is, or at the time when pledged hereunder will be, the
legal, beneficial and record owner of, and has (or will have) good and
marketable title to, all Securities pledged by it hereunder, subject to no
pledge, lien, mortgage, hypothecation, security interest, charge, option or
other encumbrance whatsoever, except (x) the liens and security interests
created by this Agreement and (y) liens permitted by Section 7.03(a) of the
Credit Agreement;
(ii) it has full power, authority and legal right to pledge all the
Securities pledged by it pursuant to this Agreement;
(iii) this Agreement has been duly authorized, executed and delivered
by such Pledgor and constitutes a legal, valid and binding obligation of
such Pledgor enforceable in accordance with its terms, except to the extent
that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws generally
affecting creditors' rights and by equitable principles (regardless of
whether enforcement is sought in equity or at law);
(iv) except to the extent already obtained or made, no consent of
any other party (including, without limitation, any stockholder, limited or
general partner, member or creditor of such Pledgor or any of its
Subsidiaries) and no consent, license, permit, approval or authorization
of, exemption by, notice or report to, or registration, filing or
declaration with, any governmental authority is required to be obtained by
such Pledgor in connection with (a) the execution, delivery or performance
of this Agreement, (b) the validity or enforceability of this Agreement,
(c) the perfection or enforceability of the Pledgee's security interest in
the Collateral or (d) except for compliance with or as may be required by
applicable securities laws, the exercise by the Pledgee of any of its
rights or remedies provided herein;
(v) the execution, delivery and performance of this Agreement by
such Pledgor will not violate any provision of any applicable law or
regulation or of any order, judgment, writ, award or decree of any court,
arbitrator or governmental authority, domestic or foreign, applicable to
such Pledgor, or of the certificate of incorporation, certificate of
formation, by-laws, certificate of limited
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<PAGE>
partnership, partnership agreement or limited liability company agreement,
as the case may be, of such Pledgor or of any securities issued by such
Pledgor or any of its Subsidiaries, or of any mortgage, indenture, lease,
loan agreement, credit agreement or other material contract, agreement or
instrument or undertaking to which such Pledgor or any of its Subsidiaries
is a party or which purports to be binding upon such Pledgor or any of its
Subsidiaries or upon any of their respective assets and will not result in
the creation or imposition of (or the obligation to create or impose) any
lien or encumbrance on any of the assets of such Pledgor or any of its
Subsidiaries except as contemplated by this Agreement;
(vi) all the shares of the Stock have been duly and validly issued,
are fully paid and non-assessable and are subject to no options to purchase
or similar rights;
(vii) each of the Pledged Notes constitutes, or when executed by the
obligor thereof will constitute, the legal, valid and binding obligation of
such obligor, enforceable in accordance with its terms, except to the
extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law);
(viii) the pledge, assignment and delivery to the Pledgee of the
Securities (other than uncertificated securities) pursuant to this
Agreement creates a valid and, assuming such Securities are held in the
continued possession of the Collateral Agent in the State of New York,
perfected first priority Lien in the Securities and the proceeds thereof,
subject to no other Lien or to any agreement purporting to grant to any
third party a Lien on the property or assets of such Pledgor which would
include the Securities (other than Liens permitted by Section 7.03(a) of
the Credit Agreement);
(ix) it has the unqualified right to pledge and grant a security
interest in the Partnership Interests and Membership Interests as herein
provided without the consent of any other Person, firm, association or
entity which has not been obtained;
(x) the Partnership Interests and the Membership Interests pledged
by it pursuant to this Agreement have been validly acquired and are fully
paid for and are duly and validly pledged hereunder;
(xi) it is not in default in the payment of any portion of any
mandatory capital contribution, if any, required to be made under any
partnership agreement
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<PAGE>
or limited liability company agreement to which such Pledgor is a party,
and such Pledgor is not in violation of any other material provisions of
any partnership agreement or limited liability company agreement to which
such Pledgor is a party, or otherwise in default or violation thereunder,
no Partnership Interest or Membership Interest is subject to any defense,
offset or counterclaim, nor have any of the foregoing been asserted or
alleged against such Pledgor by any Person with respect thereto and as of
the Closing Date, there are no certificates, instruments, documents or
other writings (other than the partnership agreements and certificates, if
any, delivered to the Collateral Agent) which evidence any Partnership
Interest or Membership Interest of such Pledgor;
(xii) the pledge and assignment of the Partnership Interests and the
Membership Interests pursuant to this Agreement, together with the relevant
filings, consents or recordings (which filings, consents and recordings
have been made or obtained), creates a valid, perfected and continuing
first security interest in such Partnership Interests and Membership
Interest and the proceeds thereof, subject to no prior lien or encumbrance
or to any agreement purporting to grant to any third party a lien or
encumbrance on the property or assets of such Pledgor which would include
the Collateral;
(xiii) there are no currently effective financing statements under the
UCC covering any property which is now or hereafter may be included in the
Collateral and such Pledgor will not, without the prior written consent of
the Pledgee, execute and, until the Termination Date (as hereinafter
defined), there will not ever be on file in any public office, any
enforceable financing statement or statements covering any or all of the
Collateral, except financing statements filed or to be filed in favor of
the Pledgee as secured party;
(xiv) it shall give the Pledgee prompt notice of any written claim
relating to the Collateral and shall deliver to the Pledgee a copy of each
other demand, notice or document received by it which may adversely affect
the Pledgee's interest in the Collateral promptly upon, but in any event
within 10 days after, such Pledgor's receipt thereof;
(xv) it shall not withdraw as a partner of any Pledged Partnership
or member of any Pledged LLC, or file or pursue or take any action which
may, directly or indirectly, cause a dissolution or liquidation of or with
respect to any Pledged Partnership or Pledged LLC or seek a partition of
any property of any Pledged Partnership or Pledged LLC, except as permitted
by the Credit Agreement;
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<PAGE>
(xvi) a notice in the form set forth in Annex E attached hereto and
by this reference made a part hereof (such notice, the "Pledge Notice"),
appropriately completed, notifying each Pledged Partnership and Pledged LLC
of the existence of this Agreement and attached thereto a copy of this
Agreement have been delivered by such Pledgor to the relevant Pledged
Partnership or Pledged LLC, and such Pledgor has received and delivered to
the Pledgee an acknowledgment in the form set forth in Annex F attached
hereto (such acknowledgement, the "Pledge Acknowledgement"), duly executed
by the relevant Pledged Partnership or Pledged LLC;
(xvi) as of the date hereof, all of its Partnership Interests and
Membership Interests are uncertificated and each Pledgor covenants and
agrees that it will not approve of any action by any Pledged Partnership or
Pledged LLC to convert such uncertificated interests into certificated
interests; and
(xviii) it will take no action which would violate or be inconsistent
with any of the terms of any Secured Debt Agreement, or which would have
the effect of impairing the position or interests of the Pledgee or any
other Secured Creditor under any Secured Debt Agreement except as permitted
by the Credit Agreement.
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each
------------------------------------
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation:
(i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from any of the Secured Debt
Agreements, or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof;
(ii) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument or this
Agreement;
(iii) any furnishing of any additional security to the Pledgee or its
assignee or any acceptance thereof or any release of any security by the
Pledgee or its assignee;
(iv) any limitation on any party's liability or obligations under
any such instrument or agreement or any invalidity or unenforceability, in
whole or in part, of any such instrument or agreement or any term thereof;
or
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(v) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
such Pledgor or any Subsidiary of such Pledgor, or any action taken with
respect to this Agreement by any trustee or receiver, or by any court, in
any such proceeding, whether or not such Pledgor shall have notice or
knowledge of any of the foregoing.
17. REGISTRATION, ETC. (a) If an Event of Default shall have
------------------
occurred and be continuing and any Pledgor shall have received from the Pledgee
a written request or requests that such Pledgor cause any registration,
qualification or compliance under any Federal or state securities law or laws to
be effected with respect to all or any part of the Pledged Stock, such Pledgor
as soon as practicable and at its expense will use its best efforts to cause
such registration to be effected (and be kept effective) and will use its best
efforts to cause such qualification and compliance to be effected (and be kept
effective) as may be so requested and as would permit or facilitate the sale and
distribution of such Pledged Stock, including, without limitation, registration
under the Securities Act of 1933, as then in effect (or any similar statute then
in effect), appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with any other governmental
requirements, provided that the Pledgee shall furnish to such Pledgor such
--------
information regarding the Pledgee as such Pledgor may request in writing and as
shall be required in connection with any such registration, qualification or
compliance. Each Pledgor will cause the Pledgee to be kept reasonably advised
in writing as to the progress of each such registration, qualification or
compliance and as to the completion thereof, will furnish to the Pledgee such
number of prospectuses, offering circulars and other documents incident thereto
as the Pledgee from time to time may reasonably request, and will indemnify, to
the extent permitted by law, the Pledgee, each other Secured Creditor and all
others participating in the distribution of such Pledged Stock against all
claims, losses, damages or liabilities caused by any untrue statement (or
alleged untrue statement) of a material fact contained therein (or in any
related registration statement, notification or the like) or by any omission (or
alleged omission) to state therein (or in any related registration statement,
notification or the like) a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same may have been caused by an untrue statement or omission based upon
information furnished in writing to such Pledgor by the Pledgee or such other
Secured Creditor expressly for use therein.
(b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Securities pursuant to Section 7,
and such Pledged Securities or the part thereof to be sold shall not, for any
reason whatsoever, be effectively registered under the Securities Act of 1933,
as then in effect, the Pledgee may, in its sole and absolute discretion, sell
such Pledged Securities or part thereof by private sale in such manner and under
such circumstances as the Pledgee may deem necessary or
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advisable in order that such sale may legally be effected without such
registration. Without limiting the generality of the foregoing, in any such
event the Pledgee, in its sole and absolute discretion, (i) may proceed to make
such private sale notwithstanding that a registration statement for the purpose
of registering such Pledged Securities or part thereof shall have been filed
under such Securities Act, (ii) may approach and negotiate with a single
possible purchaser to effect such sale and (iii) may restrict such sale to a
purchaser who will represent and agree that such purchaser is purchasing for its
own account, for investment, and not with a view to the distribution or sale of
such Pledged Securities or part thereof. In the event of any such sale, the
Pledgee shall incur no responsibility or liability for selling all or any part
of the Pledged Securities at a price which the Pledgee, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until the registration as aforesaid.
18. TERMINATION; RELEASE. (a) After the Termination Date (as
--------------------
defined below), this Agreement shall terminate (provided that all indemnities
set forth herein including, without limitation, in Section 11 hereof shall
survive any such termination) and the Pledgee, at the request and expense of the
respective Pledgor, will execute and deliver to such Pledgor a proper instrument
or instruments acknowledging the satisfaction and termination of this Agreement
as provided above, and will duly assign, transfer and deliver to such Pledgor
(without recourse and without any representation or warranty) such of the
Collateral as may be in the possession of the Pledgee and as has not theretofore
been sold or otherwise applied or released pursuant to this Agreement, together
with any moneys at the time held by the Pledgee hereunder. As used in this
Agreement, "Termination Date" shall mean the date upon which the Total
Commitment and all Secured Interest Rate Agreements have been terminated, no
Note under the Credit Agreement is outstanding (and all Loans have been paid in
full) and all other Obligations have been paid in full (other than arising from
indemnities for which no request has been made).
(b) In the event that any part of the Collateral is sold or otherwise
disposed of in connection with a sale or other disposition permitted by Section
7.02 of the Credit Agreement or is otherwise released at the direction of the
Required Lenders (or all the Lenders if required by Section 11.12 of the Credit
Agreement), and the proceeds of such sale or other disposition or from such
release are applied in accordance with the terms of the Credit Agreement to the
extent required to be so applied, the Pledgee, at the request and expense of the
respective Pledgor, will release such Collateral from this Agreement, duly
assign, transfer and deliver to such Pledgor (without recourse and without any
representation or warranty) such of the Collateral as is then being (or has
been) so sold, disposed of or released and as may be in possession of the
Pledgee and has not theretofore been released pursuant to this Agreement.
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(c) At any time that any Pledgor desires that Collateral be released
as provided in the foregoing Section 18(a) or (b), it shall deliver to the
Pledgee a certificate signed by a principal executive officer stating that the
release of the respective Collateral is permitted pursuant to Section 18(a) or
(b). The Pledgee shall have no liability whatsoever to any Secured Creditor as
the result of any release of Collateral by it as permitted by this Section 18.
19. NOTICES, ETC. All notices and other communications hereunder
-------------
shall be in writing (including telegraphic, telex, telecopier, facsimile or
cable communication) and shall be delivered, telegraphed, telexed, telecopied,
faxed, cabled, or mailed (by first class mail, postage prepaid):
(i) if to any Pledgor, at its address set forth opposite its
signature below;
(ii) if to the Pledgee, at:
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Greg Shefrin
Tel: (212) 250-7200
Fax: (212) 250-7218
(iii) if to any if to any Bank Creditor (other than the Pledgee),
either (x) to the Administrative Agent, at the address of the Administrative
Agent specified in the Credit Agreement or (y) at such address as such Bank
Creditor shall have specified in the Credit Agreement;
(iv) if to any Interest Rate Creditor, at such address as such
Interest Rate Creditor shall have specified in writing to the Pledgors and
the Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
20. WAIVER; AMENDMENT. None of the terms and conditions of this
-----------------
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by the Pledgee (with the consent of the Required
Lenders or, to the extent required by Section 11.12 of the Credit Agreement, all
of the Lenders) and each Pledgor affected thereby, provided that (i) no such
--------
change, waiver, modification or variance shall be made to Section 9 hereof or
this Section 20 without the consent of each Secured Creditor adversely affected
thereby and (ii) any change, waiver, modification or
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variance affecting the rights and benefits of a single Class (as defined below)
of Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall require the written consent of the Requisite Creditors (as defined below)
of such Class of Secured Creditors. For the purpose of this Agreement, the term
"Class" shall mean each class of Secured Creditors, i.e., whether (x) the Lender
----
Creditors as holders of the Credit Document Obligations or (y) the Interest Rate
Creditors as holders of the Interest Rate Obligations. For the purpose of this
Agreement, the term "Requisite Creditors" of any Class shall mean each of (x)
with respect to each of the Credit Document Obligations, the Required Lenders
and (y) with respect to the Interest Rate Obligations, the holders of at least a
majority of all obligations outstanding from time to time under the Secured
Interest Rate Agreements.
21. PLEDGEE NOT BOUND. (a) Nothing herein shall be construed to
-----------------
make the Pledgee or any other Secured Creditor liable as a general partner or
limited partner of any Pledged Partnership or a member of any Pledged LLC or a
shareholder of any corporation, and neither the Pledgee nor any Secured Creditor
by virtue of this Agreement or otherwise (except as referred to in the following
sentence) shall have any of the duties, obligations or liabilities of a general
partner or limited partner of any Pledged Partnership or a member of any Pledged
LLC or a stockholder of any corporation. The parties hereto expressly agree
that, unless the Pledgee shall become the absolute owner of a Partnership
Interest, a Membership Interest or Stock pursuant hereto, this Agreement shall
not be construed as creating a partnership or joint venture or membership
agreement among the Pledgee, any other Secured Creditor and/or a Pledgor.
(b) Except as provided in the last sentence of paragraph (a) of this
Section 21, the Pledgee, by accepting this Agreement, did not intend to become a
general partner or limited partner of any Pledged Partnership or a member of any
Pledged LLC or a shareholder of any corporation or otherwise be deemed to be a
co-venturer with respect to any Pledgor or any Pledged Partnership or a member
of any Pledged LLC or a shareholder of any corporation either before or after an
Event of Default shall have occurred. The Pledgee shall have only those powers
set forth herein and shall assume none of the duties, obligations or liabilities
of a general partner or limited partner of any Pledged Partnership or of a
member of any Pledged LLC or of a Pledgor.
(c) The Pledgee shall not be obligated to perform or discharge any
obligation of a Pledgor as a result of the collateral assignment hereby
effected.
(d) The acceptance by the Pledgee of this Agreement, with all the
rights, powers, privileges and authority so created, shall not at any time or in
any event obligate
-21-
<PAGE>
the Pledgee to appear in or defend any action or proceeding relating to the
Collateral to which it is not a party, or to take any action hereunder or
thereunder, or to expend any money or incur any expenses or perform or discharge
any obligation, duty or liability under the Collateral.
22. MISCELLANEOUS. This Agreement shall create a continuing security
-------------
interest in the Collateral and shall (i) remain in full force and effect,
subject to release and/or termination as set forth in Section 18, (ii) be
binding upon each Pledgor, its successors and assigns; provided that no Pledgor
--------
shall assign any of its rights or obligations hereunder without the prior
written consent of the Pledgee (with the prior written consent of the Required
Lenders or to the extent required by Section 11.12 of the Credit Agreement, all
of the Lenders), and (iii) inure, together with the rights and remedies of the
Pledgee hereunder, to the benefit of the Pledgee, the other Secured Creditors
and their respective successors, transferees and assigns. The headings of the
several sections and subsections in this Agreement are for purposes of reference
only and shall not limit or define the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument. In the event that any
provision of this Agreement shall prove to be invalid or unenforceable, such
provision shall be deemed to be severable from the other provisions of this
Agreement which shall remain binding on all parties hereto.
23. GOVERNING LAW, ETC. (a) THIS AGREEMENT AND THE RIGHTS AND
------------------
OBLIGATIONS OF THE SECURED CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. Any legal action or
proceeding with respect to this Agreement or any other Credit Document may be
brought in the courts of the State of New York or of the United States of
America for the Southern District of New York, and, by execution and delivery of
this Agreement, each Pledgor which is not a Subsidiary Guarantor (each, an "NSG
Pledgor") hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. Each
NSG Pledgor hereby irrevocably designates, appoints and empowers CT Corporation
System with offices on the date hereof at 1633 Broadway, New York, NY 10019, as
its designee, appointee and agent to receive, accept and acknowledge for and on
its behalf, and in respect of its property, service of any and all legal
process, summons, notices and documents which may be served in any such action
or proceeding. If for any reason such designee, appointee and agent shall cease
to be available to act as such, each NSG Pledgor agrees to designate a new
designee, appointee and agent in New York City on the terms and for the purposes
of this provision satisfactory to the Collateral Agent under this Agreement.
Each NSG Pledgor further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to each NSG
Pledgor at its address set forth opposite its signature
-22-
<PAGE>
below, such service to become effective 30 days after such mailing. Nothing
herein shall affect the right of any of the Secured Creditors to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against any Pledgor in any other jurisdiction.
(b) Each NSG Pledgor hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that such action or proceeding brought in any such court has been brought in an
inconvenient forum.
(c) Each Pledgor and the Pledgee hereby irrevocably waive all right
to a trial by jury in any action, proceeding or counterclaim arising out of or
relating to this Agreement, the other Credit Documents or the transactions
contemplated hereby or thereby.
24. ADDITIONAL PLEDGORS. It is understood and agreed that any
-------------------
Subsidiary of the Borrower that is required to execute a counterpart of this
Agreement pursuant to the Credit Agreement shall become a Pledgor hereunder by
executing a counterpart hereof and delivering the same to the Pledgee and
Annexes A, B, C and D will be modified at such time in a manner acceptable to
the Pledgee to give effect to such additional Pledgor.
25. AUTHORIZATION AND DIRECTION. Each Pledged Partnership and each
---------------------------
Pledged LLC is hereby authorized and directed to register the respective
Pledgor's pledge to the Pledgee on behalf of the Secured Creditors of the
interest of such Pledgor on such entity's books. Each Pledgor agrees to give
the respective Pledged Partnership or Pledged LLC, as the case may be, a Pledge
Notice, and to cause each such Pledged Partnership or Pledged LLC, as the case
may be, to acknowledge such notice with a Pledge Acknowledgement.
* * *
-23-
<PAGE>
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
MJD COMMUNICATIONS, INC.,
as a Pledgor
By /s/ Walter Leach
-----------------------------
Title: Vice President, Secretary and
Chief Financial Officer
ST ENTERPRISES, LTD.,
as a Pledgor
By /s/ Walter Leach
-----------------------------
Title: Vice President, Secretary and
Chief Financial Officer
MJD HOLDINGS CORP.,
as a Pledgor
By /s/ Walter Leach
-----------------------------
Title: Vice President, Secretary and
Chief Financial Officer
MJD SERVICES CORP.,
as a Pledgor
-24-
<PAGE>
By /s/ Walter Leach
-----------------------------
Title: Vice President, Secretary and
Chief Financial Officer
MJD VENTURES, INC.,
as a Pledgor
By /s/ Walter Leach
-----------------------------
Title: Vice President, Secretary and
Chief Financial Officer
C-R COMMUNICATIONS, INC.,
as a Pledgor
By /s/ Walter Leach
-----------------------------
Title: Vice President, Secretary and
Chief Financial Officer
BANKERS TRUST COMPANY,
as Collateral Agent, as Pledgee
By /s/ Andrew Keith
-----------------------------
Title: Vice President
-25-
<PAGE>
ANNEX A
-------
LIST OF PLEDGED SUBSIDIARIES
----------------------------
A. [PLEDGOR]
Name Jurisdiction of Incorporation
---- -----------------------------
B. [PLEDGOR]
Name Jurisdiction of Incorporation
---- -----------------------------
<PAGE>
ANNEX B
-------
LIST OF STOCK
-------------
A. [PLEDGOR]
Name of
Issuing Type of Number of Certificate Percentage
Corporation Shares Shares No. Owned
----------- ------- --------- ----------- ----------
B. [PLEDGOR]
Name of
Issuing Type of Number of Certificate Percentage
Corporation Shares Shares No. Owned
----------- ------- --------- ----------- ----------
[TO BE PROVIDED BY THE BORROWER]
<PAGE>
ANNEX C
-------
LIST OF NOTES
-------------
A. [PLEDGOR]
Obligor Amount (if any) Maturity Date (if any)
------- --------------- ----------------------
B. [PLEDGOR]
Obligor Amount (if any) Maturity Date (if any)
------- --------------- ----------------------
[TO BE PROVIDED BY THE BORROWER]
<PAGE>
ANNEX D
-------
PART I.
- ------
LIST OF PARTNERSHIP INTERESTS
-----------------------------
A. [PLEDGOR]
-------
Type of
Pledged Partnership
Percentage
Entities Interest
--------- ------------
Owned
------
B. [PLEDGOR]
-------
Type of
Pledged Partnership
Percentage
Entities Interest
--------- ------------
Owned
------
PART II.
- -------
LIST OF MEMBERSHIP INTERESTS
----------------------------
A. [PLEDGOR]
-------
Type of
Pledged Membership
Percentage
Entities Interest
--------- ------------
Owned
------
B. [PLEDGOR]
-------
<PAGE>
ANNEX D
Page 2
Type of
Pledged Membership
Percentage
Entities Interest
--------- ------------
Owned
------
<PAGE>
ANNEX E
-------
FORM OF PLEDGE NOTICE
---------------------
[Letterhead of Pledgor]
[Date]
TO: [Name of Pledged Entity]
Notice is hereby given that, pursuant to the Pledge Agreement (a true
and correct copy of which is attached hereto), dated as of March __, 1998 (as
amended, amended and restated, modified or supplemented from time to time in
accordance with the terms thereof, the "Pledge Agreement"), between [NAME OF
PLEDGOR] (the "Pledgor"), the other pledgors from time to time party thereto and
Bankers Trust Company (the "Pledgee") on behalf of the Secured Creditors
described therein, the Pledgor has pledged and assigned to the Pledgee for the
benefit of the Secured Creditors, and granted to the Pledgee for the benefit of
the Secured Creditors a continuing security interest in, all right, title and
interest of the Pledgor, whether now existing or hereafter arising or acquired,
as a [[limited] [general] partner] [member] in [NAME OF PLEDGED ENTITY] (the
["Partnership"] ["LLC"]), and in, to and under the [TITLE OF APPLICABLE
AGREEMENT] (the "[Partnership] [LLC] Agreement"), including, without limitation:
(i) all the capital of the [Partnership] [LLC] and the Pledgor's
interest in all profits, losses, and other distributions to which the
Pledgor shall at any time be entitled in respect of such interest;
(ii) all other payments due or to become due to the Pledgor in
respect of such partnership interest, whether under the [Partnership] [LLC]
Agreement or otherwise, whether as contractual obligations, damages,
insurance proceeds or otherwise;
(iii) all of its claims, rights, powers, privileges, authority,
options, security interest, liens and remedies, if any, under the
[Partnership] [LLC] Agreement or at law or otherwise in respect of such
interest;
<PAGE>
ANNEX X
Page 2
(iv) all present and future claims, if any, of the Pledgor against
the [Partnership] [LLC] for moneys loaned or advanced, for services
rendered or otherwise;
(v) all of the Pledgor's rights under the [Partnership] [LLC]
Agreement or at law to exercise and enforce every right, power, remedy,
authority, option and privilege of the Pledgor relating to the
[Partnership] [Membership] Interest, including any power to terminate,
cancel or modify the [Partnership] [LLC] Agreement, to execute any
instruments and to take any and all other action on behalf of and in the
name of the Pledgor in respect of the [Partnership] [Membership] Interest
and the [Partnership] [LLC] to make determinations, to exercise any
election (including, but not limited, election of remedies) or option or to
give or receive any notice, consent, amendment, waiver or approval,
together with full power and authority to demand, receive, enforce, collect
or receipt for any of the foregoing, to enforce or execute any checks, or
other instruments or orders, to file any claims and to take any action in
connection with any of the foregoing;
(vi) all other property hereafter delivered in substitution for or
in addition to any of the foregoing, all certificates and instruments
representing or evidencing such other property and all cash, securities,
interest, dividends, rights and other property at any time and from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all thereof; and
(vii) to the extent not otherwise included, all proceeds of any or
all of the foregoing.
Pursuant to the Pledge Agreement, the [Partnership] [LLC] is hereby
authorized and directed to register the Pledgor's pledge to the Pledgee on
behalf of the Secured Creditors of the interest of the Pledgor on the
[Partnership's] [LLC's] books.
<PAGE>
ANNEX E
Page 3
The Pledgor hereby requests the [Partnership] [LLC] to indicate the
[Partnership's] [LLC's] acceptance of this Notice and consent to and
confirmation of its terms and provisions by signing a copy hereof where
indicated on the attached page and returning the same to the Pledgee on behalf
of the Secured Creditors.
[NAME OF PLEDGOR]
By_________________________________
Title:
<PAGE>
ANNEX F
-------
FORM OF PLEDGE ACKNOWLEDGMENT
-----------------------------
[NAME OF PLEDGED ENTITY] (the ["Partnership"] ["LLC"]) hereby
acknowledges receipt of a copy of the assignment by [NAME OF PLEDGOR]
("Pledgor") of its interest under the [TITLE OF APPLICABLE AGREEMENT] (the
"[Partnership] [LLC] Agreement") pursuant to the terms of the Pledge Agreement,
dated as of March __, 1998, (as the same may be amended, amended and restated,
modified or supplemented) from time to time, between Pledgor, the other pledgors
from time to time party thereto, and Bankers Trust Company (the "Pledgee") on
behalf of the Secured Creditors described therein. The undersigned hereby
further confirms the registration of the Pledgor's pledge of its interest to the
Pledgee on behalf of the Secured Creditors on the [Partnership's] [LLC's] books.
Dated: ______________ __, 199_
[NAME OF PLEDGED ENTITY]
By____________________________
Title:
<PAGE>
EXHIBIT 10.9
CAPITAL CONTRIBUTION AGREEMENT
CAPITAL CONTRIBUTION AGREEMENT, (the "Agreement"), dated as of March
---------
27, 1998, among Kelso Investment Associates V, L.P., a Delaware limited
partnership, and Kelso Equity Partners V, L.P., a Delaware limited partnership
(collectively, "Kelso"), Carousel Capital Partners, L.P., a Delaware limited
-----
partnership ("Carousel"), MJD Communications, Inc., a Delaware corporation (the
"Borrower") and Bankers Trust Company, as Administrative Agent (the
--------
"Administrative Agent") for the Lenders (as defined below).
- ---------------------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Kelso, Carousel and the Borrower desire that the Lenders and
the Administrative Agent enter into a Credit Agreement dated as of March 27,
1998 (as amended, amended and restated, supplemented or modified from time to
time in accordance with the terms thereof, the "Credit Agreement") among the
----------------
Borrower, the lenders named therein (together with their respective successors
and assigns, the "Lenders"), the Administrative Agent and NationsBank of Texas,
-------
N.A., as Syndication Agent;
WHEREAS, Kelso and Carousel, as a result of their ownership of capital
stock of the Borrower, and the Borrower will derive substantial benefits from
the consummation of the transactions contemplated by the Credit Agreement and
the making of Loans thereunder, including the making of the Loans to effect the
Acquisitions; and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the Lenders' obligation to make Loans (as defined in the Credit
Agreement).
NOW, THEREFORE, IT IS AGREED:
1. Definitions. All capitalized terms used herein and not otherwise
-----------
defined herein shall have the respective meanings ascribed to such terms in the
Credit Agreement.
<PAGE>
2. Required Investments. (a) Subject to Section 2(b) hereof, if as
--------------------
of June 30, 1999 the Senior Leverage Ratio, as evidenced in the Officer's
Certificate required pursuant to Section 6.01(e) of the Credit Agreement to be
delivered in respect of the fiscal quarter ended June 30, 1999, is greater than
5.5 to 1, then each of Kelso and Carousel shall purchase for cash in equal
proportions (the "Required Investment"), not later than the fifteenth Business
-------------------
Day after the date such Officer's Certificate has been or should have been
delivered pursuant to the Credit Agreement (such earlier date, the "Notice
------
Date"), additional shares of Common Stock of the Borrower at a price per share
- ----
of $342.51, and the Borrower agrees to issue and sell such shares of Common
Stock, for an amount which when applied to outstanding indebtedness of the
Borrower would cause the Senior Leverage Ratio to be reduced to (but not below)
5.5 to 1 as of June 30, 1999. Neither Kelso nor Carousel shall have any
obligation under this Agreement to make or cause to be made any investment in
the Borrower other than the Required Investment.
(b) Notwithstanding any provision herein to the contrary, (i) neither
Kelso nor Carousel shall be obligated to make any Required Investments pursuant
to Section 2(a) of this Agreement in an amount in excess of $7,500,000 and (ii)
neither Kelso nor Carousel shall be obligated to make any Required Investments
pursuant to Section 2(a) of this Agreement in excess of the Required Investments
made by the other.
3. Officers' Certificate. The Borrower will deliver to each of
---------------------
Kelso and Carousel on the Notice Date (with a copy to the Administrative Agent)
an Officers' Certificate setting forth the calculations for determining whether
any Required Investments are required pursuant to Section 2(a) hereof (the
"Contribution Certificate"), which calculations shall be in substantially
------------------------
similar detail as in a Compliance Certificate, and, if applicable, setting forth
the Required Investments to be made by Kelso and Carousel pursuant to the terms
of Section 2 hereof. If for any reason the Borrower shall fail to deliver the
Officer's Certificates required under this Section 3, the Administrative Agent
shall have the right to deliver any such notice or certificate (an "Agent's
-------
Notice") which, if applicable, shall demand that Kelso and Carousel make a
- ------
Required Investment in accordance herewith.
4. Representations and Warranties. In order to induce the Lenders
------------------------------
to enter into the Credit Agreement and to make the Loans provided for therein,
each of Kelso, Carousel and the Borrower represents and warrants to the
Administrative Agent and the Lenders as follows (with respect to each Person, as
to itself only):
(i) it is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization or incorporation, as the
case may be, and has full power, authority and legal right to own its
property and assets, and to transact the business in which it is engaged;
-2-
<PAGE>
(ii) it has the full partnership or corporate power, authority and
legal right to execute, deliver and perform each of its obligations under
this Agreement and has taken all necessary partnership or corporate and
other actions to authorize the execution, delivery and performance of each
of its obligations under this Agreement and this Agreement constitutes the
legal, valid and binding obligation of such Person, enforceable against
such Person in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability;
5. No Guarantee of Indebtedness. Neither this Agreement, nor
----------------------------
anything herein contained, nor any obligation performed or to be performed
pursuant hereto by Kelso or Carousel shall be construed or deemed to constitute,
a direct or indirect guarantee by Kelso or Carousel to any person or entity of
the payment of the interest, principal or premium of any indebtedness, liability
or obligation whatsoever of the Borrower or any Subsidiary of the Borrower,
including without limitation the Loans.
6. Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing and
mailed, faxed, sent by a nationally recognized express courier or delivered by
hand, if to Kelso at 320 Park Avenue, New York, New York, Attention: James J.
Connors, II, Vice-President & General Counsel; if to Carousel at 4201 Congress
Street, Suite 440, Charlotte, NC 28209, Attention: Reid G. Leggett; if to the
Borrower, at 521 East Morehead Place, Suite 250, Charlotte, NC 28202, Attention:
Walter E. Leach, Jr. (with a copy to Paul, Hastings, Janofsky & Walker LLP, 399
Park Avenue, New York, New York 10022, Attention: Neil A. Torpey); if to any
Lender or the Administrative Agent in the manner specified in the Credit
Agreement; or, at such other address as shall be designated by any party in a
written notice to the other parties hereto as provided in this Section 7. All
such notices and communications shall be effective at the earliest to occur of
receipt, three business days after deposit in the United States mail, one
Business Day after delivery to a nationally recognized express courier, delivery
to a telegraph or cable company and telephone confirmation of receipt of fax
communication; provided, however, that notices and communications to the
-------- -------
Administrative Agent shall not be effective until received by the Administrative
Agent.
7. No Waiver; Remedies Cumulative. No failure or delay on the part
------------------------------
of any of the Lenders or the Administrative Agent in exercising any right, power
or privilege hereunder and no course of dealing between Kelso, Carousel or the
Borrower, on the one hand, and any of the Lenders or the Administrative Agent,
on the other, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power, or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein expressly
-3-
<PAGE>
provided are cumulative and not exclusive of any rights or remedies which any of
the Lenders or the Administrative Agent would otherwise have. No notice to or
demand on Kelso, Carousel or the Borrower in any case shall entitle any of them
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of any of the Lenders or the Administrative
Agent to any other or further action in any circumstances without notice or
demand.
8. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all of
which shall together constitute one and the same instrument.
9. Headings Descriptive. The headings of the several sections of
--------------------
this Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Agreement.
10. Amendment or Waiver. Neither this Agreement nor any of the terms
-------------------
hereof may be amended, modified, supplemented, waived, discharged or terminated
unless such amendment, modification, supplement, waiver, discharge or
termination is in writing signed by Kelso, Carousel, the Borrower and the
Administrative Agent. Any waiver or consent shall be effective only in the
specific instance or for the specific purpose for which it was given.
11. Successors and Assigns. This Agreement shall remain in full
----------------------
force and effect and be binding in accordance with and to the extent of its
terms upon each of Kelso and Carousel and the successors and assigns thereof,
and shall inure to the benefit of the Lenders, and their respective successors
and assigns, notwithstanding that from time to time during the term of the
Credit Agreement there may be no obligations outstanding.
12. Survival. All agreements, representations and warranties made
--------
herein shall survive the execution and delivery of this Agreement, the making of
the Loans and the execution and delivery of the Notes.
13. Termination. The obligations of Kelso and Carousel under this
-----------
Agreement shall terminate upon the earliest to occur of (i) payment in full of
all of the Loans and termination of the Commitments under the Credit Agreement
(ii) the closing of the proposed sale and issuance by the Borrower of Senior
Subordinated Notes due 2008 and Floating Interest Rate Senior Subordinated Notes
due 2008 to a group of initial purchasers led by Salomon Smith Barney, BT Alex.
Brown, NationsBanc, Montgomery Securities LLC and Donaldson, Lufkin & Jenrette
Securities Corporation, or (iii) the Senior Leverage Ratio being, at any time
after the date hereof, 4.0 to 1 or less.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this agreement to be duly executed and delivered as of the date
first above written.
MJD COMMUNICATIONS, INC.
By: ____________________________________
Name:
Title:
KELSO EQUITY PARTNERS V, L.P.
By: ____________________________________
Name:
Title:
KELSO INVESTMENT ASSOCIATES V, L.P.
By: Kelso Partners V, L.P., its General
Partner
____________________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Administrative Agent
By: ____________________________________
Name:
Title:
-5-
<PAGE>
CAROUSEL CAPITAL PARTNERS,
L.P.
By: Carousel Capital Company, L.L.C.,
its General Partner
________________________________
Name:
Title:
-6-
<PAGE>
EXHIBIT 10.10
================================================================================
ACQUISITION OF STOCK
OF
MJD COMMUNICATIONS, INC.
STOCK PURCHASE AGREEMENT
Dated as of March 6, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS............................................... 1
ARTICLE II
ACQUISITION OF SHARES..................................... 9
2.1 Acquisition and Issuance of Shares................... 9
2.2 Closing.............................................. 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYERS.............. 10
3.1 Status............................................... 10
3.2 Authorization and Binding Obligation................. 10
3.3 No Conflicts, etc.................................... 10
3.4 Brokers, Finders, etc................................ 11
3.5 Acquisition for Investment........................... 11
3.6 Investment Suitability............................... 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MJD AND THE
COMPANY................................................... 11
4.1 Authorization and Binding Obligation................. 11
4.2 Title to Shares...................................... 12
4.3 Capital Stock........................................ 12
4.4 Status............................................... 13
4.5 No Conflicts, etc.................................... 14
4.6 Governmental Approvals and Authorizations............ 15
4.7 Compliance with Laws................................. 15
4.8 Real Property........................................ 16
4.9 Title to and Condition of Personal Property.......... 18
i
<PAGE>
Page
4.10 Intellectual Property............................... 19
4.11 Contracts........................................... 19
4.12 Personnel Information............................... 20
4.13 Employee Benefit Plans.............................. 21
4.14 Litigation.......................................... 22
4.15 Transaction with Affiliates......................... 23
4.16 Financial Statements, etc........................... 23
4.17 Absences of Undisclosed Liabilities................. 23
4.18 Absence of Changes or Events........................ 23
4.19 Insurance........................................... 25
4.20 Taxes............................................... 25
4.21 Environmental Matters............................... 26
4.22 Financing Statements................................ 27
4.23 Investments......................................... 27
4.24 Pending Acquisitions................................ 27
4.25 Broker, Finders, etc................................ 28
4.26 Bank Accounts....................................... 28
4.27 Local Exchange Related Matters...................... 28
4.28 Tariffs............................................. 28
4.29 Investment Company Act.............................. 29
4.30 Disclosure.......................................... 29
ARTICLE V
COVENANTS OF MJD AND THE COMPANY.......................... 29
5.1 Information Prior to Closing......................... 29
5.2 Conduct of Business.................................. 29
5.3 Third-Party Consents................................. 32
5.4 Sale and Issuance of Additional Shares............... 32
5.5 Renewal of Contracts................................. 32
5.6 No Inconsistent Action............................... 32
5.7 No Solicitation...................................... 33
5.8 Financial Statements................................. 33
5.9 Estoppel Certificates; Consent and Waiver............ 33
5.10 Consummation of Pending Acquisitions................ 34
5.11 Notice of Material Developments..................... 34
5.12 Further Actions..................................... 34
ii
<PAGE>
Page
ARTICLE VI
CONDITIONS PRECEDENT TO THE BUYERS' OBLIGATION TO
CLOSE..................................................... 34
6.1 Representations, Warranties and Covenants............ 34
6.2 Governmental Consents................................ 35
6.3 Third-Party Consents................................. 35
6.4 Updated Tariff Schedule.............................. 35
6.5 Certificates......................................... 35
6.6 Adverse Proceedings.................................. 35
6.7 Financing Statements................................. 36
6.8 Additional Indebtedness.............................. 36
6.9 Fleet Repurchase; ALTA Repayment..................... 36
6.10 MJD Contribution.................................... 37
6.11 Management, Consulting and Severance Arrangements... 38
6.12 Equity Documents.................................... 38
6.13 No Material Adverse Effect.......................... 38
6.14 Amendment of Articles of Incorporation.............. 38
6.15 Reconstitution of Boards of Directors............... 39
6.16 Transaction and Advisory Fees....................... 39
6.17 Deliveries.......................................... 39
ARTICLE VII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION
TO CLOSE.................................................. 39
7.1 Representations, Warranties and Covenants............ 39
7.2 Governmental Consents................................ 39
7.3 Certificates......................................... 40
7.4 Adverse Proceedings.................................. 40
7.5 Equity Documents..................................... 40
7.6 Deliveries........................................... 40
ARTICLE VIII
THE CLOSING............................................... 40
8.1 Documents to be Delivered by MJD and the Company..... 40
8.2 Documents to be Delivered by the Buyers.............. 41
iii
<PAGE>
Page
ARTICLE IX
TAXES, FEES AND EXPENSES.................................. 42
ARTICLE X
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS................................................. 42
ARTICLE XI
INDEMNIFICATION........................................... 42
11.1 Indemnification by MJD.............................. 42
11.2 Indemnification Procedures.......................... 44
11.3 Claims Termination Date............................. 45
11.4 Exclusive Remedy.................................... 45
ARTICLE XII
TERMINATION RIGHTS........................................ 46
12.1 Termination......................................... 46
12.2 Liability........................................... 47
ARTICLE XIII
OTHER PROVISIONS.......................................... 47
13.1 Publicity........................................... 47
13.2 Compliance with HSRA................................ 47
13.3 Benefit and Assignment.............................. 47
13.4 No Third-Party Beneficiaries........................ 48
13.5 Entire Agreement.................................... 48
13.6 Waiver.............................................. 48
13.7 Headings............................................ 48
13.8 Severability........................................ 48
13.9 Arbitration......................................... 49
13.10 Choice of Law...................................... 49
13.11 Notices............................................ 49
13.12 Counterparts....................................... 51
13.13 Further Assurances................................. 51
iv
<PAGE>
SCHEDULES
4.3 Capital Stock
4.4 Status
4.5 No Conflicts
4.6 Governmental Approvals and Authorizations
4.8 Real Property
4.9 Title to Personal Property
4.10 Intellectual Property
4.11 Contracts
4.12 Personnel Information
4.13 Employee Benefit Plans
4.14 Litigation
4.15 Transaction with Affiliates
4.16 Indebtedness and Financial Statements
4.17 Absence of Undisclosed Liabilities
4.18 Absence of Changes or Events
4.19 Insurance
4.20 Taxes
4.21 Environmental Matters
4.22 Financing Statements
4.23 Investments
4.24 Pending Acquisitions
4.26 Bank Accounts
4.27 Access Lines
4.28 Tariffs
5.2(b) Conduct of Business
5.9 Estoppel Certificates
5.10 Consummation of Pending Acquisitions
6.3 Third-Party Consents
EXHIBITS
Exhibit A Registration Rights Agreement
Exhibit B Stockholders' Agreement
v
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of the 6th day of March, 1997,
among MJD Communications, Inc., a Delaware corporation (the "Company"), MJD
-------
Partners, L.P., a Delaware limited partnership ("MJD"), Carousel Capital
---
Partners, L.P., a Delaware limited partnership ("Carousel"), Kelso Investment
--------
Associates V, L.P., a Delaware limited partnership ("KIA V"), and Kelso Equity
-----
Partners V, L.P., a Delaware limited partnership ("KEP V", and together with KIA
-----
V, "Kelso").
-----
RECITALS
--------
WHEREAS, the Company desires to issue, and Carousel, KIA V and KEP V
desire to acquire, an aggregate of 43,794 shares of the Company's Class A Voting
common stock, par value $.01 per share (the "Shares"), on the terms and
------
conditions and for the consideration described in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived herefrom, the parties hereto intending legally to be bound agree as
follows:
ARTICLE I
DEFINITIONS
-----------
The following terms when used herein have the meanings assigned to
them below. The singular shall include the plural, and the masculine shall
include the feminine and neuter, as the context requires. "Includes" or "is
including" shall mean "including, but not limited to".
1.1 "Affiliate" means a Person that (i) directly, or indirectly
-
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Person specified or (ii) is a member of the immediate
--
family of the Person specified.
<PAGE>
1.2 "Agreement" means this Stock Purchase Agreement, including the
Exhibits and Schedules hereto.
1.3 "ALTA" means ALTA Subordinated Debt Partners II, L.P., a Delaware
limited partnership, ALTA Subordinated Debt Partners III, L.P., a Delaware
limited partnership, and their respective successors and assigns.
1.4 "ALTA Repayment" has the meaning set forth in Section 6.9 hereof.
1.5 "Applicable Law" means all applicable provisions of all (i)
-
constitutions, treaties, statutes, laws (including, but not limited to, the
common law), rules, regulations, ordinances, codes or orders of any Governmental
Authority, (ii) Governmental Approvals and (iii) orders, decisions, rulings,
-- ---
injunctions, judgments, awards and decrees or consents of or agreements with any
Governmental Authority.
1.6 "Business Day," whether or not initially capitalized, means every
day of the week excluding Saturdays, Sundays and federal holidays.
1.7 "Buyers" means Carousel, KIA V and KEP V.
1.8 "Buyers Indemnitees" has the meaning set forth in Section 11.1(a)
hereof.
1.9 "Carousel" has the meaning set forth in the preamble to this
Agreement.
1.10 "Claims Termination Date" means the first anniversary of the
Closing Date.
1.11 "Closing" has the meaning set forth in Section 2.2 hereof.
1.12 "Closing Date" means the date on which the Closing occurs.
1.13 "Code" means the Internal Revenue Code of 1986, as amended,
together with all regulations and rulings issued thereunder by any Governmental
Authority.
1.14 "Collective Bargaining Agreements" means the collective
bargaining and other labor agreements set forth on Schedule 4.12 Part(b) hereto.
---------------------
2
<PAGE>
1.15 "Common Stock" means the Company's Class A Voting common stock,
par value $.01 per share.
1.16 "Company" has the meaning set forth in the preamble to this
Agreement.
1.17 "Computer Programs" means all computer software, firmware,
programs and source disks, program documentation, tapes, manuals, forms, guides
and other materials with respect thereto.
1.18 "Consulting Agreement" means the Consulting Agreement, dated as
of January 2, 1995, by and between the Company and Bugger Associates, Inc., as
amended to the date hereof.
1.19 "Contracts" means (i) all contracts, agreements, commitments and
-
orders for the sale, purchase or barter of materials, supplies, goods or
services or any combination of the foregoing, relating to the assets or business
of the Company or any Subsidiary or to which the Company or any Subsidiary is a
party, (ii) all leases for the use of personal property in connection with the
--
assets or business of the Company or any Subsidiary or to which the Company or
any Subsidiary is a party, (iii) all franchise or similar agreements relating to
---
the assets or business of the Company or any Subsidiary or to which the Company
or any Subsidiary is a party, (iv) all Real Property Leases, (v) all loan
-- -
agreements, indentures, letters of credit, mortgages, security agreements,
pledge agreements, notes, guarantees or other instruments relating to the assets
or business of the Company or any Subsidiary or to which the Company or any
Subsidiary is a party, (vi) all partnership, joint venture or other arrangements
--
involving a sharing of profits or expenses relating to the assets or business of
the Company or any Subsidiary or to which the Company or any Subsidiary is a
party, (vii) all contracts, agreements or other arrangements to which the
---
Company or any Subsidiary is a party with any holder of any capital stock or
other equity interest of the Company or any such Subsidiary (other than the
Company or another Subsidiary), (viii) all employment, consulting and severance
----
contracts, agreements or other arrangements to which the Company or any
Subsidiary is a party, (ix) all leases, easements, rights of way, pole
--
attachment agreements, license agreements for joint use of poles, and other
property rights to such earth stations, utility poles, real property, fixtures
and other similar items which pertain to the assets or business of the Company
or any Subsidiary and (x) all other written or oral contracts and agreements of
-
whatever nature which pertain to the assets or business of the Company or any
Subsidiary or to which the Company or any Subsidiary is a party, including, but
not limited to, those contracts and agreements set forth on Schedules 4.8, 4.11
-------------------
and 4.12 hereto. Notwithstanding the
- --------
3
<PAGE>
foregoing, the term "Contract" shall not include any purchase order, related
group of purchase orders or contracts entered into in the ordinary course of
business which provide for payment of less than $50,000 in the aggregate.
1.20 "Environmental Laws" means all applicable local, state and
federal statutes and regulations relating to the protection of human health and
safety or the environment.
1.21 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, together with the regulations and rulings issued thereunder by
any Governmental Authority.
1.22 "Executive Officers" means the Chairman, the President, the
Chief Executive Officer, the Chief Financial Officer, the Chief Operating
Officer, the Vice Presidents and the Treasurer of the general partner of MJD,
the Company and each Subsidiary.
1.23 "Financial Advisory Agreements" means the Financial Advisory
Agreements, each dated as of the Closing Date, between the Company and each of
Kelso and Carousel or any of their respective Affiliates, in form and substance
reasonably satisfactory to the Buyers.
1.24 "Financial Statements" means (i) the audited consolidated and
-
consolidating balance sheets of the Company and subsidiaries as of December 31,
1994 and the related statements of operations and cash flows for the fiscal year
then ended, audited by Coopers & Lybrand L.L.P., (ii) the audited consolidated
--
and consolidating balance sheets of the Company and subsidiaries as of December
31, 1995 and the related statements of operations and cash flows for the fiscal
year then ended, audited by KPMG Peat Marwick LLP, (iii) the unaudited
---
consolidated balance sheet of the Company and subsidiaries as of December 31,
1996 and the related statement of operations for the fiscal year then ended and
(iv) the unaudited consolidated balance sheets of the Company and subsidiaries
--
as of March 31, 1996, June 30, 1996 and September 30, 1996 and the related
statements of operations for the fiscal quarters then ended.
1.25 "Fleet" means Fleet Venture Resources, Inc., a Rhode Island
corporation, Fleet Equity Partners VI, L.P., a Delaware limited partnership,
Chisholm Partners II, L.P., a Delaware limited partnership, and their respective
successors and assigns.
4
<PAGE>
1.26 "Fleet Repurchase" has the meaning set forth in Section 6.9
hereof.
1.27 "GAAP" means United States generally accepted accounting
principles consistently applied.
1.28 "Government Approvals" has the meaning set forth in Section 4.6
hereof.
1.29 "Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including, but not limited to, any government authority, agency,
board, commission, court, department or instrumentality of the United States,
any State of the United States or any political subdivision thereof, and any
tribunal or arbitrator of competent jurisdiction, and any self-regulatory
organization.
1.30 "Hazardous Substance" means asbestos-containing material and any
and all hazardous or toxic substances, materials or wastes as defined or listed
under the Resource Conservation and Recovery Act, the Toxic Substances Control
Act, the Comprehensive Environmental Response, Compensation and Liability Act or
any comparable state statute or any regulation promulgated under any of such
federal or state statutes or under any other Environmental Law.
1.31 "HSRA" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations adopted thereunder.
1.32 "Indebtedness" means with respect to the Company or any
Subsidiary (i) all indebtedness of the Company or such Subsidiary for money
-
borrowed (including the current portion of any long-term indebtedness) or for
the deferred purchase price of property, (ii) any other indebtedness of the
--
Company or such Subsidiary which is evidenced by a note, bond, debenture or
similar instrument, (iii) all interest, fees, premiums and other charges or
---
amounts payable of any kind with respect to any indebtedness referred to in
clauses (i) and (ii) above, (iv) all guarantees and arrangements of the Company
--
or such Subsidiary guaranteeing or intending to guarantee any indebtedness of
any other Person and (v) all obligations of the Company or such Subsidiary under
-
any lease of property, real or personal, the obligations in respect of which are
required in accordance with GAAP to be capitalized on a balance sheet of the
lessee.
5
<PAGE>
1.33 "Indemnified Party" has the meaning set forth in Section 11.2(a)
hereof.
1.34 "Intellectual Property" means United States (federal and state)
trademarks, service marks, trade names, trade dress, copyrights, and similar
rights, including registrations and applications to register or renew the
registration of any of the foregoing, United States patent and patent
applications, and inventions, processes, designs, formulae, trade secrets, know-
how, confidential business and technical information, Computer Programs, data
and documentation, and all similar intangible property rights, tangible
embodiments of any of the foregoing (in any medium including electronic media),
and licenses or permits to use any of the foregoing.
1.35 "Intellectual Property Assets" has the meaning set forth in
Section 4.10 hereof.
1.36 "Kelso" has the meaning set forth in the preamble to this
Agreement.
1.37 "KEP V" has the meaning set forth in the preamble to this
Agreement.
1.38 "KIA V" has the meaning set forth in the preamble to this
Agreement.
1.39 "Knowledge of MJD" means the actual knowledge of the Executive
Officers.
1.40 "Liens" means all debts, liens, security interests, mortgages,
pledges, judgments, trusts, adverse claims, liabilities, encumbrances and other
impairments of title, other than, in the case of Sections 4.5, 4.9, 4.10 and
5.2(b)(v) hereof only, any Permitted Encumbrance.
1.41 "Losses" has the meaning set forth in Section 11.1 hereof.
1.42 "Management Services Agreement" means the Management Services
Agreement, dated as of January 1, 1997, by and between MJD Partners, Inc. and
the Company, as amended to the date hereof.
1.43 "Material Adverse Effect" means (i) a material adverse effect on
---
the business, assets, properties, liabilities, revenues, costs and expenses,
income before
6
<PAGE>
provision for income taxes, operations, prospects or condition, financial or
otherwise, of the Company and the Subsidiaries, taken as a whole, or (ii) any
--
material impairment of the ability of any party hereto to consummate the
transactions contemplated by this Agreement. In determining whether any
individual event would result in a Material Adverse Effect, notwithstanding that
such event does not of itself have such effect, a Material Adverse Effect shall
be deemed to have occurred if the cumulative effect of such event and all other
then existing events would result in a Material Adverse Effect.
1.44 "MJD" has the meaning set forth in the preamble to this
Agreement.
1.45 "MJD Exchange Documents" has the meaning set forth in Section
6.10 hereof.
1.46 "MJD Partners Shares" means the shares of Common Stock owned by
MJD on the date hereof, together with any additional shares of Common Stock
acquired by MJD after the date hereof.
1.47 "Multiemployer Plan" has the meaning set forth in Section 4.13
hereof.
1.48 "Notes" means the Unsecured Subordinated Notes issued by the
Company in favor of each of Bugger Associates, Inc., Meyer Haberman, Eugene B.
Johnson and Jack H. Thomas.
1.49 "Owned Real Property" means all real property and interests in
real property owned by the Company or any Subsidiary, together with all
structures, facilities, improvements, fixtures, equipment and items of property
located thereon or attached or appurtenant thereto, and all easements and other
appurtenances for the benefit thereof.
1.50 "Permitted Encumbrances" means (i) liens for Taxes, assessments,
-
water and sewer charges, license fees, and all other fees, special assessments
and charges assessed or imposed by a public body upon the Company's or any
Subsidiary's assets or any part thereof or the operation thereof, provided such
fees, assessments or Taxes are not yet due and payable (or such Taxes are being
contested in good faith in appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP), (ii) Liens on the
--
Company's or any Subsidiary's assets or properties pursuant to the terms of any
Indebtedness (other than any Liens relating to
7
<PAGE>
any obligation described in Section 6.9 hereof) and (iii) other encumbrances
---
which do not materially impair or adversely effect the use for which the asset
or business in question is currently utilized or the value of such asset or
business.
1.51 "Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
any Governmental Authority.
1.52 "Plan" has the meaning set forth in Section 4.13 hereof.
1.53 "Purchase Price" has the meaning set forth in Section 2.1
hereof.
1.54 "Real Property Lease" means any lease, sublease, license or
occupancy agreement, including any amendments thereto, pursuant to which the
Company or any Subsidiary is the lessee, sublessee, licensee or occupant of real
property, together with all easements and other appurtenances for the benefit
thereof.
1.55 "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, among the Company, Carousel, KIA V, KEP
V, MJD and the other stockholders of the Company party thereto, substantially in
the form of Exhibit A hereto.
1.56 "Securities Act" means the Securities Act of 1933, as amended.
1.57 "Shares" has the meaning set forth in the preamble to this
Agreement.
1.58 "Stockholders' Agreement" means the Stockholders' Agreement,
dated as of the Closing Date, among the Company, Carousel, KIA V, KEP V, MJD,
MJD Partners, Inc., Bugger Associates, Inc., Daniel G. Bergstein, Meyer
Haberman, Eugene B. Johnson, Jack H. Thomas and the other stockholders of the
Company party thereto, substantially in the form of Exhibit B hereto.
1.59 "Subsidiary" means MJD Holdings Corp. and any other corporation,
partnership, limited liability company or other entity of which the Company or
MJD Holdings Corp. owns, directly or indirectly, at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership, limited liability
company or other entity, including, but not limited to, (i) Big Sandy Telecom,
-
Inc., Bluestem Telephone
8
<PAGE>
Company, Breadbasket Enterprises, Inc., C&E Acquisition Corp., Columbine
Acquisition Corp., Kadoka Telephone Co., MJD Services Corp., MJD Ventures, Inc.,
MJD Telecom, Inc., Northland Telephone Company of Maine, Inc., Odin Telephone
Exchange, Inc., Sidney Telephone Company, ST Broadcasting Company, Inc., ST
Communications, Inc., ST Computer Resources, Inc., STE/NE Acquisition Corp.
(d/b/a Northland Telephone Co. of Vermont, Inc.), ST Enterprises, Ltd., STE
Finance Company, Inc., ST Long Distance, Inc., ST Paging, Inc. and Sunflower
Telephone Company, Inc. and (ii) Chautauqua & Erie Telephone Corporation and C-R
--
Communications, Inc. upon the closing of the relevant pending acquisition set
forth on Schedule 4.24 hereto.
-------------
1.60 "Tax" means any federal, state or local income, alternative,
minimum, accumulated earnings, personal holding company, franchise,
unincorporated business, capital stock, profits, windfall profits, gross
receipts, sales, use, value added, transfer, registration, stamp, premium,
excise, customs duties, severance, environmental (including taxes under
section 59A of the Code), real property, personal property, ad valorem,
occupancy, license, occupation, employment, payroll, social security,
disability, unemployment, workers' compensation, withholding, estimated or
similar tax, duty, fee, assessment or other governmental charge or deficiencies
thereof (including all interest and penalties thereon and additions thereto).
ARTICLE II
ACQUISITION OF SHARES
---------------------
2.1 Acquisition and Issuance of Shares. Subject to the terms and
----------------------------------
conditions hereof, the Company shall issue all of the Shares to the Buyers and
the Buyers shall acquire all of the Shares from the Company for an aggregate
purchase price of $15,000,000 (the "Purchase Price"), payable in cash at the
--------------
Closing in the manner set forth in Section 2.2 hereof.
2.2 Closing. The closing of the issuance and acquisition of the
-------
Shares (the "Closing") shall take place at the offices of Debevoise & Plimpton,
-------
875 Third Avenue, New York, New York 10022 at 10:00 a.m. on the next Business
Day that is five days after the condition set forth in Section 6.3 hereof has
been satisfied (or waived by the Buyers), or on such other date as the parties
may agree to in writing. Notwithstanding the foregoing, the Closing shall not
take place prior to the date that is 30 days after receipt by the Buyers of the
audited consolidated and consolidating
9
<PAGE>
balance sheets and related statements of operations and cash flows referred to
in Section 5.8(b) hereof. At the Closing:
(a) the Company shall deliver to Carousel, free and clear of any
Liens, stock certificates representing 21,897 Shares;
(b) the Company shall deliver to Kelso, free and clear of any Liens,
stock certificates representing 21,897 Shares;
(c) Carousel shall pay $7,500,000 of the Purchase Price to the
Company for its Shares so delivered by the Company, by wire transfer of
immediately available funds to the account of the Company designated at
least two business days prior to the Closing Date; and
(d) Kelso shall pay $7,500,000 of the Purchase Price to the Company
for their Shares so delivered by the Company, by wire transfer of
immediately available funds to the account of the Company designated at
least two business days prior to the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYERS
--------------------------------------------
Each of the Buyers severally as to itself represents and warrants to
the Company as follows:
3.1 Status. Such Buyer is a limited partnership duly organized,
------
validly existing and in good standing under the laws of the State of Delaware.
3.2 Authorization and Binding Obligation. Such Buyer has all
------------------------------------
necessary partnership power and authority to enter into and perform its
obligations under this Agreement, the Stockholders' Agreement, the Registration
Rights Agreement and the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement, the Stockholders'
Agreement and the Registration Rights Agreement by such Buyer has been duly and
validly authorized by all necessary partnership action on its part and this
Agreement has been duly executed and delivered by such Buyer. This Agreement
constitutes, and once executed by such Buyer the Stockholders' Agreement and the
Registration Rights Agreement will constitute, the legal, valid and binding
obligation of such Buyer, enforceable against
10
<PAGE>
such Buyer in accordance with their respective terms, except as limited by laws
affecting the enforcement of creditors' rights generally or equitable
principles.
3.3 No Conflicts, etc. The execution, delivery and performance by
-----------------
such Buyer of this Agreement, the Stockholders' Agreement and the Registration
Rights Agreement and the consummation of the transactions contemplated hereby
and thereby, do not and will not conflict with, contravene, result in a
violation or breach of or default under (with or without the giving of notice or
the lapse of time, or both), create in any other Person a right or claim of
termination, amendment, modification, acceleration or cancellation of, or result
in or require the creation of any Lien (or any obligation to create any Lien) on
any of the properties or assets of such Buyer under (a) any Applicable Law, (b)
- -
any provision of the certificate of limited partnership or agreement of limited
partnership of such Buyer, or (c) any contract, agreement or other instrument to
-
which such Buyer is a party or by which its properties or assets may be bound,
except, in the case of clause (c), for violations, breaches and defaults that,
individually and in the aggregate, would not cause a Material Adverse Effect.
3.4 Brokers, Finders, etc. All negotiations relating to this
---------------------
Agreement and the transactions contemplated hereby have been carried on without
the participation of any Person acting on behalf of such Buyer or any of its
Affiliates in such manner as to, and the transactions contemplated hereby will
not otherwise, give rise to any valid claim against the Company or any
Subsidiary for any brokerage or finder's commission, fee or similar
compensation.
3.5 Acquisition for Investment. Such Buyer is acquiring the Shares
--------------------------
solely for investment, with no present intention to resell the Shares in
violation of applicable securities laws. Such Buyer hereby acknowledges that
the Shares have not been registered pursuant to the Securities Act and may not
be transferred in the absence of such registration or an exemption therefrom
under such Act.
3.6 Investment Suitability. Such Buyer has sufficient knowledge and
----------------------
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Shares, and such Buyer is capable
of bearing the economic risks of such investment, including a complete loss of
its investment in the Shares.
11
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MJD AND THE COMPANY
-----------------------------------------------------
MJD and the Company jointly and severally represent and warrant to
each of the Buyers as follows:
4.1 Authorization and Binding Obligation. Each of MJD and the
------------------------------------
Company has all necessary partnership or corporate power and authority, as the
case may be, to enter into and perform its obligations under this Agreement, the
Stockholders' Agreement, the Registration Rights Agreement and the MJD Exchange
Documents and the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement, the Stockholders' Agreement, the
Registration Rights Agreement and the MJD Exchange Documents by each of MJD and
the Company has been duly and validly authorized by all necessary partnership or
corporate action, as the case may be, on its part and this Agreement has been
duly executed and delivered by MJD and the Company. This Agreement constitutes,
and once executed by MJD and the Company the Stockholders' Agreement, the
Registration Rights Agreement and the MJD Exchange Documents will constitute,
the legal, valid and binding obligation of each of MJD and the Company,
enforceable against each of MJD and the Company in accordance with their
respective terms, except as limited by laws affecting the enforcement of
creditors' rights generally or equitable principles.
4.2 Title to Shares. Upon the delivery of and payment for the Shares
---------------
at the Closing as provided for in this Agreement, each of the Buyers will
acquire good and valid title to all such Shares being sold to it by the Company,
free and clear of all Liens, other than any Liens created by or on behalf of
such Buyer.
4.3 Capital Stock. Immediately prior to the Closing, the authorized
-------------
capital stock of the Company will consist of 130,000 shares of Common Stock, of
which 38,370 shares will be issued and outstanding and owned of record by the
Persons indicated on Schedule 4.3 hereto, 125,000 shares of Class B Nonvoting
------------
common stock, par value $.01 per share, of which no shares will be issued and
outstanding, 70,000 shares of Series A 11% Cumulative Redeemable Convertible
Voting preferred stock, par value $.01 per share, of which 70,000 shares will be
issued and outstanding and owned of record by the Persons indicated on Schedule
--------
4.3 hereto, 55,000 shares of Series B 11% Cumulative Redeemable Convertible
- ---
Nonvoting preferred stock, par value $.01 per share, of which no shares will be
issued and outstanding, and 290,000 shares of Series C 14% Cumulative Redeemable
Nonvoting
12
<PAGE>
preferred stock, par value $.01 per share, of which 183,060 shares will be
issued and outstanding and owned of record by the Persons indicated on
Schedule 4.3 hereto. Immediately following the Closing and after giving effect
- ------------
to the transactions contemplated by this Agreement, the authorized capital stock
of the Company will consist of 130,000 shares of Common Stock, of which 87,588
shares will be issued and outstanding on a fully-diluted basis and owned of
record by the Persons indicated on Schedule 4.3 hereto, 125,000 shares of Class
------------
B Nonvoting common stock, par value $.01 per share, of which no shares will be
issued and outstanding, and 13,500 shares of Series C 14% Cumulative Redeemable
Nonvoting preferred stock, par value $.01 per share, of which 13,016.40 shares
will be issued and outstanding and owned of record by the Persons indicated on
Schedule 4.3 hereto. Schedule 4.3 hereto also lists (a) the authorized capital
- ------------ ------------ -
stock of each Subsidiary and (b) all of the issued and outstanding capital stock
-
and other equity interests of MJD, the Company and the Subsidiaries, together
with the name and address of each holder thereof and the amount owned by such
holder. All issued and outstanding capital stock and other equity interests of
MJD, the Company and the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable and are, and from the date hereof (or,
in the case of Chautauqua & Erie Telephone Corporation and C-R Communications,
Inc., the date of the closing of the acquisition of such entity by the Company
or a Subsidiary, as the case may be) through the Closing Date will be, owned
beneficially and of record by the Persons indicated on Schedule 4.3 hereto, free
------------
and clear of all Liens, except as set forth on Schedule 4.3 hereto. There are
------------
no preemptive or similar rights on the part of any holders of capital stock or
other equity interests of MJD, the Company or any Subsidiary, except as set
forth on Schedule 4.3 hereto. Except as set forth in Schedule 4.3 hereto, no
------------ ------------
subscriptions, options, warrants, calls, conversions or other rights,
agreements, commitments, arrangements or understandings of any kind obligating
MJD, the Company or any Subsidiary, contingently or otherwise, to issue or sell,
or cause to be issued or sold, any capital stock or other equity interest of
MJD, the Company or any Subsidiary, or securities convertible into or
exchangeable for any capital stock or other equity interest of MJD, the Company
or any Subsidiary, are outstanding, and no authorization therefor has been
given. Except as set forth in Schedule 4.3 hereto, there are no outstanding
------------
contractual obligations of MJD, the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any of its outstanding capital stock or other
equity interests. Except as set forth in Schedule 4.3 hereto, no holder of any
------------
outstanding capital stock or other equity interest of MJD, the Company or any
Subsidiary has the right to cause MJD, the Company or such Subsidiary to
repurchase or redeem such capital stock or other equity interest.
4.4 Status. (a) Each of MJD, the Company and the Subsidiaries is a
------
limited partnership or corporation, as the case may be, duly organized, validly
existing
13
<PAGE>
and in good standing under the laws of its respective state of formation
or incorporation, as the case may be, which state is set forth on
Schedule 4.4 Part(a) hereto, and has full partnership or corporate power and
- --------------------
authority, as the case may be, to conduct its business and to own or lease and
to operate its properties as and in the places where such business is conducted
and such properties are owned, leased or operated. The Company was incorporated
under the laws of the State of Delaware on February 25, 1991.
(b) Each of the Company and the Subsidiaries is duly qualified or
licensed to do business and is in good standing in each of the jurisdictions
specified in Schedule 4.4 Part(b), which includes each jurisdiction in which the
--------------------
nature of its business or the properties owned or leased by it makes such
qualification or licensing necessary.
(c) True and complete copies of the articles of incorporation, by-
laws and other organizational documents of the Company and each Subsidiary, as
amended to and including the date hereof, have been delivered to the Buyers.
Neither the Company nor any Subsidiary is in violation of any provision of its
articles of incorporation, by-laws or other organizational documents. The
stock books and stock transfer records of the Company and each Subsidiary, true
and complete copies of which have been made available to the Buyers, contain
true and complete records of all issuances and transfers of capital stock and
other equity interests of the Company and the Subsidiaries. The minute books,
covering the last three fiscal years and the period since the end of the last
fiscal year, of the Company and each Subsidiary, which have been made available
to the Buyers, correctly reflect in all material respects (i) all corporate
-
actions taken by the stockholders of each such entity that such stockholders
were required by Applicable Law to take, (ii) all corporate actions taken by the
--
board of directors of each such entity that such board of directors was required
by Applicable Law to take and (iii) all other corporate actions taken by the
---
stockholders and the board of directors of each such entity from the date of its
formation to and including the date hereof.
(d) Schedule 4.4 Part(d) hereto lists the name of the officers and
--------------------
directors of the Company and each Subsidiary.
(e) Schedule 4.4 Part(e) hereto lists the principal business
--------------------
activities of the Company and each Subsidiary and the principal geographical
area served by the Company and each Subsidiary.
14
<PAGE>
4.5 No Conflicts, etc. Except as set forth in Schedule 4.5 hereto,
----------------- ------------
the execution, delivery and performance by MJD and the Company of this
Agreement, the Stockholders' Agreement, the Registration Rights Agreement and
the MJD Exchange Documents and the consummation of the transactions contemplated
hereby and thereby, do not and will not conflict with, contravene, result in a
violation or breach of or default under (with or without the giving of notice or
the lapse of time, or both), create in any other Person a right or claim of
termination, amendment, modification, acceleration or cancellation of, or result
in or require the creation of any Lien (or any obligation to create any Lien) on
any of the properties or assets of MJD, the Company or any Subsidiary under (a)
-
any Applicable Law, (b) any provision of the certificate of limited partnership,
-
agreement of limited partnership, articles of incorporation, by-laws or other
organizational documents, as the case may be, of MJD, the Company or any
Subsidiary, or (c) any Contract or any contract, agreement or other instrument
-
to which MJD is a party or by which any of MJD's, the Company's or any
Subsidiary's properties or assets may be bound, except, in the case of clause
(c), for violations, breaches and defaults that, individually and in the
aggregate, would not cause a Material Adverse Effect. Except for the
requirements of the HSRA or as specifically disclosed in Schedule 4.6 hereto, no
------------
Governmental Approval or other consent of or registration or filing with any
Person is required to be obtained or made by MJD, the Company or any Subsidiary
in connection with the execution and delivery of this Agreement, the
Stockholders' Agreement, the Registration Rights Agreement or the MJD Exchange
Documents or the consummation of the transactions contemplated hereby or
thereby.
4.6 Governmental Approvals and Authorizations. Except as set forth
-----------------------------------------
in Schedule 4.6 hereto and except for the requirements of the HSRA, all
------------
approvals, permits, qualifications, authorizations, licenses, franchises,
consents, orders, registrations and other approvals (collectively, the
"Governmental Approvals") of and registrations and filings with all Governmental
- -----------------------
Authorities which are (a) necessary in order to permit the Company and the
-
Subsidiaries to carry on their respective businesses or for the lawful
consummation of the transactions contemplated by this Agreement, including, but
not limited to, the Governmental Approvals of the state, counties and
municipalities served or anticipated to be served by the Company or any
Subsidiary after the Closing, or (b) material to the installation, conduct and
-
operation of the respective businesses of the Company and the Subsidiaries have
been obtained or made and are in full force and effect, except where the failure
to make any such registration or filing or to obtain or maintain any such
Governmental Approval in full force and effect would not cause a Material
Adverse Effect. Each such registration and filing and each of the Governmental
Approvals is listed in Schedule 4.6 hereto and the Company or MJD has delivered
------------
or made available to the Buyers true and complete
15
<PAGE>
copies of all such registrations and filings and Governmental Approvals,
including any and all amendments and other modifications to such items. There
has been no material violation, cancellation, suspension, revocation or default
of any Governmental Approval or any notice of violation, cancellation,
suspension, revocation, default or dispute affecting any Governmental Approval,
and, to the Knowledge of MJD, no basis exists for any such action, including,
but not limited to, as a result of the consummation of the transactions
contemplated by this Agreement.
4.7 Compliance with Laws. Neither MJD nor the Company nor any
--------------------
Subsidiary is in conflict with or in violation or breach of or default in any
material respect under (i) any Applicable Law or (ii) any provision of its
- --
organizational documents and neither MJD nor the Company nor any Subsidiary has
received any written notice or, to the Knowledge of MJD, any other notice
alleging any such conflict, violation, breach or default. Without limiting
the generality of the foregoing, neither the Company nor any Subsidiary nor any
of their respective officers or directors, or, to the Knowledge of MJD, any
employee, stockholder or other representative of the Company or any Subsidiary,
has, directly or indirectly, made or authorized any payment, contribution, or
gift of money, property or services in violation of any Applicable Law (i) as a
-
kickback or bribe to any Person or (ii) to any political organization or the
--
holder of, or any aspirant to, any elective or appointed office of any
Governmental Authority. There are no outstanding judgments, orders, writs or
decrees of any Governmental Authority binding upon the Company or any Subsidiary
or any of their respective assets.
4.8 Real Property. (a) Schedule 4.8 Part (a) hereto contains a
------------- ---------------------
complete and correct list of all Owned Real Property with a book value in excess
of $100,000, together with a description of each parcel of such Owned Real
Property. Except as set forth in Schedule 4.8 Part (a) hereto, the Company and
---------------------
the Subsidiaries have good and marketable fee title in the Owned Real Property,
including the buildings, structures and other improvements thereon, free and
clear of all Liens, except for Permitted Encumbrances and for utility and
similar easements that do not individually or in the aggregate materially impair
or adversely effect the use for which such Owned Real Property is currently
utilized or the value of such Owned Real Property. The Company or MJD has
delivered to the Buyers true and correct copies of any material title insurance
commitments, title insurance policies and surveys in MJD's, the Company's or any
Subsidiary's possession relating to each parcel of Owned Real Property.
(b) Schedule 4.8 Part (b) hereto contains a complete and correct list
---------------------
of all Real Property Leases (i) relating to real property on which switching
-
equipment is
16
<PAGE>
located, (ii) which require annual rental or similar payments of more than
--
$50,000 or (iii) which the Company deems material to the business or operations
---
of the Company or any Subsidiary, setting forth the address, landlord
and tenant for each such Real Property Lease, describing the premises and all
improvements leased pursuant to each such Real Property Lease, listing the
expiration date of, the current annual rent paid under each such Real Property
Lease and whether such Real Property Lease contains any renewal or purchase
options. Except for the Owned Real Property and the Real Property Leases, no
real property is used or occupied by the Company or any Subsidiary.
(c) Except as set forth on Schedule 4.8 Part (c) hereto, each parcel
---------------------
of Owned Real Property and the current use and operation of such real property
conform in all material respects to all restrictive covenants, conditions,
easements, building, subdivision, zoning and similar codes and federal, state
and local laws, regulations, rules, orders and ordinances and neither MJD nor
the Company nor any Subsidiary has received any written notice of any material
violation or claimed violation of any such restrictive covenant, condition or
easement, or any building, subdivision, zoning or similar code, or any federal,
state or local law, regulation, rule, order or ordinance. Except as set forth on
Schedule 4.8 Part (c) hereto, no current use of the Owned Real Property by the
- ---------------------
Company or any Subsidiary is dependent on a non-conforming use or other
Governmental Approval, the absence of which would cause a Material Adverse
Effect. The improvements on the Owned Real Property are in good working
condition and repair, reasonable wear and tear excepted. Each parcel of Owned
Real Property is assessed for real estate tax purposes as a wholly independent
lot.
(d) Except as set forth on Schedule 4.8 Part (d) hereto, the
---------------------
improvements upon each parcel of real property leased by the Company or any
Subsidiary and the current use and operation of such real property conform in
all material respects to all restrictive covenants, conditions, easements,
building, subdivision, zoning and similar codes and federal, state and local
laws, regulations, rules, orders and ordinances and neither MJD nor the Company
nor any Subsidiary has received any written notice of any violation or claimed
violation of any such restrictive covenant, condition or easement, or any
building, subdivision, zoning or similar code, or any federal, state or local
law, regulation, rule, order or ordinance. Except as set forth on Schedule 4.8
------------
Part (d) hereto, the premises which are the subject of the Real Property Leases
- --------
are zoned for the purposes for which they are currently being used by the
Company and the Subsidiaries. The improvements on the real property premises
which are the subject of the Real Property Leases are in good working condition
and repair.
17
<PAGE>
(e) There is no pending or, to the Knowledge of MJD, threatened or
contemplated action to take by eminent domain or otherwise to condemn any
portion of the Owned Real Property or any portion of any premises which are the
subject of the Real Property Leases and neither MJD nor the Company nor any
Subsidiary has received written notice thereof. There exists no writ,
injunction, decree, order or judgment, nor any litigation, pending or to the
Knowledge of MJD, threatened, relating to the ownership, use, lease, occupancy
or operation of the Owned Real Property or any of the premises which are the
subject of the Real Property Leases, except for the existence of which would not
individually or in the aggregate materially impair or adversely effect the use
for which such real property is currently utilized or the value of such real
property.
(f) Each Real Property Lease is legal, valid, binding, enforceable
and in full force and effect. Neither the Company nor any Subsidiary nor, to
the Knowledge of MJD, any other party is in material default, violation or
breach under any Real Property Lease, and, to the Knowledge of MJD, no event has
occurred and is continuing that constitutes or, with notice or the passage of
time or both, would constitute a material default, violation or breach
thereunder. No material amount payable under any Real Property Lease is past
due. Neither MJD nor the Company nor any Subsidiary has received any written
notice of a material default, offset or counterclaim under any Real Property
Lease or any other communication asserting non-compliance with any Real Property
Lease. Except as set forth on Schedule 4.8 Part(f) hereto, the Company and the
--------------------
Subsidiaries have the exclusive right to use and occupy the premises leased
under each Real Property Lease. The Company and the Subsidiaries enjoy peaceful
and undisturbed possession of the premises leased by the Company and the
Subsidiaries under each Real Property Lease. Except as set forth on Schedule
--------
4.8 Part (f) hereto, the Company and each Subsidiary has good and valid title to
- ------------
the leasehold estate under its respective Real Property Leases, free and clear
of all Liens, except for lessors' interests in the Real Property. The Company
or MJD has delivered to the Buyers complete and correct copies of the Real
Property Leases listed on Schedule 4.8 Part (b) hereto, together, in the case of
---------------------
any subleases or similar occupancy agreements, with copies of all overleases.
4.9 Title to and Condition of Personal Property. (a) The Company
-------------------------------------------
and each Subsidiary has good and valid title to all tangible personal property
which it owns, including all tangible personal property reflected in the
unaudited consolidated balance sheet of the Company and subsidiaries as of
December 31, 1996 included in the Financial Statements as being owned by the
Company and such Subsidiary, except for tangible personal property disposed of
in the ordinary course of business and consistent with prior practice since
December 31, 1996, in each case free and clear of all Liens,
18
<PAGE>
except as set forth on Schedule 4.9 hereto. Except as set forth in
------------
Schedule 4.9 hereto, the tangible personal property of the Company and the
- ------------
Subsidiaries is, in the aggregate, all of the tangible personal property
required to conduct the business of the Company and the Subsidiaries as
presently conducted. The Company and the Subsidiaries have maintained all such
material tangible personal property in good repair, working order and operating
condition, subject only to ordinary wear and tear.
(b) On the Closing Date, the Company will own or have the right to
use, directly or indirectly, all assets, properties, rights, franchises, claims
and agreements of every kind and description necessary to conduct the business
and operations of the Company and the Subsidiaries as presently conducted.
4.10 Intellectual Property. Schedule 4.10 hereto contains a complete
--------------------- -------------
and correct list and description of all Intellectual Property which is used in,
or otherwise material to, the business of the Company and the Subsidiaries as
presently conducted (the "Intellectual Property Assets"). Each Intellectual
----------------------------
Property Asset is either owned or validly licensed by the Company and the
Subsidiaries and Schedule 4.10 hereto identifies which Intellectual Property
-------------
Assets are so owned, which are so licensed and which entity is the owner or
licensee of each such Intellectual Property Asset. The Company or MJD has
delivered to the Buyers copies of all material documents and true and complete
memoranda describing the terms of any oral agreements regarding Intellectual
Property Assets, if any, establishing such rights, licenses or other authority.
There is no pending or, to the Knowledge of MJD, threatened proceeding or
litigation affecting, or with respect to, any Intellectual Property Assets. The
Company and each Subsidiary is in material compliance with the terms of any
license of an Intellectual Property Asset and neither MJD nor the Company nor
any Subsidiary has received any written notice of, and to the Knowledge of MJD
there is not, any infringement or unlawful use of the Intellectual Property
Assets. The conduct of the business of the Company and the Subsidiaries as
presently conducted does not infringe in any material respect with the rights of
any third party in respect of any Intellectual Property. Except as disclosed in
Schedule 4.10 hereto, each Intellectual Property Asset owned by the Company and
- -------------
the Subsidiaries is owned free and clear of all Liens. Except as disclosed in
Schedule 4.10 hereto, neither the Company nor any Subsidiary has sold, licensed
- -------------
or otherwise disposed of any of the Intellectual Property Assets to any Person
and neither the Company nor any Subsidiary has agreed to indemnify any Person
for any patent, trademark or copyright infringement. Schedule 4.10 hereto lists
-------------
all of the Intellectual Property Assets which have been registered with, filed
in or issued by, as the case may be, the United States Patent and Trademark
Office and United States Copyright Office or other filing offices, domestic or
foreign.
19
<PAGE>
4.11 Contracts. (a) Schedule 4.11 hereto lists all Contracts as of
--------- -------------
the date of this Agreement, except Real Property Leases which are listed in
Schedule 4.8 Part (b) hereto, Collective Bargaining Agreements which are listed
- ---------------------
in Schedule 4.12 Part(a) hereto, Contracts relating to employment or consulting
---------------------
which are listed in Schedule 4.12 Part(c) hereto, Plans which are listed in
---------------------
Schedule 4.13 hereto and the policies relating to insurance which are listed in
- -------------
Schedule 4.19 hereto.
- -------------
(b) The Company or MJD has delivered to the Buyers true and complete
copies of all written Contracts and true and complete memoranda describing
the terms of all oral Contracts listed in Schedule 4.11 hereto, together with a
-------------
complete and correct copy or description, as the case may be, of all amendments
thereto. All material liabilities and obligations under such Contracts can be
ascertained from such copies or memoranda. Each Contract is valid, in full
force and effect, binding and enforceable by the Company or the Subsidiary party
thereto in accordance with its respective terms. The Company and the
Subsidiaries have complied in all material respects with the terms of all
Contracts, including, but not limited to, all such terms requiring the filing of
statements (financial or otherwise) and the payment of any amounts, and are not
in default under any Contract, except for defaults that, individually and in the
aggregate, would not be material to the Company, any Subsidiary or the business
of the Company or any Subsidiary. Except as set forth on Schedule 4.11 hereto,
-------------
neither the Company nor any Subsidiary has granted or been granted any material
waiver or forbearance with respect to any of the Contracts since January 1,
1994. To the Knowledge of MJD, no other contracting party is in material
default under any of the Contracts. The Contracts which are listed in Schedules
---------
4.8 Part (b), 4.11, 4.12, 4.13 and 4.19 hereto include all those Contracts,
- ---------------------------------------
agreements, commitments and similar understandings necessary to conduct the
business and operations of the Company and the Subsidiaries as presently
conducted in all material respects.
4.12 Personnel Information. (a) Schedule 4.12 Part (a) hereto
--------------------- ----------------------
contains a true and complete payroll list of all individuals employed by the
Company or any Subsidiary and all officers, directors, sales representatives,
independent contractors and other personnel providing services to the Company or
any Subsidiary in connection with the operation of the business thereof as of
December 31, 1996.
(b) Except as set forth in Schedule 4.12 Part(b) or 4.13 hereto,
-----------------------------
neither the Company nor any Subsidiary is a party to or bound by any collective
bargaining or other labor agreement, and there are no labor unions or other
organizations representing, or, to the Knowledge of MJD, purporting to
represent or attempting to represent any employees employed by the Company or
any Subsidiary. The Company or MJD
20
<PAGE>
has provided to the Buyers true and complete copies of each collective
bargaining or other labor agreement listed in Schedule 4.12 Part (b)
----------------------
hereto. Except as set forth on Schedule 4.12 Part (b) hereto, since January 1,
----------------------
1994, there has not occurred or, to the Knowledge of MJD, been threatened
any material strike, slowdown, picketing, work stoppage, concerted
refusal to work overtime or other similar labor activity with respect to any
employees or former employees of the Company or any Subsidiary. Except as set
forth on Schedule 4.12 Part (b) hereto, there are no material labor disputes
----------------------
currently subject to any grievance procedure, arbitration or litigation and
there is no representation petition pending or, to the Knowledge of MJD,
threatened with respect to any employee of the Company or any Subsidiary. The
Company and each Subsidiary has complied in all material respects with all
Applicable Laws pertaining to the employment or termination of employment of its
employees, including, but not limited to, all such Applicable Laws relating to
labor relations, equal employment opportunities, fair employment practices,
prohibited discrimination or distinction and other similar employment
activities.
(c) Except as set forth on Schedule 4.12 Part(c) hereto, there are no
---------------------
Contracts between the Company or any Subsidiary, on the one hand, and any
employee, consultant, officer, director or other Person performing services for
the Company or any Subsidiary, on the other hand, relating to employment or
performance of services for the Company or any Subsidiary or compensation
therefor.
4.13 Employee Benefit Plans. Schedule 4.13 hereto contains a true and
---------------------- -------------
complete list of each employee benefit plan, within the meaning of section 3(3)
of ERISA, and each other employment, severance, retention, change in control,
incentive or deferred compensation, stock or other equity based, retirement,
welfare, fringe benefit or other similar plan, program, agreement,
understanding, arrangement, trust or other funding arrangement, whether or not
subject to the provisions of ERISA, which is (x) maintained or contributed to by
-
the Company or any Subsidiary or to which the Company or any Subsidiary is a
party or is obligated to contribute or by which the Company or any Subsidiary is
bound and (y) under which any employee, former employee or retiree of the
-
Company or any Subsidiary is eligible to participate or derive a benefit, other
than any such plan, program, agreement, understanding, arrangement, trust or
other funding arrangement (A) which may be terminated upon no more than 30 days'
-
notice without any liability or obligation of the Company or any Subsidiary or
(B) which provides for annual payments not exceeding $50,000 in the aggregate
- --
(the "Plans"). Except as set forth on Schedule 4.13 hereto, (a) neither the
----- ------------- -
Company nor any Subsidiary has incurred or reasonably expects to incur (either
directly or indirectly, including as a result of any indemnification obligation)
any material liability or obligation under or pursuant to Title I or IV of ERISA
(including,
21
<PAGE>
without limitation, under section 4069 of ERISA or by reason of the termination
of a plan subject to Title IV of ERISA maintained by any Person who, at the time
of such termination, was a member of the same controlled group of corporations
(within the meaning of section 414(b) and (c) of the Code) as the Company or
such Subsidiary) or the penalty, excise tax or joint and several liability
provisions of the Code relating to employee pension benefit plans and no event,
transaction or condition has occurred or exists which could result in
any such liability of the Company or any Subsidiary or, following the Closing,
any of the Buyers, (b) each Plan intended to be qualified under section 401(a)
-
of the Code, and the trust (if any) forming a part thereof, has received a
favorable determination letter from the Internal Revenue Service as to its
qualification under the Code and no fact or condition exists which could
reasonably be expected to result in the disqualification of any such Plan, (c)
-
there are no material pending or, to the Knowledge of MJD, threatened claims by
or on behalf of any of the Plans, by or on behalf of any employee or former
employee of the Company or any Subsidiary or otherwise involving any such Plan
or the assets of any Plan (other than routine claims for benefits), (d) no
-
condition exists and no event has occurred with respect to any Plan that is a
multiemployer plan (as defined in section 4001(a)(3) of ERISA) (a "Multiemployer
-------------
Plan") which presents a risk of the incurrence by the Company or any Subsidiary
- ----
of any material complete or partial withdrawal liability under Subtitle E of
Title IV of ERISA and (e) no Multiemployer Plan is in "reorganization" or
-
"insolvent" within the meaning of section 4241 or 4245 of ERISA, respectively.
Each of the Plans has been operated and administered in all material respects in
accordance with all Applicable Laws, including but not limited to ERISA and the
Code. No Plan is a "multiple employer plan" within the meaning of section 4063
or 4064 of ERISA. All material contributions required to have been made by the
Company and each Subsidiary to or in respect of any Plan pursuant to Applicable
Law (including, but not limited to, ERISA and the Code) have been made within
the time prescribed thereby. With respect to each Plan that is subject to the
minimum funding requirements of section 412 of the Code or section 302 of ERISA,
other than a Multiemployer Plan, the "accumulated benefit obligations," within
the meaning of the Financial Accounting Standards Board Statement No. 87, under
each such Plan, determined as of December 31, 1996 on the basis of reasonable
actuarial assumptions, did not exceed the fair market value of the assets of
such Plan, determined as of December 31, 1996. The Company or MJD has provided
or made available to the Buyers true and complete copies of all written Plans,
descriptions of all unwritten Plans, and all trust, other funding arrangements
and other material documents in respect thereof.
4.14 Litigation. Except as set forth in Schedule 4.14 hereto, there
---------- -------------
is no claim, litigation, proceeding or investigation pending or, to the
Knowledge of MJD, threatened, against or affecting the business or any of the
assets of the Company or any
22
<PAGE>
Subsidiary or which seeks to enjoin or prohibit, or otherwise questions the
validity of, any action taken or to be taken in connection with this Agreement.
Except as set forth in Schedule 4.14 hereto, to the Knowledge of MJD, there has
-------------
been no investigation of the Company or any Subsidiary conducted by any grand
jury or Governmental Authority since January 1, 1992.
4.15 Transaction with Affiliates. Except as set forth in Schedule
--------------------------- --------
4.15 hereto, neither MJD nor any of Daniel G. Bergstein, Bugger Associates,
- ----
Inc., Meyer Haberman, Eugene B. Johnson, Jack H. Thomas or any of their
Affiliates, nor any Affiliate of MJD, the Company or any Subsidiary (other than
the Company or another Subsidiary) owns any assets used or useful in, or
otherwise material to, the business of the Company and the Subsidiaries as
presently conducted or is a party to any Contract.
4.16 Financial Statements, etc. Schedule 4.16 hereto contains true
------------------------- -------------
and complete copies of the Financial Statements. The Financial Statements are
true and correct in all material respects and have been prepared in accordance
with GAAP. The Financial Statements contain adequate reserves for uncollectible
accounts receivable and accurately reflect and fairly present in all material
respects the financial condition, position, results of operations and, as
appropriate, cash flows of the Company and its subsidiaries as of the dates and
for the periods indicated.
4.17 Absences of Undisclosed Liabilities. Except as specifically
-----------------------------------
disclosed in Schedule 4.17 hereto and except for (a) liabilities as and to the
------------- -
extent reflected or reserved against on the unaudited consolidated and
consolidating balance sheets of the Company and its subsidiaries as of December
31, 1996 included in the Financial Statements, (b) immaterial liabilities
-
incurred since December 31, 1996, in the ordinary course of business, consistent
with past practice, of the Company and the Subsidiaries, (c) ordinary course
-
liabilities incurred under any Contract not required to be disclosed on any
Schedule to this Agreement because of any applicable dollar threshold contained
in this Agreement, and (d) liabilities incurred by the Company or any Subsidiary
-
since the date of this Agreement under any Contract entered into or renewed as
permitted by Section 5.2(b)(viii) hereof, neither the Company nor any Subsidiary
has any liabilities or obligations of any nature, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become due.
4.18 Absence of Changes or Events. Except as disclosed in Schedule
---------------------------- --------
4.18 hereto, since December 31, 1996, there has not been any material adverse
- ----
change in the business, assets, properties, liabilities, revenues, costs and
expenses, income, operations, prospects or condition, financial or otherwise, of
the Company and the Subsidiaries, taken as a whole. Without limiting the
foregoing, except as set forth on
23
<PAGE>
Schedule 4.18 hereto, since December 31, 1996, neither the Company nor any
- -------------
Subsidiary has:
(a) purchased, sold or leased, or agreed to purchase, sell or lease,
any material asset, except for sales of obsolete equipment in the ordinary
course of business, consistent with past practices;
(b) granted or committed to grant any bonus, commission or other form
of incentive compensation or increased or committed to increase the
compensation or fees payable to or in respect of any employee, director,
officer, sales representative, independent contractor, consultant or
Affiliate of the Company or any Subsidiary except as set forth on Schedule
--------
4.12 hereto or to the extent required under the express terms of any
----
employment, consulting or management agreement set forth on Schedule 4.12
-------------
Part (c) hereto or any collective bargaining agreement as in effect on the
--------
date hereof;
(c) entered into, adopted or amended, or committed to enter into,
adopt or amend, any employment, consulting, retention, change-in-control,
severance, collective bargaining, bonus or other incentive compensation,
profit-sharing, health or other welfare, stock option or other equity,
pension, retirement, vacation, severance, deferred compensation or other
employment, compensation or benefit plan, policy, agreement, trust, fund or
arrangement for the benefit of any employee, officer, director, sales
representative, independent contractor, agent, consultant or Affiliate of
the Company or any Subsidiary (whether or not legally binding);
(d) made any loans to any Person, except advances to employees and
representatives of the Company or any Subsidiary in the ordinary course of
business for travel and similar purposes;
(e) written off any receivables, except in the ordinary course of
business, consistent with past practices;
(f) declared, made, set aside or paid any dividend, distribution, or
payment on, or any purchase or redemption of, any capital stock or other
equity interests of the Company or any Subsidiary, or made any commitment
therefor;
(g) issued or sold any capital stock or other equity interests of the
Company or any Subsidiary, or any subscriptions, options, warrants, calls,
conversions or other rights, agreements, commitments, arrangements or un-
24
<PAGE>
derstandings of any kind obligating the Company or any Subsidiary,
contingently or otherwise, to issue or sell, or cause to be issued or sold,
any capital stock or other equity interest of the Company or any
Subsidiary;
(h) made any material change (for book or Tax purposes) in any method
of accounting or accounting practice;
(i) suffered the loss of any key employee or key independent
contractor or, other than in the ordinary course of business, consistent
with past practices, retained any new key employees or independent
contractors;
(j) allowed any material permit issued to the Company or any
Subsidiary to lapse or terminate; or
(k) entered into any material transaction not in the ordinary course
of business or agreed (whether or not in writing) to do any of the
foregoing.
4.19 Insurance. The assets owned by the Company and the Subsidiaries
---------
are insured against loss, damage or injury in amounts listed in Schedule 4.19
-------------
hereto, which shows all insurance policies held by the Company and the
Subsidiaries relating to the business of the Company and the Subsidiaries,
including, but not limited to, keyman life insurance policies, if any, on the
Company's or any Subsidiary's executive officers, together with the policy
limits, the type of coverage, the location of the property covered, annual
premium, premium payment dates and expiration date of each of the policies.
Copies of all such insurance policies have been furnished to the Buyers. All
such insurance policies are in full force and effect and all premiums due
thereon have been paid. The insurance coverage provided by such policies is
reasonably adequate for the business engaged in by the Company and each of the
Subsidiaries.
4.20 Taxes. (a) Except as set forth on Schedule 4.20 Part (a)
----- ----------------------
hereto, (i) the Company and each Subsidiary have duly and timely filed all Tax
-
returns and forms required to be filed, (ii) all such returns and forms are true
--
and correct in all material respects, (iii) the Company and each Subsidiary have
---
paid in full or discharged all Taxes required to be paid or chargeable as a Lien
upon its assets (other than Taxes that are being contested in good faith in
appropriate proceedings and for which adequate reserves have been established in
accordance with GAAP) and (iv) the Company and each Subsidiary have duly and
--
timely withheld all Taxes required to be withheld in connection with the assets
or business of the Company and such Subsidiary,
25
<PAGE>
and such withheld Taxes have been either duly and timely paid to the proper
Governmental Authority or properly set aside in accounts for such purpose.
(b) Except as set forth in Schedule 4.20 Part (b) hereto, neither the
----------------------
Company nor any Subsidiary (i) is a party to or bound by or has any obligation
-
under any Tax allocation, sharing, indemnity or similar agreement or
arrangement, (ii) is or has been a member of any group of companies filing a
--
consolidated, combined or unitary income Tax return, (iii) is currently the
---
beneficiary of any extension of time within which to file any Tax return or (iv)
--
has waived any statute of limitations or otherwise agreed to any extension of
the period for assessment or collection with respect to Taxes, which waiver or
agreement is currently in force.
(c) Except as set forth on Schedule 4.20 Part (c) hereto, (i) neither
---------------------- -
the Company nor any Subsidiary is currently under audit with respect to Taxes by
any Governmental Authority and there has been no claim or issue (other than a
claim or issue that has been finally settled) concerning any liability for Taxes
of the Company or any Subsidiary asserted in writing by any Governmental
Authority and (ii) there are no outstanding adjustments for income Tax purposes
--
applicable to the Company or any Subsidiary required as a result of changes in
methods of accounting.
(d) Schedule 4.20 Part (d) hereto lists all income Tax returns that
----------------------
have been filed with respect to the Company and any Subsidiary that have not yet
been audited or are currently the subject of audit.
(e) Except as set forth in Schedule 4.20 Part (e) hereto, neither the
----------------------
Company nor any Subsidiary will, as a result of the transactions contemplated by
this Agreement, make or become obligated to make any parachute payment as
defined in section 280(G) of the Code.
4.21 Environmental Matters. (a) Except as set forth on Schedule 4.21
--------------------- -------------
Part (a) hereto, the Company's and each Subsidiary's operation and use of the
- --------
Owned Real Property and the premises which are the subject of the Real Property
Leases are in compliance in all material respects with all Environmental Laws.
The Company and the Subsidiaries have obtained all environmental, health and
safety permits material to the operation of the business of the Company and the
Subsidiaries as presently conducted, and all such permits are in full force and
effect and the Company and each Subsidiary is in material compliance with the
terms and conditions of each such permit. There are no outstanding Liens on any
interest in any of the Owned Real Property or Real Property Leases under any
Environmental Laws. Neither MJD, nor the Company nor any Subsidiary has
received any notice of, nor to the Knowledge of MJD are there,
26
<PAGE>
any administrative or judicial investigations, proceedings or actions with
respect to violations, alleged or proven, of Environmental Laws by the Company
or any Subsidiary or any of its tenants or subtenants, or otherwise involving
the Owned Real Property or the Real Property Leases or the operations conducted
on the premises subject to the Real Property Leases.
(b) Except as set forth on Schedule 4.21 Part (b) hereto, there has
----------------------
been no release (nor, to the Knowledge of MJD, is there any substantial threat
of a release) of any Hazardous Substance at or from the Owned Real Property or
the premises which are the subject of the Real Property Leases in amounts or
concentrations requiring remediation under or that would violate current
Environmental Laws or that would create any material liability to any third
Person. Except as set forth on Schedule 4.21 Part (b) hereto, there are no
----------------------
Hazardous Substances present on the Owned Real Property or the premises which
are the subject of Real Property Leases except for ordinary quantities of
properly stored Hazardous Substances found in consumer or commercial products
that are used in the normal course of the business of the Company and the
Subsidiaries. Except as set forth on Schedule 4.21 Part (b) hereto, there are
----------------------
no underground storage tanks, or underground piping associated with such tanks,
on the Owned Real Property or on the premises which are the subject of the Real
Property Leases. MJD has provided the Buyers with copies of all environmental
reports relating to the Owned Real Property or the premises which are the
subject of the Real Property Leases that are in MJD's, the Company's or any
Subsidiary's possession.
(c) All Losses of the Company and any of the Subsidiaries associated
with the implementation of all remedial and corrective action in accordance with
all Environmental Laws related to the matters set forth on Schedule 3.33 to the
Securities Purchase Agreement, dated as of June 30, 1994, as amended, among the
Company, ST Enterprises, Ltd. and Fleet will not exceed $200,000 in the
aggregate.
4.22 Financing Statements. The material assets owned by the Company
--------------------
and the Subsidiaries are and have been located in the states of Colorado,
Illinois, Kansas, Maine, New Hampshire, North Carolina, South Dakota and
Vermont, since they were acquired by the Company or any Subsidiary. All
financing statements and similar instruments filed by any party with respect to
such assets are listed in Schedule 4.22 hereto.
-------------
4.23 Investments. Except as set forth on Schedule 4.23 hereto,
----------- -------------
neither the Company nor any Subsidiary owns, directly or indirectly, any shares
of capital stock or other equity interests (or any interest convertible into
capital stock or other equity interest) in any corporation, partnership, joint
venture, limited liability company
27
<PAGE>
or other entity, or has any commitment to contribute to the capital of, make
loans to, or share in the losses of, any enterprise.
4.24 Pending Acquisitions. MJD has delivered to the Buyers true and
--------------------
complete copies of all Contracts and transaction documents relating to any
pending acquisition by the Company or any Subsidiary. Schedule 4.24 hereto
-------------
lists all such pending acquisitions by the Company or any Subsidiary and, as of
the date hereof, their status and anticipated closing dates. All
representations and warranties made by or on behalf of the Company or any
Subsidiary in any such Contracts or transaction documents are true and correct
in all material respects on the date hereof with the same effect as though such
representations and warranties had been made on the date hereof. To the
Knowledge of MJD, all representations and warranties made in any such Contracts
or transaction documents by or on behalf of any party thereto other than the
Company or any Subsidiary are true and correct in all material respects on the
date hereof with the same effect as though such representations and warranties
had been made on the date hereof.
4.25 Broker, Finders, etc. All negotiations relating to this
--------------------
Agreement and the transactions contemplated hereby have been carried on without
the participation of any Person acting on behalf of MJD, the Company or any
Subsidiary or any of their respective Affiliates in such manner as to, and the
transactions contemplated hereby will not otherwise, give rise to any valid
claim against the Company or any Subsidiary for any brokerage or finder's
commission, fee or similar compensation.
4.26 Bank Accounts. Schedule 4.26 hereto sets forth a complete and
------------- -------------
correct list in all material respects containing the names of each bank in which
the Company or any Subsidiary has an account or safe deposit or lock box and the
account or box number, as the case may be.
4.27 Local Exchange Related Matters. Schedule 4.27 hereto sets forth
------------------------------ -------------
a list containing the name of the Company and each Subsidiary and the number of
access lines served by the Company and such Subsidiary as of the date hereof.
The Company and the Subsidiaries serve an aggregate of no fewer than 34,017
access lines, as of December 31, 1996, and no single end user of the Company or
any Subsidiary accounts for more than 10% of the Company's or such Subsidiary's
gross revenues. Except as set forth on Schedule 4.27 hereto, no other wireline
-------------
telephone company, other access provider or other Person competes, or to the
Knowledge of MJD, has any plans to compete, with the Company or any Subsidiary
in any local exchange market served by the Company or such Subsidiary. To the
Knowledge of MJD, there are no pending or proposed changes to any law, rule or
regulation governing the Company or
28
<PAGE>
any Subsidiary which, were such changes to become Applicable Law, would
reasonably be expected to cause a Material Adverse Effect, except as set forth
on Schedule 4.27 hereto.
-------------
4.28 Tariffs. Schedule 4.28 hereto sets forth all material tariffs,
------- -------------
charges and rates on file with or imposed by the Federal Communications
Commission, the National Exchange Carrier Association, any public utility
commission or other Governmental Authority applicable to the Company or any
Subsidiary.
4.29 Investment Company Act. Neither the Company nor any Subsidiary
----------------------
nor any Affiliate is a "registered investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.30 Disclosure. This Agreement and each certificate or other
----------
instrument or document furnished by or on behalf of MJD or the Company to the
Buyers or any of their respective agents or representatives pursuant hereto or
in connection herewith, taken as a whole, do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein in light
of the circumstances under which they were made, not misleading, it being
understood that, no representation or warranty is made with respect to any
projections or other prospective financial information. Except for matters
affecting the telephony industry generally, neither MJD nor the Company knows of
any fact that has had or resulted in, or could be expected to become or result
in, a Material Adverse Effect.
ARTICLE V
COVENANTS OF MJD AND THE COMPANY
--------------------------------
5.1 Information Prior to Closing. During the period from the date
----------------------------
hereof to the Closing Date, MJD and the Company covenant and agree to cause the
management of MJD, the Company and the Subsidiaries to be made available to the
Buyers and their authorized representatives and provide the Buyers and their
accountants, legal counsel and other authorized representatives reasonable
access during normal business hours to, and permit such Persons to review, the
properties, books, Contracts, accounts and records of the Company and the
Subsidiaries, and to provide such other information to the Buyers and their
authorized representatives as shall have been reasonably requested by the Buyers
or such authorized representatives concerning the Company, any Subsidiary or the
assets or business of the Company or any
29
<PAGE>
Subsidiary. The rights of the Buyers under this Section shall not be exercised
in such a manner as to interfere unreasonably with the conduct of the business
of MJD, the Company or any Subsidiary.
5.2 Conduct of Business. (a) During the period from the date hereof
-------------------
to the Closing Date, MJD covenants and agrees to cause the Company and the
Subsidiaries to carry on their businesses in, and only in, the ordinary course
of business, in substantially the same manner as heretofore conducted, and to
use their reasonable best efforts to preserve intact their present business
organization, keep available the services of their present officers and
significant employees, sales agents and independent contractors, and preserve
their relationships with customers, suppliers and others having business
dealings with them, to the end that their goodwill and going business shall be
maintained following the Closing.
(b) Without limiting the generality of the foregoing, except as
expressly permitted by this Agreement or with the prior written consent of the
Buyers or except as set forth on Schedule 5.2(b) hereto, MJD covenants and
---------------
agrees that it will not permit the Company or any Subsidiary, and the Company
covenants and agrees that it will not and will not permit any Subsidiary, to do
or agree to do, on or after the date hereof, any of the following, on or before
the Closing:
(i) Amend its respective articles of incorporation, by-laws or
other organizational documents;
(ii) Issue, sell, transfer, assign, pledge, convey or dispose of,
any capital stock or equivalent equity interests, including, but not
limited to, any subscriptions, options, warrants, calls, conversions or
other rights, agreements, commitments, arrangements or understandings of
any kind obligating MJD, the Company or any Subsidiary, contingently or
otherwise, to issue or sell, or cause to be issued or sold, any capital
stock or other equity interest of the Company or any Subsidiary;
(iii) Repurchase or redeem any shares of capital stock or declare any
dividend or make any distribution with respect to its capital stock or
equivalent equity interests;
(iv) Sell, assign, lease or otherwise transfer or dispose of any
material assets, unless the same shall be replaced with assets of equal or
greater value and utility;
30
<PAGE>
(v) Create, assume or permit to exist any Lien upon its assets,
except for those in existence on the date of this Agreement and except for
those additional Liens created in the ordinary course of business
consistent with past practice that constitute Permitted Encumbrances;
(vi) Cause or permit by any act, or failure to act, any of the
Governmental Approvals to expire, be surrendered, adversely modified, or
otherwise terminated;
(vii) Waive any right under any Contract or license relating to its
assets or business as presently conducted, except in the ordinary course of
business consistent with past practice;
(viii) Enter into or renew any Contract other than in the ordinary
course of business consistent with past practice, except for any Contract,
the amount of which has been provided for in the consolidated budget, dated
November 5, 1996, of the Company, a copy of which has been delivered to the
Buyers;
(ix) Fail to timely make all material payments required to be paid
under any Contract when due and otherwise pay all liabilities and satisfy
all obligations (except those being contested in good faith by appropriate
proceedings, for which adequate reserves have been created), in each case
in a manner consistent with past practice;
(x) Fail to maintain its inventories of spare parts and expendable
supplies, if any, at levels consistent with past practice;
(xi) Increase or modify or agree to increase or modify the
compensation, bonuses or other benefits or perquisites for any of the
employees of the business of the Company or any Subsidiary, except in the
ordinary course of business consistent with past practice or pursuant to
any employment agreements, Plans or collective bargaining agreements as set
forth on Schedule 4.11, 4.12 or 4.13 hereto;
---------------------------
(xii) Fail to remove, cure, correct and repair prior to the Closing
any material deficiencies in its assets and any material violations under
applicable statutes, rules, regulations, engineering standards or building,
fire or zoning laws or regulations;
31
<PAGE>
(xiii) Fail to maintain consistent with past practice insurance
policies on the business of the Company and the Subsidiaries and their
assets comparable in amount to that in effect on the date of this
Agreement;
(xiv) Fail to maintain its books and records in accordance with
GAAP;
(xv) Enter into or renew any Contract with MJD, MJD Partners, Inc.,
the Company, any Subsidiary, any of Daniel G. Bergstein, Bugger Associates,
Inc., Meyer Haberman, Eugene B. Johnson, Jack H. Thomas or any of their
Affiliates, or any Affiliate of MJD, MJD Partners, Inc., the Company or any
Subsidiary;
(xvi) Enter into or adversely modify the terms of any Contract,
binding commitment or letter of intent relating to the acquisition of the
assets or securities of any Person;
(xvii) Incur any indebtedness for money borrowed in excess of
$1,000,000; or
(xviii) Take or fail to take any commercially reasonable action that
would cause any of its representations and warranties not to be true and
correct on the Closing Date in the manner required under Section 6.1
hereof.
5.3 Third-Party Consents. MJD covenants and agrees that it will
--------------------
cause the Company and each Subsidiary, and the Company covenants and agrees that
it will and will cause each Subsidiary, to use all reasonable best efforts to
obtain the consent of any third parties or Governmental Authorities required to
be obtained or made in connection with the transactions contemplated by this
Agreement.
5.4 Sale and Issuance of Additional Shares. MJD covenants and agrees
--------------------------------------
that it will cause the Company and each Subsidiary, and the Company covenants
and agrees that it will and will cause each Subsidiary, to use all reasonable
efforts to obtain, contemporaneously with the Governmental Approvals required to
be obtained pursuant to Section 5.3 hereof, the consent of all Governmental
Authorities necessary for the sale and issuance of additional shares of the
Company's capital stock to one or more of the Buyers following the Closing as
contemplated by the Stockholders' Agreement, except for any Governmental
Approval required by the HSRA.
5.5 Renewal of Contracts. MJD covenants and agrees that it will
--------------------
cause the Company and each Subsidiary, and the Company covenants and agrees that
it will
32
<PAGE>
and will cause each Subsidiary, to use all reasonable best efforts to renew any
Contract which by its terms expires or terminates between the date of this
Agreement and the Closing Date, provided that any such renewal shall be on terms
and conditions which are consistent with past practice.
5.6 No Inconsistent Action. MJD covenants and agrees that it will
----------------------
not permit the Company or any Subsidiary, and the Company covenants and agrees
that it will not and will not permit any Subsidiary, to take any action which is
inconsistent in any material respect with their obligations under this Agreement
or that would hinder or delay in any material respect the consummation of the
transactions contemplated by this Agreement.
5.7 No Solicitation. MJD covenants and agrees that it will not
---------------
permit the Company or any Subsidiary, and the Company covenants and agrees that
it will not and will not permit any Subsidiary, to, directly or indirectly, (a)
-
solicit, initiate or encourage submission of any proposal or offer from any
Person relating to any acquisition or purchase of the business of the Company or
any Subsidiary, any assets of the Company or any Subsidiary (other than the sale
of assets in the ordinary course of business consistent with past practices) or
any capital stock or other equity interest of the Company or any Subsidiary or
(b) participate in any discussions or negotiations regarding, or furnish to any
-
Person any information with respect to, or otherwise cooperate in any way, or
assist or participate in, facilitate or encourage, any effort or attempt by any
Person to do or seek any of the foregoing. MJD covenants and agrees that it will
cause the Company and each Subsidiary, and the Company covenants and agrees that
it will and will cause each Subsidiary, to promptly notify the Buyers in writing
if any such offer or proposal is made.
5.8 Financial Statements. MJD covenants and agrees that it will
--------------------
cause the Company and the Subsidiaries, and the Company covenants and agrees
that it will and will cause each Subsidiary, to deliver to the Buyers (a),
-
within 30 days after the end of each month until the Closing Date, unaudited
consolidated balance sheets of each of the Company, MJD Holdings Corp., MJD
Services Corp., MJD Ventures, Inc. and ST Enterprises, Ltd. and their respective
Subsidiaries for the month then ended and the related statements of operations
for the month then ended and (b), prior to May 15, 1997, audited consolidated
-
and consolidating balance sheets of each of the Company, MJD Services Corp., MJD
Ventures, Inc. and ST Enterprises, Ltd. and their respective Subsidiaries as of
December 31, 1996 and the related statements of operations and cash flows for
the fiscal year then ended, audited, in each case, by KPMG Peat Marwick LLP.
All financial statements furnished pursuant to this Section shall be true and
complete in all material respects and fairly present in all material respects
the financial
33
<PAGE>
condition, position, results of operations and cash flows, as appropriate, as of
the dates and for the periods covered by such statements. MJD covenants and
agrees that it will cause the Company and each Subsidiary, and the Company
covenants and agrees that it will and will cause each Subsidiary, to furnish to
the Buyers any and all other information concerning the financial condition of
the Company and any Subsidiary that the Buyers may reasonably request.
5.9 Estoppel Certificates; Consent and Waiver. MJD covenants and
-----------------------------------------
agrees that it will cause the Company and each Subsidiary, and the Company
covenants and agrees that it will and will cause each Subsidiary, to use all
reasonable best efforts to obtain estoppel certificates containing customary
provisions and consents and waivers from any landlord with respect to the Real
Property Leases listed in Schedule 5.9 hereto.
------------
5.10 Consummation of Pending Acquisitions. Except as set forth on
------------------------------------
Schedule 5.10 hereto, MJD covenants and agrees that it will cause the Company
- -------------
and each Subsidiary, and the Company covenants and agrees that it will and will
cause each Subsidiary, to use all reasonable best efforts to consummate the
pending acquisitions set forth on Schedule 4.24 hereto on or prior to the
-------------
Closing Date in accordance with the terms of the existing acquisition
agreements.
5.11 Notice of Material Developments. From the date hereof until the
-------------------------------
Closing, MJD and the Company covenant and agree that they will give prompt
written notice to the Buyers of any (a) material development affecting the
-
business, assets, properties or results of operations of the Company or any
Subsidiary or (b) event or circumstance which would render any representation or
-
warranty of MJD or the Company contained in this Agreement untrue or inaccurate
in any material respect if made on or as of the date thereof or as of the
Closing Date. No disclosure by MJD or the Company pursuant to this Section 5.11
shall be deemed to amend or supplement any schedule hereto or to prevent or cure
any misrepresentation, breach of warranty or breach of covenant.
5.12 Further Actions. MJD covenants and agrees that it will cause the
---------------
Company and each Subsidiary, and the Company covenants and agrees that it will
and will cause each Subsidiary, to use all reasonable best efforts to take or
cause to be taken all actions, and to do or cause to be done all other things,
necessary, proper or advisable in order to fulfill and perform their obligations
in respect of this Agreement or otherwise to consummate and make effective the
transactions contemplated hereby.
34
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO THE BUYERS' OBLIGATION TO CLOSE
-------------------------------------------------------
The obligations of the Buyers hereunder are, at their option, subject
to satisfaction, at or prior to the Closing Date, of each of the following
conditions:
6.1 Representations, Warranties and Covenants. (a) All of the
-----------------------------------------
representations and warranties of MJD and the Company contained in or made
pursuant to this Agreement and in any schedule, instrument, certificate,
agreement or document delivered pursuant to this Agreement shall be true and
correct in all material respects on the date hereof and on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such dates.
(b) All of the terms, covenants and conditions to be complied with
and performed by MJD, the Company or the Subsidiaries on or prior to Closing
Date shall have been complied with or performed in all material respects.
6.2 Governmental Consents. Any applicable waiting period under the
---------------------
HSRA shall have expired or been earlier terminated without receipt of any
objection or the commencement or threat of any litigation by any Governmental
Authority of competent jurisdiction to restrain the consummation of the
transactions contemplated by this Agreement.
6.3 Third-Party Consents. MJD, the Company and the Subsidiaries
--------------------
shall have obtained and shall have delivered to the Buyers all third-party
consents and consents of Governmental Authorities listed in Schedule 6.3 hereto,
------------
without any condition adverse in any material respect to the Buyers, the
Company or any of the Subsidiaries.
6.4 Updated Tariff Schedule. MJD and the Company shall have
-----------------------
delivered to the Buyers an updated Schedule 4.28 hereto, which shall be true and
-------------
correct in all material respects as of the Closing Date, and the Buyers shall be
reasonably satisfied that such updated schedule does not reflect the occurrence
of any events which would cause the condition contained in Section 6.13 hereof
not to be satisfied.
6.5 Certificates. Each of MJD and the Company shall have delivered
------------
to the Buyers a certificate, dated the Closing Date and signed by an authorized
officer or
35
<PAGE>
partner of each such Person, to the effect that the conditions set forth in
Section 6.1 hereof have been fulfilled.
6.6 Adverse Proceedings. No action, suit, proceeding, litigation or
-------------------
investigation shall be pending or threatened by any Governmental Authority which
questions the validity or legality of this Agreement or any action taken or to
be taken in connection herewith or the consummation of the transactions
contemplated hereby. No injunction or other order issued by a court of
competent jurisdiction restraining or prohibiting the consummation of the
transactions contemplated by this Agreement shall be in effect.
6.7 Financing Statements. Except for Permitted Encumbrances, MJD and
--------------------
the Company shall secure the release of all Liens of any nature whatsoever on
the Company's or the Subsidiaries' assets and business, including those Liens
listed in Schedule 4.22 hereto, and shall deliver copies of such releases to the
-------------
Buyers at Closing, including but not limited to, releases or terminations under
the Uniform Commercial Code and any other applicable federal, state or local
statutes or regulations of any financing or similar statements filed against any
such assets in (a) the jurisdictions in which such assets are and have been
-
located since such assets were acquired by the Company or any Subsidiary and (b)
-
any other location specified or required by applicable federal, state or local
statutes or regulations.
6.8 Additional Indebtedness. The Company and/or the Subsidiaries
-----------------------
shall have obtained additional Indebtedness pursuant to loan documentation in
form and substance reasonably satisfactory to the Buyers, which together with
the amount of the Purchase Price and the projected consolidated cash balances of
the Company and the Subsidiaries, shall be adequate to enable the Company and
the Subsidiaries to effect the Fleet Repurchase, the ALTA Repayment and the
acquisition of Chautauqua & Erie Telephone Corporation and to pay all taxes,
fees and expenses in connection with the foregoing and the transactions
contemplated by this Agreement.
6.9 Fleet Repurchase; ALTA Repayment. MJD and the Company shall have
--------------------------------
caused, pursuant to documentation in form and substance reasonably satisfactory
to the Buyers, (a) all direct and indirect equity interests in the Company of
-
any Person other than MJD, Bugger Associates, Inc., John P. Duda, Eugene B.
Johnson, Walter E. Leach, Jr., Jack H. Thomas, Joel Bergstein MP Plan, Michael
Bergstein and Lindy Sobel Bergstein to have been repurchased without liability
to any of the Buyers, the Company or the Subsidiaries (the "Fleet Repurchase")
----------------
and (b) all obligations in respect of all subordinated notes issued to ALTA,
-
Steve McGeeney and/or Sylvana Zoberg by the Company or any Subsidiary to have
been satisfied and such notes to have been
36
<PAGE>
cancelled without liability to any of the Buyers, the Company or the
Subsidiaries (the "ALTA Repayment"); it being understood that the Common Stock
--------------
Purchase Warrants held as of the date hereof by ALTA, Steve McGeeney and/or
Sylvana Zoberg in respect of ST Enterprises, Ltd. and Sidney Telephone Company,
as the case may be, described on Schedule 4.3 hereto under sections II D and K
------------
thereof shall remain outstanding following the Closing Date in accordance with
their terms on the date hereof. As a result of the Fleet Repurchase, (a) the
-
Securityholders' Agreement, dated as of June 30, 1994, as amended, among the
Company, Daniel G. Bergstein, Jack H. Thomas, Meyer Haberman, Bugger Associates,
Inc., ALTA and Fleet, together with the related Option Agreement (including all
options granted thereunder) and Registration Rights Agreement, and (b) all
-
Contingent Class A Voting Common Stock Purchase Warrants issued pursuant to the
Securities Purchase Agreement, dated as of June 30, 1994, as amended, by and
among the Company, ST Enterprises, Ltd. and Fleet shall each have been
terminated on terms reasonably satisfactory to the Buyers without liability to
any of the Buyers, the Company or the Subsidiaries. As a result of the ALTA
Repayment, (a) the Stock Pledge Agreements, each dated as of June 30, 1994,
-
among ALTA and each of the Company and ST Enterprises, Ltd., (b) the Guarantees,
-
each dated as of June 29, 1994, in favor of ALTA by each of Breadbasket
Enterprises, Inc., ST Broadcasting Company, Inc., ST Communications, Inc., ST
Computer Resources Inc. and ST Paging, Inc. and (c) the Real Estate Mortgage and
-
Security Agreements, each dated as of April 24, 1995, among ALTA and Sunflower
Telephone Company shall each have been terminated on terms reasonably
satisfactory to the Buyers without liability to any of the Buyers, the Company
or the Subsidiaries. The Company shall withhold any Tax required to be withheld
in connection with the Fleet Repurchase and the ALTA Repayment.
6.10 MJD Contribution. MJD and the Company shall have caused,
----------------
pursuant to documentation in form and substance satisfactory to the Buyers (the
"MJD Exchange Documents"), (a) all of the capital stock of MJD Holdings Corp. to
---------------------- -
have been acquired by the Company in exchange for shares of Common Stock in a
transaction intended to qualify as a reorganization under section 368(a)(1)(B)
of the Code, (b) (i) the unpaid principal amount outstanding on the Closing Date
- -
in respect of the Notes shall have been acquired by the Company as a
contribution to capital as agreed to by the parties hereto on or prior to the
Closing Date, (ii) the accrued and unpaid interest on such Notes to have been
--
paid to the holders thereof as agreed to by the parties hereto on or prior to
the Closing Date and (iii) such Notes to have been cancelled without liability
---
to the Buyers, the Company or the Subsidiaries, and (c) each issued and
-
outstanding share of the Company's Series A 11% Cumulative Redeemable
Convertible Voting preferred stock, par value $.01 per share, except for those
shares which are the subject of the Fleet Repurchase, to have been exchanged for
1.0355
37
<PAGE>
shares of Common Stock on or prior to the Closing Date, provided that after
--------
giving effect to the foregoing conversions and exchanges, the exercise of
options obligating the Company to issue or sell any shares of its capital stock
to any Person and the exercise of the outstanding Class A Voting Common Stock
Purchase Warrants (such warrants shall be amended on or prior to the Closing
Date on terms satisfactory to the Buyers), the Buyers shall own immediately
following the Closing no less than 50% of the issued and outstanding shares of
capital stock of the Company as determined on a fully diluted basis. The Buyers,
the Company and the Subsidiaries shall have no Tax liability in respect of the
transactions contemplated by this Section 6.10.
6.11 Management, Consulting and Severance Arrangements. MJD shall
-------------------------------------------------
have caused (a) the Management Services Agreement to be amended and restated
-
substantially in the form of Exhibit D to the Stockholders' Agreement, (b),
-
pursuant to documentation in form and substance reasonably satisfactory to the
Buyers, the Management Services Agreement, dated as of January 3, 1997, between
MJD Holdings Corp. and MJD to have been terminated without liability to any of
the Buyers, the Company or the Subsidiaries, (c), pursuant to documentation in
-
form and substance reasonably satisfactory to the Buyers, the Consulting
Agreement to have been terminated without liability to any of the Buyers, the
Company or the Subsidiaries and (d), pursuant to documentation in form and
-
substance reasonably satisfactory to the Buyers, the severance arrangements
referred to in Schedule 4.12 hereto under section (c) D thereof to have been
-------------
terminated without liability to any of the Buyers, the Company or the
Subsidiaries and the Company to have entered into severance arrangements with
John P. Duda, Eugene B. Johnson, Walter E. Leach, Jr. and Jack H. Thomas on
terms (i) reasonably satisfactory to the Buyers, John P. Duda, Eugene B.
-
Johnson, Walter E. Leach, Jr. and Jack H. Thomas and (ii) substantially similar
--
to those in effect on the date hereof in the event of a termination of
employment.
6.12 Equity Documents. MJD and the Company shall have executed and
----------------
delivered to the Buyers the Stockholders' Agreement, the Registration Rights
Agreement, the Financial Advisory Agreements and any related agreements.
6.13 No Material Adverse Effect. No event, occurrence, fact,
--------------------------
condition, change, development or effect, including, but not limited to,
competitive, technological or federal, state, county or municipal regulatory
developments, shall exist or have occurred or come to exist since the date of
this Agreement that, individually or in the aggregate, has had or resulted in,
or could reasonably be expected to become or result in, a Material Adverse
Effect.
38
<PAGE>
6.14 Amendment of Articles of Incorporation. All actions shall have
--------------------------------------
been taken so that following the Closing the articles of incorporation of the
Company shall be amended on terms satisfactory to the Buyers to provide that the
capital stock of the Company will consist of 130,000 shares of Common Stock,
125,000 shares of Class B Nonvoting common stock, par value $.01 per share, and
13,500 shares of Series C 14% Cumulative Redeemable Nonvoting preferred stock,
par value $.01 per share. The amended articles of incorporation of the Company
shall provide that such preferred stock shall (a) have a liquidation preference
-
of $10.00 per share, plus accrued and unpaid interest, (b) be nonvoting, (c)
- -
have no other preferential rights over any other class of capital stock of the
Company and (d) be redeemable by the Company, in its sole discretion, for $10.00
-
per share, plus accrued and unpaid interest, upon (i) a change of control of the
-
Company, (ii) a public offering of any of the capital stock of the Company under
--
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, (iii) a sale of all or substantially all of the shares of Common
---
Stock now or hereafter owned by the Buyers or (iv) a sale of all or
--
substantially all of the Company's and the Subsidiaries' assets.
6.15 Reconstitution of Boards of Directors. All actions shall have
-------------------------------------
been taken so that immediately following the Closing the board of directors of
the Company and the Subsidiaries shall be reconstituted in accordance with the
terms of the Stockholders' Agreement.
6.16 Transaction and Advisory Fees. Each of (a) Carousel or an
----------------------------- -
Affiliate thereof and (b) Kelso or an Affiliate thereof shall have received by
-
wire transfer of immediately available funds (x) a transaction fee of $200,000
-
in consideration of its services with respect to the consummation of the
transactions contemplated by this Agreement and (y) the first quarterly payment
-
of $12,500 in consideration of its services under its respective Financial
Advisory Agreement.
6.17 Deliveries. MJD and the Company shall have made all the
----------
deliveries set forth in Section 8.1 hereof.
ARTICLE VII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE
---------------------------------------------------------
The obligations of the Company are, at its option, subject to
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
39
<PAGE>
7.1 Representations, Warranties and Covenants. (a) All
-----------------------------------------
representations and warranties of the Buyers contained in or made pursuant to
this Agreement and in any schedule, instrument, certificate, agreement or
document delivered pursuant to this Agreement shall be true and correct in all
material respects on the date hereof and on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such dates.
(b) All the terms, covenants and conditions to be complied with and
performed by the Buyers on or prior to the Closing Date shall have been complied
with or performed in all material respects.
7.2 Governmental Consents. Any applicable waiting period under the
---------------------
HSRA shall have expired or been earlier terminated without receipt of any
objection or the commencement or threat of any litigation by any Governmental
Authority of competent jurisdiction to restrain the consummation of the
transactions contemplated by this Agreement.
7.3 Certificates. Each of the Buyers shall have delivered to the
------------
Company a certificate, dated the Closing Date and signed by an authorized
officer or partner of each such Person, to the effect that the conditions set
forth in Section 7.1 hereof have been fulfilled.
7.4 Adverse Proceedings. No action, suit, proceeding, litigation or
-------------------
investigation shall be pending or threatened by any Governmental Authority which
questions the validity or legality of this Agreement or any action taken or to
be taken in connection herewith or the consummation of the transactions
contemplated hereby. No injunction or other order issued by a court of
competent jurisdiction restraining or prohibiting the consummation of the
transactions contemplated by this Agreement shall be in effect.
7.5 Equity Documents. Each of the Buyers shall have executed and
----------------
delivered to the Company the Stockholders' Agreement and the Registration Rights
Agreement.
7.6 Deliveries. The Buyers shall have made all the deliveries set
----------
forth in Section 8.2 hereof.
40
<PAGE>
ARTICLE VIII
THE CLOSING
-----------
8.1 Documents to be Delivered by MJD and the Company. At the
------------------------------------------------
Closing, MJD and the Company shall deliver or cause to be delivered to the
Buyers the following:
(a) certificates representing the Shares as provided in Section 2.2
hereof;
(b) certificate of each of MJD and the Company, dated the Closing
Date, in form and substance reasonably satisfactory to the Buyers,
certifying to the fulfillment of the conditions set forth in Section 6.1
hereof;
(c) opinions of (i) Paul, Hastings, Janofsky & Walker LLP, (ii)
- --
Meyer, Capel, Hirschfeld, Muncy, Jahn & Aldeen, P.C., (iii) James M.
---
Caplinger, Chartered, (iv) Devine, Millimet & Branch PA, (v) Moss & Barnett
-- -
PA, (vi) Miller, Eggleston & Rosenberg, Ltd., (vii) Preti, Flaherty,
-- ---
Beliveau & Pachios, LLC, (viii) Gorsuch Kirgis L.L.C., (ix) Harter, Secrest
---- --
& Emery and (x) Blooston, Mordkofsky, Jackson & Dickens, counsel to the
-
Company, dated the Closing Date, in form and substance reasonably
satisfactory to the Buyers;
(d) certified copies of all corporate proceedings of MJD and the
Company in connection with the transactions contemplated by this Agreement
and all documents and instruments incident thereto, in form and substance
reasonably satisfactory to the Buyers and their counsel; and
(e) such other documents and legal opinions as may reasonably be
requested by the Buyers' counsel.
8.2 Documents to be Delivered by the Buyers. At the Closing, the
---------------------------------------
Buyers shall deliver or cause to be delivered to the Company the following:
(a) immediately available wire-transferred funds as provided in
Section 2.2 hereof;
(b) certificate of each of the Buyers, dated the Closing Date, in
form and substance reasonably satisfactory to the Company, certifying to
the fulfillment of the conditions specified in Section 7.1 hereof;
41
<PAGE>
(c) opinion of Kennedy Covington Lobdell & Hickman, L.L.P., counsel
to Carousel, dated the Closing Date, in form and substance reasonably
satisfactory to the Company;
(d) opinion of Debevoise & Plimpton, counsel to Kelso, dated the
Closing Date, in form and substance reasonably satisfactory to the Company;
and
(e) such other documents as may be reasonably requested by the
Company's counsel.
ARTICLE IX
TAXES, FEES AND EXPENSES
------------------------
The Company shall pay all of the reasonable fees and expenses incurred
by each party hereto in connection with the preparation, negotiation and closing
of this Agreement and the transactions contemplated hereby, whether or not the
transactions contemplated hereby shall be consummated. Without limiting the
generality of the foregoing, (a) all use, stamp, stock transfer and registration
-
taxes and fees, (b) all governmental filing or grant fees, including, but not
-
limited to, the HSRA filing fee, (c) all accountants' and attorneys' fees and
-
(d) all recordation and transfer taxes and fees, including, but not limited to,
-
realty transfer, and documentary taxes and fees, incurred in connection with the
execution, delivery or performance of this Agreement and the transactions
contemplated hereby, shall be paid by the Company.
ARTICLE X
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------------------
Except as otherwise specifically set forth herein, the
representations, warranties and covenants contained in this Agreement or in any
certificate, document or instrument delivered pursuant to this Agreement shall
survive the Closing and continue in effect through the Claims Termination Date.
Any investigation by or on behalf of any party hereto shall not constitute a
waiver as to enforcement of any representation, warranty or covenant.
42
<PAGE>
ARTICLE XI
INDEMNIFICATION
---------------
11. Indemnification by MJD. (a) Notwithstanding the Closing and
----------------------
subject to the limitations set forth herein, MJD covenants and agrees to defend,
indemnify and hold harmless the Buyers, their respective Affiliates (including,
but not limited to, the Company and the Subsidiaries following the Closing) and
the officers, directors, partners, employees, agents, advisers and
representatives of each such Person (collectively, the "Buyers Indemnitees")
------------------
from and against, and pay or reimburse the Buyers Indemnitees for, any and all
claims, demands, liabilities, obligations, losses, fines, costs, expenses,
royalties, proceedings, deficiencies or damages (whether or not resulting from
third party claims), including interest and penalties with respect thereto and
out-of-pocket expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense of any of the same or in
asserting, preserving or enforcing any of their respective rights hereunder
(collectively, "Losses"), resulting from or arising out of:
------
(i) any inaccuracy of any representation or warranty (other than
Section 4.21(c) hereof) when made or deemed made by MJD or the Company
herein or in any schedule hereto or any certificate, document or other
instrument delivered in connection herewith;
(ii) any matters referred to in Section 4.21(c) hereof in excess of
$200,000; or
(iii)any failure of MJD or the Company to perform any covenant or
agreement hereunder or fulfill any other obligation in respect hereof.
For purposes of Section 11.1(a)(i) hereof, MJD shall only be liable to the
Buyers Indemnitees for Losses resulting from or arising out of any inaccuracy in
any representation or warranty if an Executive Officer had actual knowledge that
such representation or warranty was inaccurate when made or deemed made.
(b) Notwithstanding anything in this Agreement to the contrary, MJD's
obligation to indemnify the Buyers Indemnitees shall be subject to all of the
following limitations:
(i) MJD shall not be required to make any indemnification under
Sections 11.1(a)(i) and (iii) hereof until the aggregate amount of Losses
43
<PAGE>
resulting from or arising out of the matters referred to in Sections
11.1(a)(i) and (iii) hereof exceeds $2,500,000; provided that if the
--------
aggregate amount of such Losses exceeds such amount, MJD shall be required
to indemnify the Buyers Indemnitees for all Losses indemnifiable under
Sections 11.1(a)(i) and (iii) hereof without regard to such $2,500,000
limitation.
(ii) Any amounts owed to the Buyers Indemnitees by MJD pursuant to
Section 11.1(b)(i) shall be limited to $15,000,000, which amount may be
satisfied, at the sole option of MJD, by payment in cash or by the
cancellation of all or a portion of the MJD Partners Shares pursuant to
clause (iii) of this Section 11.1(b) and MJD shall have no other liability
or responsibility for indemnification hereunder. Any such cash payment
shall be treated as an adjustment to the Purchase Price.
(iii) In the event that any of the Buyers Indemnitees shall be
entitled to indemnification for any Loss under this Article XI and MJD
shall have elected to satisfy all or a part of such Loss with MJD Partners
Shares, (A) MJD shall promptly deliver to the Company for cancellation that
-
number of MJD Partners Shares, rounded up or down to the nearest whole
share, equal to the amount of such Loss and (B) the Company shall promptly
-
cancel such MJD Partners Shares. For purposes of this clause (iii) of
Section 11.1(b), the value of each MJD Partners Share shall equal the fair
market value of such share as agreed in writing among the parties hereto
or, if such agreement is not reached within 15 Business Days following a
binding determination regarding the entitlement of any Buyers Indemnitee to
indemnification for such Loss, as determined by an appraisal of the Company
(after giving effect to such Loss) and the MJD Partners Shares, conducted
by Houlihan Lokey Howard & Zukin or such other recognized independent
valuation consultant or appraiser of national standing selected by MJD and
reasonably satisfactory to the Buyers Indemnitees, the fees and expenses of
which shall be borne by the Company. Any such appraisal of the fair market
value of any MJD Partners Share shall be (A) the fair market value of the
-
entire equity interest of the Company taken as a whole (after giving effect
to such Loss), without additional premiums for control or discounts for
minority interests or restrictions on transfer, divided by (B) the number
-
of outstanding shares of capital stock of the Company, calculated on a
fully-diluted basis. In accordance with the Stockholders' Agreement, each
stock certificate representing MJD Partners Shares shall, for so long as
MJD has any indemnification obligations under this Article XI, bear upon
its face a legend reflecting MJD's indemnification obligations under this
Article XI.
44
<PAGE>
11.2 Indemnification Procedures. (a) In the case of any claim
--------------------------
asserted by a third party against a party entitled to indemnification under this
Agreement (the "Indemnified Party"), notice shall be given by the Indemnified
-----------------
Party to MJD promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and the Indemnified Party shall
permit MJD (at MJD's expense) to assume the defense of any claim or any
litigation resulting therefrom, provided that (i) the counsel for MJD who shall
-
conduct the defense of such claim or litigation shall be reasonably satisfactory
to the Indemnified Party, (ii) the Indemnified Party may participate in such
--
defense at such Indemnified Party's expense, and (iii) the omission by any
---
Indemnified Party to give notice as provided herein shall not relieve MJD of its
indemnification obligation under this Agreement except to the extent that such
omission results in a failure of actual notice to MJD and MJD is materially
damaged as a result of such failure to give notice. Except with the prior
written consent of the Indemnified Party, MJD, in the defense of any such claim
or litigation, shall not consent to entry of any judgment or order, interim or
otherwise, or enter into any settlement that provides for injunctive or other
nonmonetary relief affecting the Indemnified Party or that does not include as
an unconditional term thereof the giving by each claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such claim or
litigation. In the event that the Indemnified Party shall in good faith
determine that the conduct of the defense of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by MJD
might be expected to affect adversely the Indemnified Party's tax liability or
the ability of the Company or any of the Subsidiaries to conduct its business,
or that the Indemnified Party may have available to it one or more defenses or
counterclaims that are inconsistent with one or more of those that may be
available to MJD in respect of such claim or any litigation relating thereto,
the Indemnified Party shall have the right at all times to take over and assume
control over the defense, settlement, negotiations or litigation relating to any
such claim at the sole cost of MJD, provided that if the Indemnified Party does
so take over and assume control, the Indemnified Party shall not settle such
claim or litigation without the written consent of MJD, such consent not to be
unreasonably withheld. In the event that MJD does not accept the defense of any
matter as above provided, the Indemnified Party shall have the full right to
defend against any such claim or demand and shall be entitled to settle or agree
to pay in full such claim or demand. Notwithstanding the foregoing, MJD shall
still provide indemnification to the Indemnified Party. In any event, MJD and
the Indemnified Party shall cooperate in the defense of any claim or litigation
subject to this Section 11.2(a) and the records of each shall be available to
the other with respect to such defense.
(b) In case any event shall occur which would otherwise entitle any
party to assert any claim for indemnification hereunder, no Loss shall be deemed
to
45
<PAGE>
have been sustained by such party to the extent of any proceeds received by such
party from any insurance policies with respect thereto, net of any increase in
premiums or other costs associated with such insurance recovery.
11.3 Claims Termination Date. All claims for indemnification under
-----------------------
this Agreement must be asserted on or prior to the Claims Termination Date.
11.4 Exclusive Remedy. The indemnification provisions of this
----------------
Article XI shall be the sole and exclusive remedy of the Buyers Indemnitees with
respect to any Loss under this Agreement.
ARTICLE XII
TERMINATION RIGHTS
------------------
12.1 Termination. (a) This Agreement may be terminated by the
-----------
Buyers, on the one hand, or MJD and the Company, on the other hand, if the party
seeking to terminate is not in material default or breach of this Agreement,
upon written notice to the other upon the occurrence of any of the following:
(i) by the Buyers or MJD and the Company:
(A) if the Closing has not occurred by August 1, 1997; provided that
--------
in the event the Closing has not occurred by August 1, 1997 solely as a
result of the failure to receive any Governmental Approval required for the
lawful consummation of the transactions contemplated by this Agreement
without any condition adverse in any material respect to the Buyers, the
Company or any of the Subsidiaries, any party hereto may extend such
termination date to a date no later than December 31, 1997;
(B) if there shall be in effect any final judgment, final decree or
order that would prevent or make unlawful the Closing; or
(C) if any event shall occur or exist that otherwise shall have made
it impossible to satisfy a condition precedent to the terminating party's
obligations to consummate the transactions contemplated by this Agreement,
unless the occurrence or existence of such event shall be due to the
failure of such party to perform or comply with any of the agreements,
covenants or conditions hereof to be performed or complied with by such
party prior to the Closing.
46
<PAGE>
(ii) by the Buyers:
(A) if documentation in form and substance reasonably satisfactory to
the Buyers to effect the Fleet Repurchase shall not have been entered into
by Fleet and the Company on or before April 30, 1997;
(B) if within 10 Business Days after receipt by the Buyers of the
audited consolidated and consolidating balance sheets and related
statements of operations and cash flows referred to in Section 5.8(b)
hereof, the Buyers shall determine that such financial statements differ
materially from the unaudited financial statements of the Company and
subsidiaries as of and for the fiscal year ended December 31, 1996 included
in the Financial Statements or the forecasts previously delivered to the
Buyers with respect to the Company's and the Subsidiaries' financial
condition, position, results of operations and cash flows for the fiscal
year ended December 31, 1996; or
(C) if MJD or the Company is in material breach of any
representation, warranty, covenant or agreement contained in this Agreement
and such breach is not cured within 10 Business Days of written notice of
such breach.
(iii) by MJD or the Company:
(A) if the Buyers are in material breach of any representation,
warranty, covenant or agreement contained in this Agreement and such breach
is not cured within 10 Business Days of written notice of such breach.
(b) This Agreement may be terminated by the written agreement of the
parties hereto.
12. Liability. The termination of this Agreement under Section
---------
12.1(a) hereof shall not relieve any party of any liability under or for breach
of this Agreement prior to the date of termination.
47
<PAGE>
ARTICLE XII
OTHER PROVISIONS
----------------
13.1 Publicity. Except as required by Applicable Law or with the
---------
other parties' express prior written consent, no party to this Agreement nor any
Affiliate of any party shall issue any press release or make any public
statement (oral or written) regarding this Agreement or the transactions
contemplated by this Agreement.
13.2 Compliance with HSRA. MJD, the Company and the Buyers shall make
--------------------
or cause to be made in a timely fashion all filings which are required in
connection with the transactions contemplated hereby under the HSRA, and shall
furnish to the other party all information that the other reasonably requests in
connection with such filings.
13.3 Benefit and Assignment. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective heirs,
successors and assigns. This Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
parties hereto, and any purported assignment or other transfer without such
consent shall be void and unenforceable; provided, that each of the Buyers may
--------
assign this Agreement to any Affiliate of such Buyer, or to any lender to such
Buyer or Affiliate thereof as security for obligations to such lender, and
provided, further, that no assignment to any such Affiliate or lender shall in
- -------- -------
any way affect such Buyer's obligations or liabilities under this Agreement.
13.4 No Third-Party Beneficiaries. Except as provided in Sections
----------------------------
11.1 and 13.3 hereof, nothing in this Agreement shall confer any rights upon any
Person other than the parties hereto and their respective heirs, successors and
permitted assigns.
13.5 Entire Agreement. This Agreement, the MJD Exchange Documents,
----------------
the Stockholders' Agreement, the Registration Rights Agreement, the Financial
Advisory Agreements and the Exhibits and Schedules hereto embody the entire
agreement and understanding of the parties hereto and supersede any and all
prior agreements, arrangements and understandings relating to the matters
provided for herein, including that certain Discussion Term Sheet delivered to
the Buyers by MJD. No amendment, waiver of compliance with any provision or
condition hereof or consent pursuant to this Agreement shall be effective unless
evidenced by an instrument
48
<PAGE>
in writing signed by the party against whom enforcement of any amendment, waiver
or consent is sought.
13.6 Waiver. At any time prior to the Closing Date, the parties
------
hereto may (i) extend the time for performance of any obligations or other acts
-
of the other parties hereto, (ii) waive any inaccuracies in the representations
--
and warranties contained herein or in any document delivered pursuant hereto and
(iii) waive any compliance with any of the agreements or conditions contained
---
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
13.7 Headings. The headings set forth in this Agreement are for
--------
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
13.8 Severability. If any provision, including any phrase, sentence,
------------
clause, section or subsection, of this Agreement is invalid, inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering such provision in question invalid, inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
13.9 Arbitration. Any dispute or difference between the parties
-----------
hereto relating to the interpretation of this Agreement shall be finally settled
by arbitration conducted exclusively in New York, New York before an arbitral
tribunal of three arbitrators, one selected by the Buyers, one selected by MJD,
and the third by the Persons so selected, all in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect. If
either the Buyers or MJD fail to choose an arbitrator within 30 days after
notice of commencement of arbitration, or if the two arbitrators fail to choose
a third arbitrator within 30 days after their appointment, the American
Arbitration Association shall, upon request of either the Buyers or MJD, appoint
the arbitrator or arbitrators to constitute or complete the arbitral tribunal,
as the case may be. Arbitration proceedings hereunder may be initiated by the
Buyers or MJD by making a written request to the American Arbitration
Association, together with any appropriate filing fee, at the office of the
American Arbitration Association in New York, New York. Any order or
determination of the arbitral tribune shall be final and binding upon the
parties to the arbitration. The parties hereto hereby consent to the in
personam jurisdiction of the courts of the State of New York for purposes of
confirming any award and entering judgment thereon.
49
<PAGE>
13.10 Choice of Law. The construction and performance of this
-------------
Agreement shall be governed by the laws of the State of New York without regard
to its principles of conflict of laws, and the state and federal courts of New
York shall have exclusive jurisdiction over any controversy or claim arising out
of or relating to this Agreement.
13.11 Notices. All notices, requests, demands, letters, waivers and
-------
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a) delivered
-
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
- -
sent by next-day or overnight mail or delivery or (d) sent by fax, as follows:
-
To MJD or the Company:
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Mr. Eugene B. Johnson
Phone: (704) 344-8150
Fax: (704) 344-8121
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attention: Neil A. Torpey, Esq.
Phone: (212) 318-6034
Fax: (212) 319-4090
To Carousel:
Carousel Capital Partners, L.P.
4201 Congress Street, Suite 440
Charlotte, North Carolina 28209
Attention: Mr. Nelson Schwab, III
Mr. Reid G. Leggett
Phone: (704) 643-3333
Fax: (704) 643-6403
With a copy to:
50
<PAGE>
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
100 North Tryon Street, Suite 4200
Charlotte, North Carolina 28202-4006
Attention: Stephen K. Rhyne, Esq.
Phone: (704) 331-7400
Fax: (704) 331-7598
51
<PAGE>
To Kelso:
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Attention: James J. Connors, II, Esq.
Phone: (212) 751-3939
Fax: (212) 223-2379
With a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Richard D. Bohm, Esq.
Phone: (212) 909-6226
Fax: (212) 909-6836
or to such other person or address as any party shall specify by notice in
writing to the party entitled to notice. All such notices, requests, demands,
letters, waivers and other communications shall be deemed to have been received
(w) if by personal delivery on the day after such delivery, (x) if by certified
- -
or registered mail, on the fifth Business Day after the mailing thereof, (y) if
-
by next-day or overnight mail or delivery, on the day delivered or (z) if by
-
fax, on the next day following the day on which such fax was sent, provided that
a copy is also sent by certified or registered mail.
13.12 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
13.13 Further Assurances. MJD and the Company shall at any time and
------------------
from time to time after the Closing execute and deliver to the Buyers such
additional instruments, documents, conveyances or assurances and take such other
actions as shall be necessary, or otherwise reasonably be requested by the
Buyers, to confirm and assure the rights and obligations provided for in this
Agreement and render effective the consummation of the transactions contemplated
hereby, or otherwise to carry out the intent and purposes of this Agreement.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
MJD COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
Title:
MJD PARTNERS, L.P.
By: MJD Partners, Inc., its general partner
By:
--------------------------------------
Name:
Title:
CAROUSEL CAPITAL PARTNERS, L.P.
By: Carousel Capital Company, L.L.C.,
its general partner
By:
--------------------------------------
Name:
Title:
53
<PAGE>
KELSO INVESTMENT ASSOCIATES V,
L.P.
By: Kelso Partners, V, L.P., its general
partner
By:
--------------------------------------
Name:
Title:
KELSO EQUITY PARTNERS V, L.P.
By:
--------------------------------------
Name:
Title:
54
<PAGE>
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 (this "Amendment") to the Stock Purchase
Agreement (as defined below) dated as of April 30, 1997, is hereby entered into
by and among MJD Communications, Inc., a Delaware corporation (the "Company"),
MJD Partners, L.P., a Delaware limited partnership ("MJD"), Carousel Capital
Partners, L.P., a Delaware limited partnership ("Carousel"), Kelso Investment
Associates V, L.P., a Delaware limited partnership ("KIA V") and Kelso Equity
Partners V, L.P., a Delaware limited partnership ("KEP V", and together with KIA
V, "Kelso"). Capitalized terms not otherwise defined have the meanings set forth
in the Stock Purchase Agreement.
WHEREAS, MJD, Carousel, Kelso and the Company wish to amend the Stock
Purchase Agreement (the "Stock Purchase Agreement) dated as of March 6, 1997 by
and among MJD, Carousel, Kelso and the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1. Amendment. The Stock Purchase Agreement is hereby amended
---------
and modified by substituting "May 15, 1997" for "April 30, 1997" in Section
12.1(a)(ii)(A).
Section 2. Effectiveness. The amendment to the Stock Purchase
-------------
Agreement provided for in this Amendment shall become effective as of the date
hereof upon the execution and delivery of one or more counterparts of this
Amendment duly executed by MJD, Carousel, Kelso and the Company.
Section 3. Miscellaneous. (a) Except as expressly provided herein,
-------------
the execution, delivery and effectiveness of this Amendment shall not operate as
a waiver of any rights, powers or remedies of MJD, Carousel, Kelso or the
Company under the Stock Purchase Agreement, nor constitute a waiver of any
provision of the Stock Purchase Agreement. Except as expressly amended hereby,
the Stock Purchase Agreement shall be unchanged and remain in full force and
effect and the Stock Purchase Agreement as amended hereby is ratified and
confirmed.
<PAGE>
(b) This Amendment shall form a part of the Stock Purchase Agreement
for all purposes, and each party to the Stock Purchase Agreement shall be bound
hereby and shall be entitled to the benefits hereof.
(c) This Amendment may be executed in any number of counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument and any of the parties hereto may execute
this Amendment by signing any such counterpart.
(D) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF THE LAWS THAT MIGHT
OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
(e) From and after the effectiveness of this Amendment as provided in
Section 2 hereof, all references to the Stock Purchase Agreement in the Stock
- ---------
Purchase Agreement and in any other agreement in connection with the
transactions thereto shall be deemed to be references to the Stock Purchase
Agreement after giving effect to this Amendment.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
MJD COMMUNICATIONS, INC.
By_________________________________
Name:
Title:
MJD PARTNERS, L.P.
By: MJD Partners, Inc., its
general partner
By_________________________________
Name:
Title:
CAROUSEL CAPITAL PARTNERS, L.P.
By: Carousel Capital Company,
L.L.C., its general partner
By_________________________________
Name:
Title:
<PAGE>
KELSO INVESTMENT ASSOCIATES V, L.P.
By: Kelso Partners, V, L.P., its
general partner
By_________________________________
Name:
Title:
KELSO EQUITY PARTNERS V, L.P.
By_________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.11
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of July 31, 1997, among MJD
Communications, Inc., a Delaware corporation (the "Company"); Carousel Capital
-------
Partners, L.P., a Delaware limited partnership ("Carousel"); Kelso Investment
--------
Associates V, L.P., a Delaware limited partnership ("KIA V"), and Kelso Equity
-----
Partners V, L.P., a Delaware limited partnership ("KEP V", together with KIA V,
-----
"Kelso"); MJD Partners, L.P., a Delaware limited partnership ("MJD Partners");
----- ------------
MJD Partners, Inc., a Delaware corporation ("MJD Inc."); Bugger Associates,
--------
Inc., a Delaware corporation ("Bugger"), Daniel G. Bergstein ("Bergstein"),
------ ---------
Meyer Haberman, Eugene B. Johnson ("Johnson") and Jack H. Thomas ("Thomas",
------- ------
collectively, the "MJD Principals"); Joel Bergstein, Michael Bergstein and Lindy
--------------
Sobel Bergstein; and those employees of the Company listed on Schedule A
attached hereto (collectively, the "Management Stockholders"). Schedule A shall
-----------------------
be updated from time to time to include each Management Stockholder who becomes
a party to this Agreement after the date hereof pursuant to Section 14.
Carousel and Kelso are hereinafter referred to collectively as the "Investor
--------
Stockholders". For purposes of this Agreement, KIA V and KEP shall be deemed to
- ------------
be a single Investor Stockholder. The Investor Stockholders, MJD Partners,
Bugger, Johnson, Thomas and the Management Stockholders are hereinafter referred
to collectively as the "Stockholders".
------------
Capitalized terms used herein without definition are defined in
Section 16.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the parties hereto agree as follows:
1. Restrictions on Transfer of Common Stock. 1.1 Restrictions on
---------------------------------------- ---------------
Transfers by Kelso. (a) Prior to the fourth anniversary of the date hereof, no
- ------------------
shares of Common Stock or any interest therein now or hereafter owned by Kelso
may be Transferred, except for any (i) involuntary Transfer to a third party
-
permitted under Section 5, (ii) sale to one or more third parties pursuant to
--
Section 1.1(b), Section 3.3 ("Tag-Along Rights"), Section 3.4 ("Drag-Along
Rights") or Section 6 ("Auction Sale Procedure") or (iii) Transfer to a Kelso
---
Permitted Assignee that agrees to be bound by the terms of this Agreement
pursuant to Section 15.4.
(b) At any time after a Board Event (other than as a result of the
operation of clause (iii) or (v) of the definition thereof), Kelso may sell any
shares of Common Stock held by it to one or more third parties, provided that
--------
Carousel consents
<PAGE>
in writing to such sale and such sale is made in compliance with the provisions
of Section 3.2 ("Right of First Offer") and Section 3.3 ("Tag-Along Rights").
1.2. Restrictions on Transfers by Carousel. (a) Prior to the fourth
-------------------------------------
anniversary of the date hereof, no shares of Common Stock or any interest
therein now or hereafter owned by Carousel may be Transferred, except for any
(i) involuntary Transfer to a third party permitted under Section 5, (ii) sale
- --
to one or more third parties pursuant to Section 1.2(b), Section 3.3 ("Tag-Along
Rights"), Section 3.4 ("Drag-Along Rights") or Section 6 ("Auction Sale
Procedure") or (iii) Transfer to a Carousel Permitted Assignee that agrees to be
---
bound by the terms of this Agreement pursuant to Section 15.4.
(b) At any time after a Board Event (other than as a result of the
operation of clause (iii) or (v) of the definition thereof), Carousel may sell
any shares of Common Stock held by it to one or more third parties, provided
--------
that Kelso consents in writing to such sale and such sale is made in compliance
with the provisions of Section 3.2 ("Right of First Offer") and Section 3.3
("Tag-Along Rights").
1.3. Restrictions on Transfers by MJD Partners and Bugger. (a) Prior
----------------------------------------------------
to the fourth anniversary of the date hereof, no shares of Common Stock or any
interest therein now or hereafter owned by MJD Partners or Bugger may be
Transferred, except for any (i) involuntary Transfer to a third party permitted
-
under Section 5, (ii) sale to one or more third parties pursuant to Section 3.3
--
("Tag-Along Rights"), Section 3.4 ("Drag-Along Rights") or Section 6 ("Auction
Sale Procedure") or (iii) sale pursuant to Section 1.5 ("De Minimis Transfer").
---
(b) If the Investor Stockholders collectively increase their
investment in the Company by $10 million or more in accordance with Section 8
prior to the fourth anniversary of the date hereof, then, after the restrictions
set forth in Section 1.3(a) lapse, no shares of Common Stock or any interest
therein now or hereafter owned by MJD Partners may be Transferred until such
time as the Investor Stockholders (and their respective Permitted Assignees)
collectively own less than 50% of the greatest number of shares of Common Stock
owned by the Investor Stockholders at any time prior to the fourth anniversary
of the date hereof (the "50% Condition"), except for any (i) involuntary
------------- -
Transfer to a third party permitted under Section 5, (ii) Transfer, authorized
--
by the prior written approval (not to be unreasonably withheld) of the Board
(excluding members who are designees of MJD Partners), to an Affiliate of MJD
Partners that agrees to be bound by the terms of this Agreement pursuant to
Section 15.4, (iii) sale to one or more third parties pursuant to Section 3.3
---
("Tag-Along Rights"), Section 3.4 ("Drag-Along Rights") or Section 6 ("Auction
Sale Procedure"),
2
<PAGE>
(iv) sale pursuant to a Registration in accordance with the Registration Rights
--
Agreement or (v) sale pursuant to Section 1.5 ("De Minimis Transfer").
-
1.4. Restrictions on Transfers by MJD Principals. (a) Until such
--------------------------------------------
time as the 50% Condition shall have been satisfied, no interest in MJD Partners
now or hereafter owned by any MJD Principal may be Transferred, except, subject
to Section 15.4, for (i) any Transfer pursuant to Section 1.5 ("De Minimis
-
Transfer"), (ii) any Transfer from one MJD Principal to another MJD Principal or
--
to a Management Stockholder, provided that, in the case of a Transfer by Johnson
--------
or Thomas, such Transfer must be authorized by the prior written approval of the
Board (excluding members who are designees of MJD Partners), and in the case of
a Transfer by any other MJD Principal, such Transfer must not be consummated
until after receipt by the Company of reasonable prior written notice thereof,
(iii) any Transfer for estate-planning purposes of such MJD Principal, provided
--- --------
that such Transfer must be authorized by the prior written approval (not to be
unreasonably withheld) of the Board (excluding members who are designees of MJD
Partners) (other than a Transfer by a Founder after receipt by the Company of
reasonable prior written notice of the material terms of such Transfer), to (A)
-
a trust under which the distribution of such interest in MJD Partners may be
made only to beneficiaries who are such MJD Principal, his spouse, his parents,
members of his immediate family or his lineal descendants, (B) a charitable
-
remainder trust, the income from which will be paid to such MJD Principal during
his life, (C) a corporation, the stockholders of which are only such MJD
-
Principal, his spouse, his parents, members of his immediate family or his
lineal descendants or (D) a partnership or limited liability company, the
-
partners or members of which are only such MJD Principal, his spouse, his
parents, members of his immediate family or his lineal descendants or (iv) any
--
Transfer, in case of his death, by will or by the laws of intestate succession,
to his executors, administrators, testamentary trustees, legatees or
beneficiaries. Any transferee pursuant to clause (ii) above shall be deemed to
be a "MJD Principal" for all purposes of this Agreement.
(b) Until such time as the 50% Condition shall have been satisfied,
no interest in MJD Inc. now or hereafter owned by any MJD Principal may be
Transferred, except, subject to Section 15.4, for (i) any Transfer from one MJD
-
Principal to another MJD Principal, provided that, in the case of a Transfer by
--------
Johnson or Thomas, such Transfer must be authorized by the prior written
approval of the Board (excluding members who are designees of MJD Partners), and
in the case of a Transfer by any other MJD Principal, such Transfer may not be
consummated until after receipt by the Company of reasonable prior written
notice thereof, (ii) any Transfer for estate-planning purposes of such MJD
--
Principal, authorized by the prior written approval (not to be unreasonably
withheld) of the Board (excluding members who are designees of MJD Partners)
(other than a Transfer by a Founder after receipt
3
<PAGE>
by the Company of reasonable prior written notice of the material terms of such
Transfer), to (A) a trust under which the distribution of such interest in MJD
-
Inc. may be made only to beneficiaries who are such MJD Principal, his spouse,
his parents, members of his immediate family or his lineal descendants, (B) a
-
charitable remainder trust, the income from which will be paid to such MJD
Principal during his life, (C) a corporation, the stockholders of which are only
-
such MJD Principal, his spouse, his parents, members of his immediate family or
his lineal descendants or (D) a partnership or limited liability company, the
-
partners or members of which are only such MJD Principal, his spouse, his
parents, members of his immediate family or his lineal descendants or (iii) any
---
Transfer, in case of his death, by will or by the laws of intestate succession,
to his executors, administrators, testamentary trustees, legatees or
beneficiaries.
(c) So long as this Agreement shall remain in full force and effect,
no interest in MJD Partners now or hereafter owned by MJD Inc. may be
Transferred.
1.5 De Minimis Transfers. MJD Partners and the Founders may Transfer
--------------------
shares of Common Stock owned directly by them and the Founders may Transfer
limited partnership interests in MJD Partners, in either case, to one or more
third parties, provided that, in the aggregate (considering all Transfers by MJD
--------
Partners and the Founders), the sum of all such Transferred shares of Common
Stock and Indirect Shares of Common Stock (as defined below) constitute no more
than the lesser of (a) shares of Common Stock with a Fair Market Value (as
-
defined in Section 4.7) of $5 million and (b) 20% of the aggregate number of
-
shares of Common Stock owned by the Founders and MJD Partners on the Closing
Date. "Indirect Shares of Common Stock" shall mean the number of shares of
Common Stock indirectly represented by the limited partnership interests in MJD
Partners Transferred pursuant to this Section 1.5.
1.6 Restrictions on Transfers by Management Stockholders. Until such
----------------------------------------------------
time as the 50% Condition shall have been satisfied, no Management Stockholder
may Transfer any shares of Common Stock or any interest therein now or hereafter
owned by such Management Stockholder except, subject to Section 15.4, (a) for
-
any (i) Transfer from a Management Stockholder to MJD Partners or to any MJD
-
Principal, provided that such Transfer must be authorized by the prior written
--------
approval (not to be unreasonably withheld) of the Board (excluding members who
are designees of MJD Partners), (ii) involuntary Transfer to a third party
--
permitted under Section 5, (iii) sale to one or more third parties pursuant to
---
Section 3.3 ("Tag-Along Rights"), Section 3.4 ("Drag-Along Rights") or Section 6
("Auction Sale Procedure") or (iv) sale pursuant to a Registration in accordance
--
with the Registration Rights Agreement, (b) for any Transfer for estate-planning
-
purposes of such Management Stockholder,
4
<PAGE>
authorized by the prior written approval (not to be unreasonably withheld) of
the Board (excluding such Management Stockholder and other members of the Board
who are designees of MJD Partners), to (i) a trust under which the distribution
-
of the shares of Common Stock may be made only to beneficiaries who are such
Management Stockholder, his or her spouse, his or her parents, members of his or
her immediate family or his or her lineal descendants, (ii) a charitable
--
remainder trust, the income from which will be paid to such Management
Stockholder during his or her life, (iii) a corporation, the stockholders of
---
which are only such Management Stockholder, his or her spouse, his or her
parents, members of his or her immediate family or his or her lineal descendants
or (iv) a partnership or limited liability company, the partners or members of
--
which are only such Management Stockholder, his or her spouse, his or her
parents, members of his or her immediate family or his or her lineal descendants
or (c) for any Transfer in case of his or her death, by will or by the laws of
-
intestate succession, to his or her executors, administrators, testamentary
trustees, legatees or beneficiaries.
1.7. Treatment of Certain Bergstein Family Members. Each of Joel
---------------------------------------------
Bergstein, Michael Bergstein and Lindy Sobel Bergstein hereby acknowledges that
all shares of Common Stock and all interests therein now or hereafter owned by
such Person shall for all purposes of this Agreement be treated as if such
shares and interests were owned by Bugger and each such Person has as of the
date hereof granted Bugger an irrevocable power of attorney directing Bugger to
exercise all rights and perform all obligations hereunder and under the
Registration Rights Agreement in respect of such Person's shares and interests
so long as this Agreement shall remain in full force and effect.
2. Sales by MJD Partners to Third Parties. 2.1 General. (a) At
-------------------------------------- -------
any time after the restrictions on Transfers set forth in Section 1.3 are no
longer applicable, MJD Partners may sell any shares of Common Stock held by it
to one or more third parties, provided that such sale is made in compliance with
--------
the provisions of Section 2.2 ("Right of First Refusal") and Section 2.3 ("Tag-
Along Rights"). For purposes of this Section 2, a sale to a third party shall
not include a Transfer by MJD Partners (i) pursuant to a Registration in
-
accordance with the Registration Rights Agreement or (ii) pursuant to Section
--
1.5 ("De Minimis Transfer"), Section 3.3 ("Tag-Along Rights"), Section 3.4
("Drag-Along Rights"), Section 5 ("Involuntary Transfers") or Section 6
("Auction Sale Procedure").
(b) Notwithstanding the foregoing provisions of Section 2.1(a), in
the event that the 50% Condition shall have been satisfied at the time the
restrictions on Transfers set forth in Section 1.3 are no longer applicable,
then MJD Partners shall not be required to comply with the provisions of Section
2.2 and may sell any shares of
5
<PAGE>
Common Stock held by it to one or more third parties, provided that such sale is
--------
made in compliance with Section 2.3 ("Tag-Along Rights") and Section 15.4.
2.2. Right of First Refusal. (a) Procedure. Subject to Section
---------------------- ---------
2.1(b), if at any time after the restrictions on Transfers set forth in Section
1.3 are no longer applicable MJD Partners shall have received a bona fide offer
---- ----
or offers from a third party or parties to purchase any shares of Common Stock,
then prior to selling such shares of Common Stock to such third party or parties
MJD Partners shall deliver to the Company and the Investor Stockholders a letter
signed by it setting forth:
(i) the name(s) of such third party or parties;
(ii) the purchase price per share of Common Stock offered by such
third party or parties;
(iii) all material terms and conditions contained in the offer of the
third party or parties;
(iv) MJD Partners' offer (irrevocable by its terms for 30 days
following receipt) to sell to the Company all (but not less than all) of
the shares of Common Stock covered by the offer of the third party or
parties, for a purchase price per share and on other terms and conditions
not less favorable to the Company than those contained in the offer of the
third party or parties (the "Offer"); and
-----
(v) closing arrangements and a closing date not less than 60 nor
more than 90 days following the delivery of such letter (or such later date
as is necessary to obtain all requisite governmental and regulatory
approvals and consents, provided MJD Partners covenants to use commercially
--------
reasonable efforts to obtain such approvals and consents) for any purchase
and sale that may be effected by the Company.
(b) Effecting Sales. Subject to Sections 2.2(c) and (d), if, upon
---------------
the expiration of 30 days following receipt by the Company and the Investor
Stockholders of the letter described in Section 2.2(a), neither the Company nor
any Permitted Assignee as provided in Sections 2.2(c) and (d) shall have
accepted the Offer, MJD Partners shall have the right, subject to Section 2.3,
to sell to such third party or parties all (but not less than all) of the shares
of Common Stock covered by the Offer, for a purchase price and on other terms
and conditions no less favorable to MJD Partners than those contained in the
Offer. If MJD Partners has not signed a binding purchase agreement (subject to
customary closing conditions) with such third party or
6
<PAGE>
parties within 45 days of the expiration of such 30 day period or if such sale
has not been completed within 120 days (or such later date as is necessary to
obtain all requisite governmental and regulatory approvals and consents) from
the expiration of such 30 day period, the shares of Common Stock covered by such
Offer may not thereafter be sold by MJD Partners unless the procedures set forth
in this Section 2.2 shall have again been complied with. If the Company or any
Permitted Assignee shall have accepted the Offer, the closing of the purchase
and sale pursuant to such acceptance shall take place as set forth in MJD
Partners' letter to the Company and the Investor Stockholders.
(c) Right of Investor Stockholders to Purchase. In the event that
------------------------------------------
neither Investor Stockholder shall have Transferred any shares of Common Stock
or any interest therein now or hereafter owned by it to any Person (other than
to a Permitted Assignee) at the time of the Offer and the Company shall not have
exercised its right to accept the Offer within 20 days of receipt by the Company
and the Investor Stockholders of the letter giving rise to such right, then the
Investor Stockholders shall have the right to require the Company to assign such
right to them or one or more Permitted Assignees and the Investor Stockholders
or such Permitted Assignees, as the case may be, shall have the right to
purchase that portion of the shares covered by the Offer equal to their pro rata
--- ----
interest in the Company (based on the percentage of outstanding shares of Common
Stock owned by each of them on the date of such Offer) or such other portion of
such shares as the Investor Stockholders may agree upon, provided that such
--------
right must be exercised prior to the expiration of 30 days following receipt by
the Company and the Investor Stockholders of the letter described in Section
2.2(a).
(d) Right of One Investor Stockholder to Purchase. In the event that
---------------------------------------------
only one Investor Stockholder shall have Transferred any shares of Common Stock
or any interest therein now or hereafter owned by it to any Person (other than
to a Permitted Assignee) at the time of the Offer and the Company shall not have
exercised its right to accept the Offer within 20 days of receipt by the Company
and the Investor Stockholders of the letter giving rise to such right, then the
Investor Stockholder which has not Transferred any shares of Common Stock or any
interest therein now or hereafter owned by it to any Person (other than to a
Permitted Assignee) shall have the right to require the Company to assign such
right to it or its Permitted Assignees and such Investor Stockholder or its
Permitted Assignees, as the case may be, shall have the right to purchase the
shares covered by the Offer, provided that such right must be exercised prior to
--------
the expiration of 30 days following receipt by the Company and the Investor
Stockholders of the letter described in Section 2.2(a). Such Investor
Stockholder may, with the consent of the other Investor Stockholder, assign its
right to purchase all or a portion of the shares covered by the Offer to the
other Investor
7
<PAGE>
Stockholder or its Permitted Assignees, provided that such right must be
--------
exercised prior to the expiration of 30 days following receipt by the Company
and the Investor Stockholders of the letter described in Section 2.2(a).
2.3. Tag-Along Rights. If neither the Company nor any Permitted
----------------
Assignee shall have accepted the Offer pursuant to Section 2.2 or if Section
2.1(b) is applicable and MJD Partners shall have agreed to sell to a third party
or parties the shares of Common Stock covered by the Offer or otherwise if
Section 2.1(b) is applicable and such shares represent more than 50% of the
aggregate number of shares of Common Stock owned by MJD Partners on the Closing
Date, then MJD Partners must offer each Stockholder a pro rata right to
--- ----
participate in such sale with respect to such Stockholder's shares of Common
Stock, for a purchase price per share of Common Stock equal to the purchase
price per share of Common Stock being paid for MJD Partners' shares and on other
terms and conditions not less favorable to such Stockholder than those
applicable to MJD Partners.
3. Sales by Investor Stockholders to Third Parties. 3.1 General.
----------------------------------------------- -------
At any time after the fourth anniversary of the date hereof, Carousel and Kelso
may each sell any shares of Common Stock held by it to one or more third
parties, provided that such sale is made in compliance with the provisions of
--------
Section 3.2 ("Right of First Offer") and Section 3.3 ("Tag-Along Rights"). For
purposes of this Section 3, a sale to a third party shall not include a Transfer
by either Investor Stockholder (a) to any Permitted Assignee, (b) pursuant to
- -
Section 2.3 ("Tag-Along Rights"), (c) pursuant to a Registration in accordance
-
with the Registration Rights Agreement or (d) pursuant to Section 5
-
("Involuntary Transfers") or Section 6 ("Auction Sale Procedure").
3.2. Right of First Offer. (a) Procedure. Subject to Section 3.1,
-------------------- ---------
if at any time after the date hereof, (i) either Investor Stockholder desires to
-
sell any of the shares of Common Stock held by it (the "Offering Investor
-----------------
Stockholder") and (ii) MJD Partners continues to own at least 20% of the
- ----------- --
aggregate number of shares of Common Stock owned by MJD Partners on the Closing
Date, then prior to selling such shares of Common Stock to any third party or
parties, the Offering Investor Stockholder shall deliver to the other Investor
Stockholder and MJD Partners a letter signed by it setting forth the number of
shares of Common Stock the Offering Investor Stockholder desires to sell (the
"Sale Notice"). Within 30 days of receipt of the Sale Notice, the other
-----------
Investor Stockholder and MJD Partners may make an offer to purchase (i) the
-
portion of such shares of Common Stock offered by the Offering Investor
Stockholder equal to their pro rata interest in the Company (based on the
--- ----
percentage of outstanding shares of Common Stock owned by each of them on the
date of the Sale Notice), (ii) such other portion of such shares as the other
--
Investor Stockholder and MJD Partners may agree upon or (iii), in the event
---
either the other Investor Stockholder or MJD Partners does
8
<PAGE>
not exercise such right, all shares of Common Stock offered by the Offering
Investor Stockholder, by delivering written notice to the Offering Investor
Stockholder setting forth:
(i) the number of shares of Common Stock to be purchased and the
prospective purchase price per share of Common Stock;
(ii) any other material terms and conditions to such purchase;
(iii) evidence reasonably satisfactory to such Investor Stockholder
for the financing of such purchase; and
(iv) closing arrangements and a closing date not less than 30 nor
more than 90 days following the delivery of such notice (or such later date
as is necessary to obtain all requisite governmental and regulatory
approvals and consents).
(b) Effecting Sales. If, upon the expiration of 30 days following
---------------
receipt by the other Investor Stockholder and MJD Partners of the Sale Notice,
neither the other Investor Stockholder nor MJD Partners shall have made an offer
to purchase the shares of Common Stock covered by the Sale Notice, the Offering
Investor Stockholder may sell to a third party or parties any of the shares of
Common Stock covered by the Sale Notice for whatever price and upon whatever
other terms and conditions the Offering Investor Stockholder may agree to,
provided that the Offering Investor Stockholder and the third party execute a
- --------
binding purchase agreement (subject to customary closing conditions) within 120
days after the expiration of such 30 day period and consummate the closing
thereunder within 120 days (or such later date as is necessary to obtain all
requisite governmental and regulatory approvals and consents) from the execution
of the binding purchase agreement. If the other Investor Stockholder and/or MJD
Partners shall have made an offer to purchase the shares of Common Stock covered
by the Sale Notice, then the Offering Investor Stockholder may either (i) accept
-
such offer and the sale of such shares of Common Stock shall be consummated as
soon as practicable after the delivery of a notice of acceptance by the Offering
Investor Stockholder, but in any event within 90 days of the delivery of the
Sale Notice (or such later date as is necessary to obtain all requisite
governmental and regulatory approvals and consents), or (ii) reject such offer,
--
by written notice delivered to the other Investor Stockholder and MJD Partners
within 20 days of the delivery to the Offering Investor Stockholder of such
offer, in which case the Offering Stockholder shall have the right to sell to a
third party or parties all (but not less than all) of the shares of Common Stock
covered by the Sale Notice, for a purchase price and on other terms and
conditions no less favorable to the Offering Investor Stockholder than those
9
<PAGE>
contained in the other Investor Stockholder's and/or MJD Partners' offer,
provided that the Offering Investor Stockholder and the third party purchaser
- --------
execute a binding purchase agreement (subject to customary closing conditions)
within 120 days of the other Investor Stockholder's and/or MJD Partners' offer
and consummate the closing thereunder within 120 days (or such later date as is
necessary to obtain all requisite governmental and regulatory approvals and
consents) from the execution of the binding purchase agreement. If the Offering
Investor Stockholder and a third party purchaser do not execute such a purchase
agreement or close such transaction within the time periods set forth in the
proviso of the preceding sentence, then the shares of Common Stock covered by
such Sale Notice may not thereafter be sold by the Offering Investor Stockholder
unless the procedures set forth in this Section 3.2 shall have again been
complied with. Any offer by the other Investor Stockholder or MJD Partners
pursuant to this Section 3.2(b) shall not preclude either of them from making
additional offers for such shares or participating in any auction relating to
the sale of any such shares.
(c) Sale of Assets. The provisions of Sections 3.2(a) and (b) shall
--------------
apply, mutatis mutandis, in the event of a proposed sale of all or substantially
------- --------
all of the assets of the Company and its subsidiaries.
3.3. Tag-Along Rights. If at any time after the fourth anniversary of
----------------
the date hereof or as otherwise permitted by Section 1.1(b) or 1.2(b), as the
case may be, either Carousel or Kelso shall have agreed to sell to one or more
third parties any shares of Common Stock owned by such Investor Stockholder (the
"Selling Investor Stockholder"), which together with all shares of Common Stock
----------------------------
previously sold by the Selling Investor Stockholder, represent more than 50% of
the aggregate number of shares of Common Stock owned by the Selling Investor
Stockholder on the Closing Date, then the Selling Investor Stockholder must
offer the other Stockholders a pro rata right to participate in such sale with
--- ----
respect to the other Stockholders' shares of Common Stock, for a purchase price
per share of Common Stock equal to the purchase price per share of Common Stock
being paid for the Selling Investor Stockholder's shares and on other terms and
conditions not less favorable to the other Stockholders than those applicable to
the Selling Investor Stockholder.
3.4. Drag-Along Rights. (a) If at any time after the fourth
-----------------
anniversary of the date hereof or as otherwise permitted by Section 1.1(b) or
1.2(b), Carousel or Kelso, as the case may be, proposes to sell to one or more
third parties all of the shares of Common Stock then owned by it, then, if
requested by Carousel or Kelso, as the case may be, the other Stockholders so
requested shall be required to join Carousel or Kelso, as the case may be, in
such sale on a pro rata basis for a purchase price per share of Common Stock and
--- ----
on other terms and conditions not less favorable to the
10
<PAGE>
other Stockholders so requested than those applicable to Carousel or Kelso, as
the case may be.
(b) If at any time after the fourth anniversary of the date hereof
(i) MJD Partners owns at least 50% of the aggregate number of shares owned by
-
MJD Partners and the Founders on the Closing Date and (ii) Carousel and Kelso
--
collectively own less than 10% of the issued and outstanding shares of Common
Stock, then, if MJD Partners proposes to sell to one or more third parties all
of the shares of Common Stock then owned by it, then, if requested by MJD
Partners, the other Stockholders so requested shall be required to join MJD
Partners in such sale on a pro rata basis for a purchase price per share of
--- ----
Common Stock and on other terms and conditions not less favorable to the other
Stockholders so requested than those applicable to MJD Partners.
4. Management Stockholders. 4.1. Sale by Management Stockholders
----------------------- --------------------------------
to the Company. Subject to all subsections of this Section 4 and Section 7,
- --------------
each of the Management Stockholders shall have the right to sell to the Company,
and the Company shall have the obligation to purchase from such Management
Stockholder, all (but not less than all) of such Management Stockholder's shares
of Common Stock at their Fair Market Value (as defined in Section 4.7) if the
employment of such Management Stockholder with the Company or any of its
subsidiaries is terminated by the Company or any such subsidiary without Cause
or terminates as a result of (i) the death or Disability of such Management
-
Stockholder, (ii) the resignation of such Management Stockholder for Good Reason
--
or (iii) the retirement of such Management Stockholder upon or after reaching
---
the age of 65 ("Retirement").
----------
4.2. Notice to the Company. If any Management Stockholder desires to
---------------------
sell shares of Common Stock to the Company pursuant to Section 4.1, he or she
(or his or her estate, trust, corporation or partnership, as the case may be)
shall notify the Company not more than 60 days after the occurrence of the event
giving rise to such Management Stockholder's right to sell his or her shares of
Common Stock and shall specify the number of shares of Common Stock such
Management Stockholder owns.
4.3. Right of the Company to Purchase. Subject to all subsections of
--------------------------------
this Section 4 and Section 7, the Company shall have the right to purchase from
a Management Stockholder, and such Management Stockholder shall have the
obligation to sell to the Company, all (but not less than all) of such
Management Stockholder's shares of Common Stock:
(a) at the Fair Market Value of the shares of Common Stock to be
purchased if such Management Stockholder's employment with the Company or
any of its subsidiaries is terminated as a result of (i) the termination by
-
the
11
<PAGE>
Company or any such subsidiary of such employment without Cause, (ii)
--
the death or Disability of such Management Stockholder, (iii) the
---
resignation of such Management Stockholder for Good Reason or (iv) the
--
Retirement of such Management Stockholder;
(b) at the lesser of the Fair Market Value and the Carrying Value of
the shares of Common Stock to be purchased if such Management Stockholder's
employment with the Company or any of its subsidiaries is terminated by the
Company or any such subsidiary for Cause; or
(c) at the Fair Market Value or the Carrying Value of the shares of
Common Stock to be purchased, in the sole discretion of the Board
(excluding members who are designees of MJD Partners), if such Management
Stockholder's employment with the Company or any of its subsidiaries is
terminated for any reason other than as a result of an event described in
subparagraph (a)(i), (a)(ii), (a)(iii) or (a)(iv) or in paragraph (b) of
this Section 4.3;
provided that, in the case of (i) shares of Common Stock owned by John P. Duda
- -------- -
and Walter E. Leach, Jr. on the Closing Date and (ii) shares of Common Stock
--
underlying options and warrants granted to John P. Duda and Walter E. Leach, Jr.
by the Company prior to the date hereof to purchase shares of Common Stock to be
purchased if such Management Stockholder's employment with the Company or any of
its subsidiaries is terminated for any reason, at the Fair Market Value of such
shares, and in the case of such options, less the exercise price of such
options.
4.4. Notice to Management Stockholders. If the Company desires to
---------------------------------
purchase shares of Common Stock from a Management Stockholder pursuant to
Section 4.3, it shall notify such Management Stockholder (or his or her estate,
as the case may be) not more than 60 days after the occurrence of the event
giving rise to the Company's right to acquire such Management Stockholder's
shares of Common Stock.
4.5. Payment. (a) Subject to Section 7, payment for shares of Common
-------
Stock sold by a Management Stockholder pursuant to Section 4.1 shall be made on
the date 30 days (or the first business day thereafter if the 30th day is not a
business day) following the date of the receipt by the Company of such
Management Stockholder's notice; provided, however, that if such payment is
-------- -------
being made pursuant to Section 4.7(c), then such payment shall be made on the
date that is 30 days (or the first business day thereafter if the 30th day is
not a business day) following the date of the determination of Fair Market
Value.
12
<PAGE>
Any payments based on Fair Market Value required to be made by the
Company under this Section 4.5(a) shall accrue simple interest at a rate per
annum of 8% from the date of termination of employment of the relevant
Management Stockholder to the date the Company has paid in full for all of the
shares of Common Stock. All payments of interest accrued hereunder shall be
paid only at the date of payment by the Company for the shares of Common Stock
being purchased.
(b) Subject to Section 7, payment for shares of Common Stock
purchased by the Company pursuant to Section 4.3(a) shall be made on the date 30
days (or the first business day thereafter if the 30th day is not a business
day) following the date of the receipt by a Management Stockholder of the
Company's notice pursuant to Section 4.4; provided, however, that if such
-------- -------
payment is being made pursuant to Section 4.7(c), then such payment shall be
made on the date that is 30 days (or the first business day thereafter if the
30th day is not a business day) following the date of the determination of Fair
Market Value.
Subject to Section 7 and in the sole discretion of the Board
(excluding members who are designees of MJD Partners), payment for shares of
Common Stock purchased by the Company pursuant to Section 4.3(b) or 4.3(c) shall
be made as follows (or on a more accelerated schedule if the Board (excluding
members who are designees of MJD Partners) so elects):
(i) if the date of termination occurs prior to the third anniversary
of the Closing Date, then one-third of the purchase price of the purchased
shares shall be paid within 30 days following each of the third, fourth and
fifth anniversaries of the Closing Date;
(ii) if the date of termination occurs on or after the third
anniversary of the Closing Date and prior to the fourth anniversary of the
Closing Date, then (A) two-thirds of the purchase price of the purchased
-
shares shall be paid within 30 days following such fourth anniversary and
(B) one-third of the purchase price of the purchased shares shall be paid
--
within 30 days following the fifth anniversary of the Closing Date;
(iii) if the date of termination occurs on or after the fourth
anniversary of the Closing Date and prior to the fifth anniversary of the
Closing Date, then the purchase price of the purchased shares shall be paid
within 30 days following such fifth anniversary; and
(iv) if the date of termination occurs on or after the fifth
anniversary of the Closing Date, then the purchase price of the purchased
shares shall be paid
13
<PAGE>
contemporaneously with the surrender of the certificates representing the
purchased shares.
Any payments based on Fair Market Value required to be made by the
Company under this Section 4.5(b) shall accrue simple interest at a rate per
annum of 8% on the amounts not paid from the date of termination of employment
to the date the Company makes such payments. All payments of interest accrued
hereunder shall be paid only at the date or dates of payment by the Company for
the shares of Common Stock being purchased.
4.6. Appraisal. The Company shall engage, from time to time, but not
---------
less often than within 90 days after every Fiscal Year, commencing with the
Fiscal Year ending on December 31, 1997, Houlihan Lokey Howard & Zukin or such
other recognized independent valuation consultant or appraiser of national
standing reasonably satisfactory to the Investor Stockholders and MJD Partners
(the "Appraiser") to appraise the Fair Market Value of the Company and the
---------
shares of Common Stock as of the last day of the Fiscal Year then most recently
ended or, at the request of the Company, as of any more recent date (the
"Appraisal Date") and to prepare and deliver a report to the Company describing
- ---------------
the results of such appraisal (the "Appraisal"). The Company shall bear the
---------
fees and expenses of each Appraisal.
4.7. Fair Market Value. (a) The "Fair Market Value" of any share of
----------------- -----------------
Common Stock being purchased by or sold to the Company (or to any Permitted
Assignee if the right to purchase has been assigned to any Permitted Assignee)
pursuant to this Section 4 shall be (i) the fair market value of the entire
-
Common Stock equity interest of the Company taken as a whole, without additional
premiums for control or discounts for minority interests or restrictions on
transfer, divided by (ii) the number of outstanding shares of Common Stock,
--
calculated on a fully-diluted basis. Except as set forth in subsections (b) and
(c) of this Section 4.7, the Fair Market Value of any share of Common Stock
shall be calculated with reference to the most recent Appraisal and as of the
most recent Appraisal Date prior to termination of the relevant Management
Stockholder's employment (or as of the first Appraisal and the first Appraisal
Date in the event that such termination occurs prior to December 31, 1997).
(b) For the purposes of Section 5 ("Involuntary Transfers"), the Fair
Market Value of any share of Common Stock shall be calculated with reference to
the most recent Appraisal and as of the most recent Appraisal Date prior to the
date of the Involuntary Transfer (or as of the first Appraisal and the first
Appraisal Date in the event that such Involuntary Transfer occurs prior to
December 31, 1997).
14
<PAGE>
(c) Beginning with the Fiscal Year commencing January 1, 1998, if the
applicable date of termination of the relevant Management Stockholder's
employment is on or after the first day of the seventh month of any Fiscal Year,
the Fair Market Value of any share of Common Stock shall be calculated with
reference to the most recent Appraisal and as of the most recent Appraisal Date
prior to such date of termination of employment, plus (or minus) the product of
(i) the increase (decrease) in the Fair Market Value of any share to be so
-
purchased from such Appraisal Date prior to the date of termination of
employment to the Appraisal Date next following such date of termination of
employment hereunder and (ii) a fraction, the denominator of which is the number
--
of days in the period between the Appraisal Dates preceding and following the
date of termination of employment hereunder and the numerator of which is the
number of days elapsed from the Appraisal Date at the beginning of such period
through such date of termination of employment.
4.8. Notice to Stockholders. Promptly after receipt of each
----------------------
Appraisal, the Company shall deliver to each Stockholder a copy of the
Appraisal.
4.9. Acknowledgment of Status. Each of Johnson and Thomas hereby
------------------------
acknowledges that he shall be deemed a "Management Stockholder" for all purposes
of this Agreement with respect to all shares of Common Stock now or hereafter
owned directly by him.
5. Involuntary Transfers. Any transfer of title or beneficial
---------------------
ownership of shares of Common Stock upon default, foreclosure, forfeit, court
order, or otherwise than by a voluntary decision on the part of a Stockholder
(an "Involuntary Transfer") shall be void unless such Stockholder complies with
--------------------
this Section 5 and enables the Company to exercise in full its rights hereunder.
Upon any Involuntary Transfer, the Company shall have the right to purchase such
shares of Common Stock pursuant to this Section 5 and the Person to whom such
shares have been transferred (the "Involuntary Transferee") shall have the
----------------------
obligation to sell such shares in accordance with this Section 5. Upon the
Involuntary Transfer of any shares of Common Stock, such Stockholder shall
promptly (but in no event later than five business days after such Involuntary
Transfer) furnish written notice to the Company, the Investor Stockholders and
MJD Partners indicating that the Involuntary Transfer has occurred, specifying
the name of the Involuntary Transferee, giving a detailed description of the
circumstances giving rise to, and stating the legal basis for, the Involuntary
Transfer. Upon the receipt of such notice, and for 60 days thereafter, the
Company shall have the right to purchase, and the Involuntary Transferee shall
have the obligation to sell, all (but not less than all) of the shares of Common
Stock acquired by the Involuntary Transferee for a purchase price equal to the
lesser of (a) the Fair Market Value of such shares of Common Stock and (b) the
- -
amount of the indebtedness or other liability that gave rise
15
<PAGE>
to the Involuntary Transfer plus the excess, if any, of the Carrying Value of
such shares of Common Stock over the amount of such indebtedness or other
liability that gave rise to the Involuntary Transfer.
6. Auction Sale Procedure. 6.1. General. (a) At any time after
---------------------- -------
the fourth anniversary of the date hereof, (i) either Investor Stockholder shall
-
be entitled to initiate the procedure for the public sale of the Company,
provided that it and its Permitted Assignees continue to own, in the aggregate,
- --------
at least 50% as many shares of Common Stock as owned by such Investor
Stockholder on the Closing Date, and (ii) MJD Partners shall also be entitled to
--
initiate such procedure, provided that it and its assignees permitted by this
--------
Agreement own at least the same percentage of the issued and outstanding shares
of Common Stock as owned by MJD Partners on the Closing Date. The public sale
procedure (the "Auction Sale Procedure") set forth in this Section 6 shall be
----------------------
initiated by a Stockholder authorized pursuant to this Section 6.1(a) or the
Investor Stockholders authorized pursuant to Section 6.1(b), in either case, by
delivering to the Company and the Remaining Stockholders (as defined below) a
written notice that such Stockholder(s) has elected to initiate the Auction Sale
Procedure. For purposes of this Section 6, "Supervising Stockholder" shall mean
-----------------------
the Investor Stockholder, if any, which has an unrealized investment in the
Company representing at least 20% more cash in the Company than the other
Investor Stockholder, or, in accordance with Section 6.1(b), the Investor
Stockholders; and "Remaining Stockholders" shall mean all of the Stockholders
----------------------
except the Management Stockholders and the Stockholder(s) that initiated the
Auction Sale Procedure.
(b) At any time after a Board Event (other than as a result of the
operation of clause (iii) or (v) of the definition thereof), the Investor
Stockholders shall jointly be entitled to initiate the Auction Sale Procedure.
(c) Once the Auction Sale Procedure has been initiated pursuant to
this Section 6.1 by either or both of the Investor Stockholders, the provisions
of Section 3.2 shall also apply. The Auction Sale Procedure shall continue
until such time, if ever, that an offer to purchase the shares of Common Stock
covered by the Sale Notice is accepted by the Offering Investor Stockholder
pursuant to Section 3.2 and the closing of such purchase is consummated.
6.2. Retention of Investment Bank. Within 45 days after the
----------------------------
initiation of the Auction Sale Procedure, the Supervising Stockholder, or, if
there is no Supervising Stockholder, the Investor Stockholders, shall in good
faith select an investment banking firm (the "Investment Bank") to assist the
---------------
Company and the Stockholders in connection with the Auction Sale Procedure.
Notwithstanding the foregoing, the Stockholders (other than the Management
Stockholders and the
16
<PAGE>
Stockholder(s) selecting the Investment Bank pursuant to the preceding sentence
of this Section 6.2) collectively shall have the right to veto, for any reason,
two, but only two, investment banks selected by the Supervising Stockholder or
the Investor Stockholders, as the case may be. All fees and expenses of the
Investment Bank shall be borne by the Company.
6.3. Preparation of Confidential Memorandum. As soon as practicable
--------------------------------------
following the selection of the Investment Bank, the Investment Bank shall
prepare a confidential offering memorandum (the "Confidential Memorandum") for
-----------------------
the purpose of soliciting prospective purchasers of all of the Common Stock.
The Company and each Stockholder shall provide all such assistance and
cooperation with respect to the preparation of the Confidential Memorandum as
the Investment Bank or any other Stockholder may reasonably request.
6.4. Auction Procedures. If requested by the Supervising Stockholder,
------------------
or, if there is no Supervising Stockholder, the Investor Stockholders, the
Investment Bank shall develop procedures for conducting the auction of the
Company, such procedures to be reasonably acceptable to the Supervising
Stockholder or the Investor Stockholders, as the case may be, and no more
onerous to prospective purchasers than procedures that are customary in the
market place at the time of the initiation of the Auction Sale Procedure.
6.5. Selection of Bid. The Confidential Memorandum and auction
----------------
procedures shall solicit prospective purchasers of all of the Common Stock.
Based on the advice of the Investment Bank, the Supervising Stockholder, or, if
there is no Supervising Stockholder, the Investor Stockholders, shall in good
faith select the best bid or bids. So long as the bidders selected are not
Affiliates of the Supervising Stockholder, or, if there is no Supervising
Stockholder, the Investor Stockholders, any Remaining Stockholder may object to
the bidder or bidders selected only if they can demonstrate that any Stockholder
selecting the bidder or bidders was grossly negligent or engaged in willful
misconduct in connection with such selection or selections.
6.6. Negotiation of Sale Agreement. The Supervising Stockholder and
-----------------------------
its counsel, or, if there is no Supervising Stockholder, the Investor
Stockholders and their counsel, shall be entitled to negotiate the sale
agreement or agreements on behalf of the Company with the prospective purchaser
or purchasers. The Remaining Stockholders and their counsel shall be entitled
to participate in such negotiations and the Supervising Stockholder or the
Investor Stockholders, as the case may be, shall consider in good faith the
Remaining Stockholders' comments. Without the Remaining Stockholders' consent,
which consent may be withheld for any reason, the Supervising Stockholder, or,
if there is no Supervising Stockholder, the Investor Stockholders, shall
17
<PAGE>
not agree to any term in any sale agreement that is more favorable to the
Supervising Stockholder or any of its Affiliates, or, if there is no Supervising
Stockholder, the Investor Stockholders or any of their respective Affiliates
than to the Remaining Stockholders.
6.7. Information Regarding Auction. The Supervising Stockholder, or
-----------------------------
if there is no Supervising Stockholder, the Investor Stockholders, shall keep
MJD Partners and the other Investor Stockholder, if applicable, reasonably
informed as to the current status of the auction of the Company.
6.8. Right of Remaining Stockholders to Bid. If the Auction Sale
--------------------------------------
Procedure has been initiated pursuant to Section 6.1, then any Remaining
Stockholder may retain the right to make one or more bids to purchase all of the
Common Stock by delivering written notice, within 30 days after the initiation
of the Auction Sale Procedure, to the Company, the Supervising Stockholder, if
any, and the other Remaining Stockholders expressing such intention. Delivery
of such notice by or on behalf of any Remaining Stockholder shall act as a
waiver by such Remaining Stockholder of its rights under this Section 6 to
participate in the Auction Sale Procedure, including, but not limited to, its
right to participate in the selection of an investment bank, its right to
participate in the selection of bids and its right to participate in the
negotiation of any sale agreement. In the event that any Remaining Stockholder
shall not deliver such notice within such 30 day period, then no bids by such
Remaining Stockholder or its Affiliates to purchase all of the Common Stock will
be accepted by the Investment Bank, the Company or the Supervising Stockholder,
or, if there is no Supervising Stockholder, the Investor Stockholders.
6.9. Cooperation. Each Stockholder shall cooperate in all respects in
-----------
order to carry out the intent and accomplish the purposes of this Section 6.
The provisions of Section 17.5 ("Further Assurances") are specifically
incorporated herein by reference and the Stockholders' obligations thereunder,
insofar as they relate to this Section 6, shall include, without limitation, the
obligation to deliver stock certificates representing shares of Common Stock, in
a form suitable for transfer, duly endorsed in blank, and the obligation to
execute and deliver any stock purchase agreement or approve any merger agreement
or agreements negotiated pursuant to Section 6.6. Each Stockholder agrees that
its failure to strictly comply with the provisions of this Section 6 and Section
17.5, insofar as it relates to this Section 6, shall be deemed a material breach
of this Agreement and shall entitle the aggrieved Stockholder to institute and
prosecute proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of this Agreement. Such remedies
shall be cumulative and not exclusive, and shall be in addition to any other
remedies which such Stockholder may have.
18
<PAGE>
7. Prohibited Purchases. Notwithstanding anything to the contrary
--------------------
herein, the Company shall not be permitted or obligated to purchase any shares
of Common Stock hereunder to the extent (a) the Company is prohibited from
-
purchasing such shares by applicable law or by any debt instruments or
agreements, including any amendment, renewal, extension, substitution,
refinancing, replacement or other modification thereof (the "Financing
---------
Documents") entered into by the Company or any of its subsidiaries, (b) a
- --------- -
default has occurred under any Financing Document and is continuing, (c) the
-
purchase of such shares of Common Stock would, or in the reasonable opinion of
the Board might, result in the occurrence of an event of default under any
Financing Document or create a condition which would or might, with notice or
lapse of time or both, result in such an event of default, or (d) the purchase
-
of such shares of Common Stock would, in the reasonable opinion of the Board, be
imprudent in view of the financial condition (present or projected) of the
Company or any of its subsidiaries or the anticipated impact of the purchase of
such shares on the Company's or any of its subsidiaries' ability to meet their
respective obligations under any Financing Document. If shares of Common Stock
that the Company has the right or obligation to purchase on any date exceed the
total amount permitted to be purchased on such date pursuant to the preceding
sentence (the "Maximum Amount"), the Company shall purchase on such date only
--------------
that number of shares of Common Stock up to the Maximum Amount (and shall not be
required to purchase more than the Maximum Amount) in such amounts as the Board
shall in good faith determine, applying the following order of priority:
(a) First, the shares of Common Stock of all Management Stockholders
whose shares of Common Stock are being purchased by the Company by reason
of termination of employment due to death or Disability and, to the extent
that the number of shares of Common Stock that the Company is obligated to
purchase from such Management Stockholders (but for this Section 7) exceeds
the Maximum Amount, such shares of Common Stock pro rata among such
--- ----
Management Stockholders on the basis of the number of shares of Common
Stock held by each of such Management Stockholders that the Company is
obligated or has the right to purchase, and
(b) Second, to the extent that the Maximum Amount is in excess of the
amount the Company purchases pursuant to clause (a) above, the shares of
Common Stock of all Management Stockholders whose shares of Common Stock
are being purchased by the Company by reason of termination of employment
without Cause or due to Retirement or resignation for Good Reason up to the
Maximum Amount and, to the extent that the number of shares of Common Stock
that the Company is obligated to purchase from such Management Stockholders
(but for this Section 7) exceeds the Maximum
19
<PAGE>
Amount, such shares of Common Stock pro rata among such Management
--- ----
Stockholders on the basis of the number of shares of Common Stock held by
each of such Management Stockholders that the Company is obligated or has
the right to purchase, and
(c) Third, to the extent the Maximum Amount is in excess of the
amounts the Company purchases pursuant to clauses (a) and (b) above, the
shares of Common Stock of all other Management Stockholders whose shares of
Common Stock are being purchased by the Company up to the Maximum Amount
and, to the extent that the number of shares of Common Stock that the
Company is obligated to purchase from such Management Stockholders (but for
this Section 7) exceeds the Maximum Amount, the shares of Common Stock of
such Management Stockholders in such order of priority and in such amounts
as the Board (excluding members who are designees of MJD Partners) in its
sole discretion shall in good faith determine to be appropriate under the
circumstances.
Notwithstanding anything to the contrary contained in this Agreement, if the
Company is unable to make any payment when due under this Agreement by reason of
this Section 7, the Company shall make such payment at the earliest practicable
date permitted under this Section 7 and any such payment shall accrue simple
interest (or if such payment is accruing interest at such time, shall continue
to accrue interest) at a rate per annum of 8% from the date such payment is due
and owing to the date such payment is made. All payments of interest accrued
hereunder shall be paid only at the date of payment by the Company for the
shares of Common Stock being purchased.
8. Issuance of Additional Shares of Common Stock. 8.1 Preemptive
--------------------------------------------- ----------
Rights of the Investor Stockholders and MJD Partners. In the case of the
- ----------------------------------------------------
proposed sale or issuance of, or the proposed granting by the Company of, any
equity securities of the Company to any Person (other than any Excluded Shares)
following the date hereof, then the Investor Stockholders and MJD Partners shall
have the right, exercisable within 20 days after the Company has given notice to
the Investor Stockholders and MJD Partners of such proposed sale, issuance or
grant, to purchase all of the equity securities proposed to be issued or granted
on the terms set forth in Sections 8.2, 8.3 and 8.4.
8.2. Investments made before the end of the First Investment Period.
--------------------------------------------------------------
Subject to Section 8.4, if the Company proposes to sell, issue or grant any
equity securities of the Company as provided in Section 8.1 before the end of
the First Investment Period, then each Investor Stockholder and, subject to
Section 8.4(c), MJD Partners shall, in its sole discretion, be entitled to make
one or more purchases of
20
<PAGE>
additional shares of Common Stock for a purchase price per share equal to
$342.51 and the Company shall be obligated to sell to the Investor Stockholders
and MJD Partners additional shares of Common Stock at such purchase price per
share at the closing of such purchase, such closing to occur within the First
Investment Period. The notice referred to in Section 8.1 shall state the number
of shares of Common Stock to be offered to each Investor Stockholder and MJD
Partners, the aggregate consideration to be paid for such shares of Common Stock
by each Investor Stockholder and MJD Partners and the proposed date, time and
location of the closing of such purchase (which shall not be earlier than 45
days or later than 120 days after the date of such notice). At the closing of
each such additional purchase, the Company shall issue and deliver to each
Investor Stockholder and MJD Partners stock certificates representing that
number of fully paid and nonassessable shares of Common Stock that each such
Investor Stockholder and MJD Partners have agreed to purchase pursuant to this
Section 8.2 and each such Investor Stockholder and MJD Partners shall pay to the
Company by wire transfer of immediately available funds the aggregate
consideration for such shares.
8.3 Investments made after the end of the First Investment Period.
-------------------------------------------------------------
Subject to Section 8.4, if the Company proposes to sell, issue or grant any
equity securities of the Company as provided in Section 8.1 after the end of the
First Investment Period, then each Investor Stockholder and, subject to Section
8.4(c), MJD Partners shall, in its sole discretion, be entitled to make one or
more purchases of additional shares of Common Stock for a purchase price per
share agreed upon by the Investor Stockholders, MJD Partners and the Company.
The notice referred to in Section 8.1 shall state the number of shares of Common
Stock to be offered to each Investor Stockholder and MJD Partners, the aggregate
consideration to be paid for such shares of Common Stock by each Investor
Stockholder and MJD Partners and the proposed date, time and location of the
closing of such purchase (which shall not be earlier than 45 days or later than
120 days after the date of such notice). At the closing of each such additional
purchase, the Company shall issue and deliver to each Investor Stockholder and
MJD Partners stock certificates representing that number of fully paid and
nonassessable shares of Common Stock that each such Investor Stockholder and MJD
Partners have agreed to purchase pursuant to this Section 8.3 and each such
Investor Stockholder and MJD Partners shall pay to the Company by wire transfer
of immediately available funds the aggregate consideration for such shares.
8.4 Participation by Carousel, Kelso and MJD Partners. (a) Subject
-------------------------------------------------
to all subsections of this Section 8.4, (i) each of Carousel, Kelso and MJD
-
Partners shall be entitled to purchase that portion of the shares of Common
Stock covered by the notice referred to in Section 8.1 equal to its pro rata
--- ----
interest in the Company (based on the percentage of outstanding shares of Common
Stock owned by each of them on the
21
<PAGE>
date of such notice) and (ii) if any of Carousel, Kelso or MJD Partners does not
--
exercise its right to purchase its pro rata portion of shares of Common Stock
--- ----
that the Company proposes to issue and sell pursuant to Section 8.1, then the
others shall have the right to purchase their respective pro rata portion of
--- ----
such shares of Common Stock not elected to be so purchased by Carousel, Kelso or
MJD Partners, as the case may be, that the Company proposes to issue and sell.
(b) Notwithstanding subsection (a) of this Section 8.4, Carousel, on
the one hand, and Kelso, on the other hand, shall each be entitled to purchase
50% of any shares of Common Stock proposed to be sold to them pursuant to
Section 8.2 or 8.3 until such time as the Investor Stockholders shall have
invested an aggregate of $50 million in the Company (the calculation of such $50
million shall include the investments made by the Investor Stockholders on the
Closing Date pursuant to the Stock Purchase Agreement). Thereafter, Carousel,
on the one hand, and Kelso, on the other hand, shall be entitled to purchase 30%
and 70%, respectively, of any shares of Common Stock proposed to be sold to them
pursuant to Section 8.2 or 8.3 until such time as the Investor Stockholders
shall have invested an aggregate of $100 million in the Company (the calculation
of such $100 million shall include the investments contemplated by the preceding
sentence). Notwithstanding the foregoing, Carousel and Kelso may agree to any
allocation of any additional shares of Common Stock proposed to be sold to them
pursuant to Section 8.2 or 8.3 and, in any event, either Investor Stockholder
may purchase shares not purchased by the other.
(c) Any purchase by MJD Partners of any additional shares of Common
Stock pursuant to this Section 8 may only be financed by borrowings made
directly by the Founders or MJD Partners, provided that such financing
--------
arrangements must be authorized by the prior written approval (not to be
unreasonably withheld) of the Board (excluding members who are designees of MJD
Partners) and no funds may be provided by any third party investor.
(d) If Carousel and Kelso do not purchase 100% of the equity
securities of the Company offered to them pursuant to Section 8.1, then the
Company may, subject to Section 10, raise additional equity financing as
authorized by the Board. All references to the Investor Stockholders in this
Section 8 shall include their respective Permitted Assignees.
8.5. New Investments. The Investor Stockholders shall consider in
---------------
good faith additional investments proposed by the Company from time to time with
reference to the investment guidelines attached hereto as Exhibit A. Such
investment guidelines are not rules and no particular guideline is intended to
take precedence over any other guideline.
22
<PAGE>
9. Election of Directors. 9.1 Initial Board Make-Up of the
--------------------- ----------------------------
Company. Until a Board Event, each Stockholder agrees that it will nominate and
- -------
elect and will vote all of the shares of Common Stock owned or held of record by
it to elect and, thereafter, for such period, to continue in office a Board
consisting of seven members, (a) two of whom will be designated for nomination
-
and election by Carousel, (b) one of whom will be designated for nomination and
-
election by Kelso and (c) four of whom will be designated for nomination and
-
election by MJD Partners. The individuals designated for nomination and
election by Carousel, Kelso or MJD Partners, as the case may be, pursuant to
this Section 9.1 may be changed from time to time by Carousel, Kelso or MJD
Partners, as the case may be.
9.2 Board Make-Up of the Company following a Board Event. At any
----------------------------------------------------
time following the occurrence of a Board Event, each Stockholder agrees that,
upon written notice by either Investor Stockholder, it will nominate and elect
and will vote all of the shares of Common Stock owned or held of record by it to
elect and, thereafter, to continue in office a Board consisting of nine members,
(a) two of whom will be designated for nomination and election by Carousel, (b)
- -
three of whom will be designated for nomination and election by Kelso and (c)
-
four of whom will be designated for nomination and election by MJD Partners.
The individuals designated for nomination and election by Carousel, Kelso or MJD
Partners, as the case may be, pursuant to this Section 9.2 may be changed from
time to time by Carousel, Kelso or MJD Partners, as the case may be.
9.3 Five Year Plan and Annual Business Plan. Attached hereto as
---------------------------------------
Exhibit B are the capital and operating budgets, together with the EBITDA
performance targets, for the Company and its subsidiaries for the five year
period ending December 31, 2001 (the "Five Year Plan"). The EBITDA performance
--------------
targets included in the Five Year Plan shall, subject to Section 10, be adjusted
in connection with the Board's authorization of each acquisition or disposition
of material properties by the Company or any of its subsidiaries by adding
thereto or subtracting therefrom projected EBITDA performance targets in respect
of such acquisition or disposition, as the case may be. Commencing with the
budget for the 1998 Fiscal Year, MJD Partners shall prepare and submit to the
Board for its approval at least 30 days prior to the first day of each Fiscal
Year proposed capital and operating budgets for the Company and its subsidiaries
for the forthcoming Fiscal Year. As revised and approved by the Board, such
proposed capital and operating budgets shall become the "Annual Business Plan"
--------------------
for the Company and its subsidiaries.
9.4 Records and Reports, etc. (a) The Company shall furnish or
-------------------------
cause to be furnished to the Investor Stockholders and MJD Partners:
23
<PAGE>
(i) within 120 days following of the end of each Fiscal Year,
audited consolidated financial statements of the Company and its
subsidiaries, together with unaudited consolidating financial statements of
the Company and its subsidiaries for such Fiscal Year;
(ii) within 45 days following of the end of each fiscal quarter,
unaudited consolidated and consolidating financial statements of the
Company and its subsidiaries;
(iii) monthly financial statements, together with a management
overview and report with respect to the Company's and its subsidiaries'
performance for such month; and
(iv) such other information or reports as either of the Investor
Stockholders or MJD Partners may reasonably request.
(b) The Investor Stockholders and MJD Partners shall each, upon
reasonable notice, and using their best efforts to minimize any interruption of
the Company's and its subsidiaries' business, be entitled to inspect and audit
the books, records and accounts of the Company and its subsidiaries during
normal business hours and make copies thereof.
(c) The Company shall deliver prompt written notice to each Investor
Stockholder of the occurrence of any of the following:
(i) the actual or threatened commencement of any suit, action or
other legal or administrative proceeding affecting the Company or any of
its subsidiaries which, if adversely determined, would involve in excess of
$100,000;
(ii) any event of default under any Financing Document, whether or
not any requirement for the giving of notice, the lapse of time, or both,
or any other condition, has been satisfied; or
(iii) any other event that could reasonably be expected to have a
material adverse effect on the business, assets, properties, liabilities,
revenues, costs and expenses, operations, prospects or condition, financial
or otherwise, of Company or any of its subsidiaries.
24
<PAGE>
9.5 Board Meetings, Committees, etc. (a) There shall be regular
--------------------------------
meetings of the Board held at least once per calendar quarter, at such times and
in such places as the Board shall determine.
(b) At its first meeting, the Board shall designate a Compensation
Committee (the "Compensation Committee") consisting of three members of the
----------------------
Board, one of whom shall be the Company's chief executive officer, one of whom
shall be designated by Carousel and one of whom shall be designated by Kelso.
The Compensation Committee shall act by a majority of its members and its
powers, subject to Section 10, shall include the power to review and approve the
salaries and other compensation of the executive officers of the Company and its
subsidiaries, including incentive compensation, deferred compensation and stock
plans, the power to administer the Stock Option Plan and the Management
Agreement and the power, subject to Section 9.3, to update the EBITDA
performance targets included in the Five Year Plan (with the consent of MJD
Partners, such consent not to be unreasonably withheld or delayed), and such
other powers as may be delegated to it by the Board. The Board may designate an
Executive Committee (the "Executive Committee") consisting of three members of
-------------------
the Board, one of whom shall be the Company's chief executive officer, one of
whom shall be designated by Carousel and one of whom shall be designated by
Kelso. The Executive Committee shall act by a majority of its members and
shall, subject to Section 10 and the Delaware General Corporation Law, have such
powers as may be delegated to it by the Board.
(c) Members of the Board shall not be entitled to receive
compensation for their service as such, except (i) for members of the Board who
-
are not affiliated with any Stockholder or (ii) as may be provided in the
--
Financial Advisory Agreements. Members of the Board shall be entitled to
reimbursement for their reasonable out-of-pocket expenses incurred in connection
with their service as such.
9.6 Board Make-Up of the Company's Subsidiaries. The Board shall
-------------------------------------------
establish a policy and procedures with respect to the composition and election
of the Board of Directors of each of the Company's subsidiaries.
9.7 Irrevocable Proxy. In order to effectuate Section 9 and, in
-----------------
addition to and not in lieu of Section 9, each Stockholder hereby grants to the
Secretary of the Company an irrevocable proxy solely for the purpose of voting
all of the shares of Common Stock owned by the grantor of the proxy for the
election of directors nominated in accordance with Section 9.
10. Actions Requiring Approval of the Investor Stockholders. 10.1.
-------------------------------------------------------
General. Subject to Section 10.2, as long as the Investor Stockholders
- -------
collectively own
25
<PAGE>
at least 10% of the issued and outstanding shares of Common Stock, no
Stockholder shall cause the Company or any of its subsidiaries to take, and the
Company shall not take and shall cause its subsidiaries not to take, any of the
following actions without the prior written approval of each of the Investor
Stockholders or their designees on the Board:
(a) any issuance, sale, delivery, or any entry into an agreement to
issue, sell or deliver, any capital stock, warrants, options or similar
rights, other securities convertible into any capital stock or other
securities which contain any voting or equity participation rights of which
the Company or any of its subsidiaries is the issuer or grantor, or any
grant or issuance, or any agreement to grant or issue, any options,
warrants, incentive awards or similar rights calling for the issuance of
such securities;
(b) any repurchase or redemption of any shares of capital stock of the
Company or any of its subsidiaries, including pursuant to Section 2.2 and
Section 4;
(c) (i) any merger or consolidation with or into any other Person
-
(whether or not the Company or any of its subsidiaries survives such merger
or consolidation) or (ii) any conveyance, sale, lease or other disposal, in
--
any transaction or related series of transactions, of 25% or more of the
property, business or assets of the Company (including the capital stock or
assets of any of the Company's subsidiaries);
(d) any recapitalization of the capital stock of the Company or its
subsidiaries or any amendment, whether by merger, consolidation or
otherwise, to the articles of incorporation or the by-laws of the Company
or any of its subsidiaries;
(e) any liquidation or dissolution of the Company or any of its
subsidiaries;
(f) entry into any business not substantially similar or reasonably
related to the business of the Company and its subsidiaries as of the date
hereof;
(g) establishment of or material change to any incentive or bonus
program of the Company or any of its subsidiaries, including the Stock
Option Plan;
26
<PAGE>
(h) any change to the EBITDA performance targets included in the Five
Year Plan or approval of or material change to the Annual Business Plan;
(i) incurrence or guarantee by the Company or any of its subsidiaries
of indebtedness in excess of $5 million in the aggregate;
(j) declaration or payment of dividends or other distributions in
respect of the capital stock of the Company or any of its subsidiaries;
(k) enter into any transaction or modify any existing arrangement
between the Company or any of its subsidiaries, on the one hand, and MJD
Partners, MJD Inc. or any MJD Principal or any of their respective
Affiliates, on the other hand; or
(l) selection or replacement of the Company's and its subsidiaries'
independent public accountants.
In the event of a Board Event caused as a result of the operation of clause
(iii) of the definition thereof, the Investor Stockholders may, in their sole
discretion, modify the terms of the Management Agreement.
10.2. After Additional Investments. At any time after either Carousel
----------------------------
or Kelso shall have an unrealized investment in the Company representing at
least 100% more cash in the Company than the other, then the Investor
Stockholder with the smaller investment in the Company shall lose all of its
rights of approval set forth in Section 10.1, except with respect to any of the
actions referred to in clauses (b), (c), (d) and (e) of Section 10.1 relating to
the Company only. All references to Carousel or Kelso in this Section 10.2
shall include their respective Permitted Assignees.
11. Exit Payments. 11.1. General. If after the fourth anniversary
------------- -------
of the date hereof, Carousel, Kelso or MJD Partners becomes entitled to cash
payments as a result of the Sale of the Company (any such payment being referred
to herein as an "Exit Payment"), then, subject to Sections 11.4 and 15.4, the
------------
Exit Payment will be allocated among Carousel, Kelso and MJD Partners as
follows:
(a) The Exit Payment shall be allocated among Carousel, Kelso and
MJD Partners, based on the percentage of outstanding shares of Common Stock
owned by each of them on the date of any Exit Payment, until each of
Carousel and Kelso has received an internal rate of return equal to 30% per
annum, compounded annually, on the aggregate amount of capital invested in
the Company by it.
27
<PAGE>
(b) Once an Investor Stockholder has realized an internal rate of
return of 30% as provided in Section 11.1(a), the amount of the Exit
Payment, if any, in excess of such rate of return that would otherwise be
allocated to such Investor Stockholder on the basis of the percentage of
outstanding shares of Common Stock owned by such Investor Stockholder on
the date of any Exit Payment, shall be allocated (i) 50% to such Investor
-
Stockholder and (ii) 50% to MJD Partners.
--
For purposes of this Section 11.1, internal rates of return shall be calculated
by taking into account (i) the date or dates of the investments of capital by
-
the Investor Stockholders in the Company, (ii) the date or dates of any Exit
--
Payment and all other amounts received in respect of such Investor Stockholder's
shares of Common Stock pursuant to prior sales of shares or dividends or
distributions in respect thereof and (iii) the amounts of such investments, Exit
---
Payment and other payments in respect of shares of Common Stock, provided that
--------
any taxes of such Investor Stockholder, its partners or its investors shall not
be taken into account when calculating internal rates of return.
11.2. Equitable Allocations. In the event any of Carousel, Kelso or
---------------------
MJD Partners becomes entitled to a cash payment in respect of any shares of
Common Stock, but in connection with a transaction (a) occurring prior to the
-
fourth anniversary of the date hereof or (b) not constituting a Sale of the
-
Company, then Carousel, Kelso and MJD Partners shall negotiate in good faith an
equitable allocation of such cash payments which reflects the economic
objectives set forth in Section 11.1 taking into account the limitations set
forth in Section 11.4 and the proviso to Section 15.4.
11.3. Procedures for Payment; Characterization of Exit Payments; Tax
--------------------------------------------------------------
Reporting. Carousel, Kelso and MJD Partners shall use reasonable efforts to
- ---------
arrange for any amounts allocated to Carousel, Kelso and MJD Partners pursuant
to Section 11.1 or 11.2 to be paid directly to each such Stockholder by the
relevant third party purchaser or the Company, as the case may be. In the event
that Carousel, Kelso and MJD Partners are unable to make such arrangements, each
such Stockholder shall pay any amounts allocated to the other Stockholders
pursuant to Section 11.1 or 11.2 promptly following receipt of such amounts.
Consistent with the intent of the parties, Carousel, Kelso, MJD
Partners and the Company agree (and agree to cause their Affiliates), except to
the extent prohibited by applicable law, (a) to treat, for income tax purposes,
-
the payment to, and receipt by, any Stockholder of its allocable share of any
Exit Payment under this Section 11 as a payment in exchange for the sale of such
Stockholder's Common Stock,
28
<PAGE>
and (b) to report the payment and receipt of such amounts in accordance with
-
such treatment on all relevant tax returns filed with any relevant taxing
authority.
11.4. Limitation. (a) In the event (i) any Founder Transfers,
---------- -
directly or indirectly, any interest in MJD Partners or MJD Inc. now or
hereafter owned by such Founder (other than a Transfer by one Founder to another
Founder or as permitted by Section 1.4(a)(iii) or (iv) or Section 1.4(b)(ii) or
(iii) or with the prior written consent of each Investor Stockholder) or (ii)
--
MJD Inc. Transfers any interest in MJD Partners now or hereafter owned by MJD
Inc., the Exit Payment allocable to MJD Partners pursuant to Section 11.1 shall
be reduced proportionately to reflect (x) such Founder's former direct and
-
indirect interests in MJD Partners or MJD Inc., as the case may be, or (y) MJD
-
Inc.'s former interest in MJD Partners.
(b) In the event Johnson or Thomas resigns other than for Good
Reason or his employment with the Company or any of its subsidiaries is
terminated by the Company or any such subsidiary for Cause, the Exit Payment
allocable to MJD Partners pursuant to Section 11.1 shall be reduced
proportionately to reflect such Person's direct and indirect interests
(including any interest Transferred in accordance with Section 1.4(a) or Section
1.4(b)) in MJD Partners and MJD Inc.
11. Permitted Assignees. All references to the Investor
-------------------
Stockholders in this Section 11 shall include any of their respective Permitted
Assignees.
12. Stock Certificate Legends. A copy of this Agreement shall be
-------------------------
filed with the Secretary of the Company and kept with the records of the
Company. Each certificate representing shares of Common Stock owned by the
Stockholders shall bear upon its face the following legends, as appropriate:
(a) "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL
REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
UNLESS, IN THE OPINION OF COUNSEL TO THE STOCKHOLDER, WHICH COUNSEL
MUST BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE, SATISFACTORY
TO THE ISSUER, SUCH OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION,
TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS
OTHERWISE IN
29
<PAGE>
COMPLIANCE WITH THE ACT, SUCH LAWS AND THE STOCKHOLDERS' AGREEMENT OF
THE ISSUER, DATED AS OF JULY 31, 1997 (THE "STOCKHOLDERS'
AGREEMENT")."
(b) "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND OTHER CONDITIONS, AS SPECIFIED IN THE
STOCKHOLDERS' AGREEMENT, COPIES OF WHICH ARE ON FILE AT THE OFFICE OF
THE ISSUER AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH
SHARES UPON WRITTEN REQUEST."
In addition, each certificate representing shares of Common Stock owned by MJD
Partners shall bear upon its face the following legends until such time as MJD
Partners' indemnification obligation under the Stock Purchase Agreement shall
have ended:
(c) "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CANCELLATION IN ACCORDANCE WITH ARTICLE XI OF THE STOCK PURCHASE
AGREEMENT, DATED AS OF MARCH 6, 1997, COPIES OF WHICH ARE ON FILE AT
THE OFFICE OF THE ISSUER AND WILL BE FURNISHED WITHOUT CHARGE TO THE
HOLDER OF SUCH SHARES UPON WRITTEN REQUEST."
In addition, certificates representing shares of Common Stock owned by any
permitted transferees who are residents of certain states shall bear any legends
required by the laws of such states.
Each Stockholder shall be bound by the requirements of such legends.
Upon a Registration of any shares of Common Stock, the certificate representing
the registered shares shall be replaced, at the expense of the Company, with
certificates not bearing the legends required by Sections 12(a), 12(b) and
12(c).
13. Absence of Other Arrangements. Each of the parties hereto hereby
-----------------------------
represents and warrants to each other party hereto that it has not entered into
or agreed to be bound by any other arrangements or agreements of any kind with
any other Person with respect to the shares of Common Stock, including, but not
limited to, arrangements or agreements with respect to the acquisition,
disposition or voting of shares of Common Stock or any interest therein (whether
or not such arrangements or agreements are with the Company, Carousel, Kelso,
MJD Partners, any MJD Principal
30
<PAGE>
or any holder of Common Stock that is not party to this Agreement), except for
(a) the Stock Purchase Agreement and (b) the Registration Rights Agreement.
- -
14. New Management Stockholders. The Company and each of the
---------------------------
Stockholders hereby agrees that any employee of the Company or any of its
subsidiaries who after the date of this Agreement is offered shares of Common
Stock or holds stock options exercisable into shares of Common Stock shall, as a
condition precedent to the acquisition of such shares of Common Stock or the
exercise of such stock options, as the case may be, (a) become a party to this
-
Agreement by executing the same and (b) if such employee is a resident of a
-
state with a community property system, cause his or her spouse to execute a
Spousal Waiver in the form of Exhibit C attached hereto and deliver such
Agreement and Spousal Waiver, if applicable, to the Company at its address
specified in Section 17.9. Upon such execution and delivery, such employee
shall be a Management Stockholder for all purposes of this Agreement.
15. Parties. 15.1. Assignment by the Company. The Company shall
------- -------------------------
have the right to assign to one or more Permitted Assignees, and/or the right to
cause one or more Permitted Assignees to assume, all or any portion of its
rights and obligations under Section 4 ("Management Stockholders") and Section 5
("Involuntary Transfers"), provided that any such assignment or assumption is
--------
accepted by the proposed assignee or assignees. If the Company has not
exercised its right to purchase shares of Common Stock pursuant to any such
Section within 20 days of receipt by the Company of the letter or notice giving
rise to such right, then the Investor Stockholders shall have the right to
require the Company to assign such right to one or more Permitted Assignees. If
such right to purchase is assigned to a Permitted Assignee or Permitted
Assignees pursuant to this Section 15.1, such Permitted Assignee or Permitted
Assignees shall be deemed to be the Company for purposes of any such purchases
and the seller shall be obligated to sell to such Permitted Assignee or
Permitted Assignees. If the Company shall fail to promptly record the
cancellation of any shares of Common Stock owned by MJD Partners on the books
and records of the Company as a result of MJD Partners' indemnification
obligation under Article XI of the Stock Purchase Agreement, then each Investor
Stockholder shall have the right to record the cancellation of such shares on
the books and records of the Company and such shares shall be deemed cancelled
under the law of the State of Delaware and for all purposes of this Agreement.
15.2. Assignment Generally. The provisions of this Agreement shall be
--------------------
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, permitted successors and assigns, provided that
--------
neither MJD Partners nor any MJD Principal nor any Management Stockholder shall
be permitted to assign any of its rights or cause a third party to assume any of
its obligations under this
31
<PAGE>
Agreement, unless such assignment or assumption is in connection with a Transfer
explicitly permitted by this Agreement and, prior to such assignment or
assumption, such assignee complies with the requirements of Section 15.4.
15.3. Termination. (a) Any party to, or Person who is subject to,
-----------
this Agreement which ceases to own any shares of Common Stock or any interest
therein shall cease to be a party to, or Person who is subject to, this
Agreement and thereafter shall have no rights or obligations hereunder;
provided, however, that a Transfer of shares of Common Stock not explicitly
- -------- -------
permitted under this Agreement shall not relieve any Stockholder of any of its
obligations hereunder. Notwithstanding the foregoing, in connection with a
Transfer to an Affiliate explicitly permitted by this Agreement, prior to any
such Person ceasing to be an Affiliate of the Stockholder from whom such Person
acquired its shares of Common Stock, such Person shall be obligated to transfer
such shares of Common Stock back to such original Stockholder and such original
Stockholder shall thereupon be subject to this Agreement again.
(b) All rights and obligations pursuant to Sections 1, 2, 3, 4, 5, 6,
8, 9, 10, 13, 14, 15.4 and 17.2 shall terminate upon an IPO. In the event that
the Investor Stockholders cease to own collectively at least 10% of the issued
and outstanding shares of Common Stock, all rights of the Investor Stockholders
pursuant to Sections 3.4, 6, 8, 9, 10 and 17.2 shall terminate.
15.4. Agreements to Be Bound. Notwithstanding anything to the contrary
----------------------
contained in this Agreement, any Transfer of shares by a Stockholder (other than
pursuant to a Registration) shall be permitted under the terms of this Agreement
only if (a), in the case of a Management Stockholder, such Management
-
Stockholder shall cause the transferee of such shares of Common Stock to execute
the Spousal Waiver in the form attached hereto as Exhibit C, if such transferee
is an individual who resides in a state with a community property system, and
(b) the transferee of such shares of Common Stock shall agree in writing to be
-
bound by the terms and conditions of this Agreement pursuant to an instrument of
assignment and assumption reasonably satisfactory in substance and form, (i) in
-
the case of a Transfer by an MJD Principal, to the Investor Stockholders, (ii)
--
in the case of a Transfer by a Management Stockholder, to the Company, (iii) in
---
the case of a Transfer by an Investor Stockholder, to the other Investor
Stockholder and MJD Partners, and (iv) in the case of a Transfer by MJD
--
Partners, to the Investor Stockholders. Upon the execution of the Spousal
Waiver and the instrument of assignment and assumption by such transferee, as
the case may be, such transferee shall be deemed to be the relevant Stockholder,
as the case may be, for all purposes of this Agreement, including, in the case
of a Transfer by a Management Stockholder, the provisions of Section 4;
provided, however, that Section 11 ("Exit Payments") shall not apply to any
- -------- -------
transferee of MJD Partners, including a third party
32
<PAGE>
transferee which has acquired MJD Partners' shares of Common Stock in accordance
with Section 2.2 ("Right of First Refusal"), and the portion of any Exit Payment
otherwise allocable to MJD Partners under Section 11 shall be reduced, on a pro
---
rata basis, by the amount of such Exit Payment attributable to the shares of
- ----
Common Stock so Transferred.
16. Defined Terms. As used in this Agreement, the following terms
-------------
shall have the meanings ascribed to them below:
"Affiliate": A Person that directly, or indirectly through one or
---------
more intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
"Board": The Board of Directors of the Company.
-----
"Board Event": The earliest of (i) any failure of the Company in any
----------- -
Fiscal Year to achieve at least 80% of the EBITDA performance targets set forth
in the Five Year Plan, as amended, for such Fiscal Year, (ii) any Management
--
Change, (iii) any Transfer by an MJD Principal in violation of this Agreement,
---
which violation is not cured within 30 days after written notice to the Company
from either Investor Stockholder describing in reasonable detail such violation
and stating that failure to effect such cure within such time period will result
in a "Board Event", (iv) the increase in the Investor Stockholders' percentage
--
ownership of shares of Common Stock as a result of the cancellation of shares of
Common Stock owned by MJD Partners with a Fair Market Value in excess of $5
million in accordance with Article XI of the Stock Purchase Agreement or the
payment to the Investor Stockholders of an aggregate amount in excess of $5
million in accordance with Article XI of the Stock Purchase Agreement or any
combination of the foregoing actions resulting in aggregate indemnity payments
in excess of $5 million, (v) the aggregate investment in the Company and its
-
subsidiaries by the Investor Stockholders of at least $25 million (the
calculation of such $25 million shall include the investments made by the
Investor Stockholders on the Closing Date pursuant to the Stock Purchase
Agreement), (vi) any default by the Company or any of its subsidiaries under any
--
provision of any Financing Document, which default is not cured within 60 days
after written notice to the Company from the Investor Stockholders describing in
reasonable detail such default and stating that failure to effect such cure
within such time period will result in a "Board Event" and (vii) the Transfer by
---
MJD Partners of 25% or more of the shares of Common Stock owned by MJD Partners
on the Closing Date.
"Carousel Permitted Assignee": Carousel and any Affiliate of
---------------------------
Carousel.
33
<PAGE>
"Carrying Value": The price paid or fair market value of property
--------------
contributed by a Stockholder for any share of Common Stock together with simple
interest at a rate of 8% per annum from the date of the purchase of such share
by such Stockholder through the date of the purchase by the Company less any
distributions made to such Stockholder in respect of any such share (to the
extent that the amount of such distributions do not exceed such simple
interest), provided that the fair market value of any share of Common Stock
--------
owned on the Closing Date shall be $342.51 on the Closing Date.
"Cause": A termination of a Management Stockholder's employment by
-----
the Company or any of its subsidiaries due to (i) the refusal or neglect of the
-
Management Stockholder to perform substantially his or her lawful employment-
related duties, following written notice from the Company describing in
reasonable detail such refusal or neglect and an opportunity for 30 days to cure
the condition which is the subject of such notice, (ii) the Management
--
Stockholder's personal dishonesty, willful misconduct or breach of fiduciary
duty, (iii) the Management Stockholder's conviction of or entering a plea of
---
guilty or nolo contendere to a crime constituting a felony or his or her willful
---- ----------
violation of any law, rule, or regulation (other than a traffic violation or
similar offense or violation which in no way adversely affects the Company or
its reputation or the ability of the Management Stockholder to perform his or
her employment-related duties or to represent the Company) or (iv) the breach by
--
the Management Stockholder of any written covenant or agreement with the Company
or any of its subsidiaries not to disclose any material information pertaining
to the Company or such subsidiary or not to compete or interfere with the
Company or such subsidiary.
"Closing Date": The date on which the closing under the Stock
------------
Purchase Agreement occurs.
"Common Stock": The Company's Class A Voting common stock, par value
------------
$.01 per share.
"Disability": The termination of the employment of any Management
----------
Stockholder by the Company or any of its subsidiaries shall be deemed to be by
reason of a "Disability" if, as a result of such Management Stockholder's
incapacity due to reasonably documented physical or mental illness, such
Management Stockholder shall have been unable for more than six months within
any 12-month period to perform his or her duties with the Company or such
subsidiary on a full-time basis and within 90 days after written notice of
termination has been given to such Management Stockholder, such Management
Stockholder shall not have returned to the full time performance of his or her
duties. The date of termination in the case of a termination
34
<PAGE>
for "Disability" shall be deemed to be the last day of the aforementioned 90-day
period.
"Excluded Shares": Any shares of Common Stock issued or issuable (i)
--------------- -
in connection with an IPO or public offering of debt securities by the Company
or (ii) to any employee of the Company or any of its subsidiaries in connection
--
with the Stock Option Plan or any other employee incentive or bonus program duly
authorized pursuant to this Agreement and by the Board.
"50% Condition": As defined in Section 1.3(b).
-------------
"Financial Advisory Agreements": The Financial Advisory Agreements,
-----------------------------
each dated as of the date hereof, as the same shall be amended from time to
time, between the Company and each of Carousel and Kelso and Company, L.P.
"First Investment Period": The period commencing on the date hereof
-----------------------
and ending 18 months thereafter.
"Fiscal Year": A year beginning on January 1 of one calendar year and
-----------
ending on December 31 of the same calendar year, or such other fiscal year as
the Board may hereafter determine; provided, however, that the term "Fiscal
-------- -------
Year" shall mean with respect to the Company's first period of operations the
period commencing on the Closing Date and ending on December 31 of the same
calendar year.
"Founders": Bergstein, Bugger, Meyer Haberman, Johnson and Thomas.
--------
"Good Reason": A termination of a Management Stockholder's employment
-----------
with the Company or any of its subsidiaries shall be for "Good Reason" if such
Management Stockholder voluntarily terminates his employment with the Company or
any of its subsidiaries as a result of either of the following:
(i) without the Management Stockholder's prior written consent, a
significant reduction by the Company or such subsidiary of his or her
current salary, other than any such reduction which is part of a general
salary reduction or other concessionary arrangement affecting all employees
or affecting the group of employees of which the Management Stockholder is
a member (after receipt by the Company of written notice and a 20 day cure
period), or a significant reduction in the level of authority theretofore
exercised by the Management Stockholder, provided that the degree of
--------
acquisition activity by the
35
<PAGE>
Company and its subsidiaries shall not be taken into consideration when
determining the Management Stockholder's level of authority; or
(ii) the taking of any action by the Company or such subsidiary that
would substantially diminish the aggregate value of the benefits provided
him or her under the Company's or any of its subsidiaries' accident,
disability, life insurance and any other employee benefit plans in which he
or she was participating on the date of his or her execution of this
Agreement, other than any such reduction which is (A) required by law, (B)
- -
implemented in connection with a general concessionary arrangement
affecting all employees or affecting the group of employees of which the
Management Stockholder is a member or (C) generally applicable to all
-
beneficiaries of such plans.
"IPO": A Registration that covers (together with any prior effective
---
Registrations) (i) 50% or more of the aggregate number of shares of Common Stock
-
then outstanding or (ii) shares of Common Stock that, after the closing of such
--
Registration, will be traded on the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers Automated Quotation
System.
"Kelso Permitted Assignee": KIA V, KEP V, any Affiliate of KIA V, any
------------------------
Affiliate of KEP V, any KIA V Designee and any Affiliate of a KIA V Designee.
"KIA V Designee": Any of the following individuals: Louis and
--------------
Patricia Kelso Trust, John Rutledge, U. Bertram Ellis, Jr. and each of the
members of the board of directors of Kelso & Companies, Inc. and any permitted
transferee of any such person under their respective stockholders agreement with
Kelso.
"Management Agreement": The Management Services Agreement, dated as
--------------------
of January 1, 1997, as amended and restated as of the Closing Date in the form
attached hereto as Exhibit D, and as the same shall be further amended from time
to time pursuant to the terms of this Agreement, by and between MJD Partners,
Inc. and the Company.
"Management Change": Failure for any reason of Johnson or Thomas to
-----------------
devote a substantial amount of his respective time to the management and
operation of the Company's and its subsidiaries' rural telephone business,
unless within 60 days of such Person ceasing to devote such time to the
management and operation of such business an individual has been designated to
replace such Person by MJD Partners and such individual has been agreed to by
the Investor Stockholders in their sole discretion.
36
<PAGE>
"Permitted Assignee": Any Carousel Permitted Assignee, any Kelso
------------------
Permitted Assignee or any third party reasonably acceptable to the Investor
Stockholder which has not arranged with such third party for the acquisition by
it of shares of Common Stock.
"Person": An individual, corporation, limited liability company,
------
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Registration": The closing of a public offering pursuant to an
------------
effective registration statement under the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Registration Rights Agreement": The Registration Rights Agreement,
-----------------------------
dated as of the date hereof, as the same shall be amended from time to time,
among the Company, Carousel, KIA V, KEP V and MJD Partners.
"Sale of the Company": Either (i) a sale by Carousel and/or Kelso of
------------------- -
all of the shares of Common Stock owned by them to one or more third parties or
(ii) a sale of all or substantially all of the Company's and its subsidiaries'
--
assets.
"Stock Option Plan": A stock option plan of the Company which,
-----------------
subject to Section 10 and the approval by the Board or the Compensation
Committee, (i) will cover up to 5% of the Company's capital stock and (ii) will
- --
be established upon the recommendation of the chief executive officer.
"Stock Purchase Agreement": The Stock Purchase Agreement, dated as of
------------------------
March 6, 1997, as the same shall be amended from time to time, among the
Company, MJD Partners, Carousel, KIA V and KEP V.
"Transfer (or any variation thereof used herein)": Any direct or
-----------------------------------------------
indirect sale, assignment, mortgage, transfer, pledge, hypothecation or other
disposal or any arrangement or agreement with respect to any of the foregoing.
17. Miscellaneous. 17.1. Recapitalizations, Exchanges, etc.
------------- ----------------------------------
Affecting the Common Stock. Except as otherwise provided herein, the provisions
- --------------------------
of this Agreement shall apply to the full extent set forth herein with respect
to (a) the shares of Common Stock and (b) any and all shares of capital stock of
- -
the Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution for
37
<PAGE>
the shares of Common Stock, by reason of any stock dividend, split, reverse
split, combination, recapitalization, reclassification, merger, consolidation or
otherwise.
17.2. Non-Competition Agreement. In order to induce the Investor
-------------------------
Stockholders to enter into the Stock Purchase Agreement and this Agreement and
in consideration of the contemplated purchase by the Company of each Management
Stockholder's shares of Common Stock in accordance with Section 4, Eugene B.
Johnson, Jack H. Thomas, John P. Duda and Walter E. Leach, Jr. agrees that from
the date of the termination of his or her employment with the Company or any of
its subsidiaries for any reason until the second anniversary of such
termination, such Person will not become, directly or indirectly, associated in
any way with any Person, whether as principal, owner, partner, consultant,
advisor, agent, employee, director, independent contractor, member, stockholder
or otherwise (other than a holder of less than 5% of the outstanding shares of
any class of equity securities of a public company), that is actively engaged in
the ownership, management or operation of any telephone company, other access
provider or other Person, any of which competes or has any plans to compete with
the Company or any of its subsidiaries in regard to the activities of the
Company or any of its subsidiaries being conducted at the time of such
termination or which are planned at the time of such termination.
17.3. No Third Party Beneficiaries. Except as otherwise provided
----------------------------
herein, this Agreement is not intended to confer upon any Person, except for the
parties hereto, any rights or remedies hereunder.
17.4. Mechanics of Payment. If at any time the Company purchases any
--------------------
shares of Common Stock pursuant to this Agreement, the Company may pay the
purchase price determined under this Agreement for the shares of Common Stock it
purchases by wire transfer of funds or company check in the amount of the
purchase price, and upon receipt of payment of such purchase price or, pursuant
to Section 7, any portion thereof, the seller shall deliver the certificates
representing the number of shares of Common Stock being purchased in a form
suitable for transfer, duly endorsed in blank, and free and clear of any lien,
claim or encumbrance. Notwithstanding anything in this Agreement to the
contrary, the Company shall not be required to make any payment for shares of
Common Stock purchased hereunder until delivery to it of the certificates
representing such shares or evidence or an affidavit, in either case in form and
substance reasonably satisfactory to the Company of loss, theft or destruction
of such certificates. If the Company is purchasing less than all the shares of
Common Stock represented by a single certificate, the Company shall deliver to
the seller a certificate for any unpurchased shares of Common Stock.
38
<PAGE>
17.5. Further Assurances. Each party hereto or Person subject hereto
------------------
shall do and perform or cause to be done and performed all such further acts and
things and shall execute and deliver all such other agreements, certificates,
instruments and documents as any other party hereto or Person subject hereto may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
17.6. Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented only by the written agreement of the Company, Carousel,
Kelso and MJD Partners. Notwithstanding the foregoing, this Agreement may not
be amended, modified or supplemented without the prior written consent of a
majority in interest of the Management Stockholders (based on the number of
shares of Common Stock owned by each Management Stockholder at the time of such
amendment, modification or supplement) if such amendment, modification or
supplement could reasonably be expected to adversely affect the Management
Stockholders.
17.7. Governing Law. This Agreement and the rights and obligations
-------------
of the parties hereunder and the persons subject hereto shall be governed by,
and construed and interpreted in accordance with, the law of the State of
Delaware, without giving effect to the choice of law principles thereof.
17.8. Invalidity of Provision. The invalidity or unenforceability of
-----------------------
any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction.
17.9. Notices. All notices, requests, demands, letters, waivers and
-------
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a) delivered
-
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
- -
sent by next-day or overnight mail or delivery or (d) sent by fax, as follows:
-
(i) If to the Company, to it at:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Mr. Eugene B. Johnson
Phone: (704) 344-8150
Fax: (704) 344-8121
39
<PAGE>
with a copy to:
Carousel Capital Partners, L.P.
4201 Congress Street, Suite 440
Charlotte, North Carolina 28209
Attention: Mr. Nelson Schwab, III
Mr. Reid G. Leggett
Phone: (704) 643-3333
Fax: (704) 643-6403
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Attention: James J. Connors, II, Esq.
Phone: (212) 751-3939
Fax: (212) 223-2379
(ii) If to Carousel, to it at:
Carousel Capital Partners, L.P.
4201 Congress Street, Suite 440
Charlotte, North Carolina 28209
Attention: Mr. Nelson Schwab, III
Mr. Reid G. Leggett
Phone: (704) 643-3333
Fax: (704) 643-6403
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
100 North Tryon Street, Suite 4200
Charlotte, North Carolina 28202-4006
Attention: Stephen K. Rhyne, Esq.
Phone: (704) 331-7400
Fax: (704) 331-7598
40
<PAGE>
(iii) If to KIA V or KEP V, to it at:
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Attention: James J. Connors, II, Esq.
Phone: (212) 751-3939
Fax: (212) 223-2379
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Richard D. Bohm, Esq.
Phone: (212) 909-6226
Fax: (212) 909-6836
(iv) If to MJD Partners or MJD Inc., to it at:
MJD Partners, L.P.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Mr. Eugene B. Johnson
Phone: (704) 344-8150
Fax: (704) 344-8121
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attention: Neil A. Torpey, Esq.
Phone: (212) 318-6034
Fax: (212) 319-4090
41
<PAGE>
(v) If to any of the MJD Principals, to him at:
MJD Partners, L.P.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Mr. Eugene B. Johnson
Phone: (704) 344-8150
Fax: (704) 344-8121
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attention: Neil A. Torpey, Esq.
Phone: (212) 318-6034
Fax: (212) 319-4090
(vi) If to a Management Stockholder, to him or her, as listed below his or
her name on the signature pages hereto.
or to such other Person or address as any party shall specify by notice in
writing to the Company and the other parties hereto. All such notices,
requests, demands, letters, waivers and other communications shall be deemed to
have been received (w) if by personal delivery on the day after such delivery,
-
(x) if by certified or registered mail, on the fifth business day after the
-
mailing thereof, (y) if by next-day or overnight mail or delivery, on the day
-
delivered or (z) if by fax, on the next day following the day on which such fax
-
was sent, provided that a copy is also sent by certified or registered mail.
--------
17.10. Headings; Execution in Counterparts. The headings and
-----------------------------------
captions contained herein are for convenience and shall not control or affect
the meaning or construction of any provision hereof. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original and which together shall constitute one and the same instrument.
17.11. Injunctive Relief. The shares of Common Stock cannot readily
-----------------
be purchased or sold in the open market, and for that reason, among others, the
parties hereto would be irreparably damaged in the event this Agreement is not
specifically enforced. Each of the parties therefore agrees that in the event of
a breach of any provision of this Agreement, the aggrieved party may elect to
institute and prosecute
42
<PAGE>
proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of this Agreement. Such remedies
shall, however, be cumulative and not exclusive, and shall be in addition to any
other remedy which any such party may have.
17.12. Entire Agreement. This Agreement, together with the Stock
----------------
Purchase Agreement and the Registration Rights Agreement, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings relating to the shares of Common Stock,
other than those expressly set forth or referred to herein or as set forth in
the Stock Purchase Agreement or the Registration Rights Agreement. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter.
43
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by each of the
parties hereto, effective as of the date first above written.
MJD COMMUNICATIONS, INC.
By:
--------------------------------
Name:
Title:
CAROUSEL CAPITAL PARTNERS, L.P.
By: Carousel Capital Company, L.L.C.,
its General Partner
By:
--------------------------------
Name:
Title:
KELSO INVESTMENT ASSOCIATES V, L.P.
By: Kelso Partners V, L.P., its General Partner
By:
--------------------------------
Name:
Title:
KELSO EQUITY PARTNERS V, L.P.
By:
--------------------------------
Name:
Title:
44
<PAGE>
MJD PARTNERS, L.P.
By: MJD Partners, Inc., its General Partner
By:
--------------------------------
Name:
Title:
MJD PARTNERS, INC.
By:
--------------------------------
Name:
Title:
BUGGER ASSOCIATES, INC.
By:
--------------------------------
Name:
Title:
-----------------------------------
Daniel G. Bergstein
-----------------------------------
John P. Duda
6733 N. Baltusrol Lane
Charlotte, NC 28210
-----------------------------------
Meyer Haberman
45
<PAGE>
-----------------------------------
Lisa R. Hood
P.O. Box 486
Bucklin, KS 67834
-----------------------------------
Eugene B. Johnson
-----------------------------------
Walter E. Leach, Jr.
6419 Sharon Hills Road
Charlotte, NC 28210
-----------------------------------
Peter G. Nixon
P.O. Box 302
Westfield, NY 14787
-----------------------------------
Michael J. Stein
3016 Toalson
Dodge City, KS 67801
-----------------------------------
Jack H. Thomas
-----------------------------------
Joel Bergstein
-----------------------------------
Michael Bergstein
46
<PAGE>
-----------------------------------
Lindy Sobel Bergstein
47
<PAGE>
TABLE OF CONTENTS
Page
1. Restrictions on Transfer of Common Stock............................... 1
1.1. Restrictions on Transfers by Kelso........................... 1
1.2. Restrictions on Transfers by Carousel........................ 2
1.3. Restrictions on Transfers by MJD Partners and Bugger......... 2
1.4. Restrictions on Transfers by MJD Principals.................. 3
1.5. De Minimis Transfers......................................... 4
1.6. Restrictions on Transfers by Management Stockholders......... 4
1.7. Treatment of Certain Bergstein Family Members................ 5
2. Sales by MJD Partners to Third Parties................................. 5
2.1. General...................................................... 5
2.2. Right of First Refusal....................................... 6
2.3. Tag-Along Rights............................................. 8
3. Sales by Investor Stockholders to Third Parties........................ 8
3.1. General...................................................... 8
3.2. Right of First Offer......................................... 8
3.3. Tag-Along Rights............................................. 10
3.4. Drag-Along Rights............................................ 10
4. Management Stockholders................................................ 11
4.1. Sale by Management Stockholders to the Company............... 11
4.2. Notice to the Company........................................ 11
4.3. Right of the Company to Purchase............................. 11
4.4. Notice to Management Stockholders............................ 12
4.5. Payment...................................................... 12
4.6. Appraisal.................................................... 14
4.7. Fair Market Value............................................ 14
4.8. Notice to Stockholders....................................... 15
4.9. Acknowledgment of Status..................................... 15
5. Involuntary Transfers.................................................. 15
<PAGE>
6. Auction Sale Procedure................................................... 16
6.1. General......................................................... 16
6.2. Retention of Investment Bank.................................... 16
6.3. Preparation of Confidential Memorandum.......................... 17
6.4. Auction Procedures.............................................. 17
6.5. Selection of Bid................................................ 17
6.6. Negotiation of Sale Agreement................................... 17
6.7. Information Regarding Auction................................... 18
6.8. Right of Remaining Stockholders to Bid.......................... 18
6.9. Cooperation..................................................... 18
7. Prohibited Purchases..................................................... 19
8. Issuance of Additional Shares of Common Stock............................ 20
8.1. Preemptive Rights of the Investor Stockholders and MJD
Partners............................................................ 20
8.2. Investments made before the end of the First Investment
Period.............................................................. 20
8.3. Investments made after the end of the First Investment
Period.............................................................. 21
8.4. Participation by Carousel, Kelso and MJD Partners............... 21
8.5. New Investments................................................. 22
9. Election of Directors.................................................... 23
9.1. Initial Board Make-Up of the Company............................ 23
9.2. Board Make-Up of the Company following a Board Event............ 23
9.3. Five Year Plan and Annual Business Plan......................... 23
9.4. Records and Reports, etc........................................ 23
9.5. Board Meetings, Committees, etc................................. 25
9.6. Board Make-Up of the Company's Subsidiaries..................... 25
9.7. Irrevocable Proxy............................................... 25
10. Actions Requiring Approval of the Investor Stockholders................. 25
10.1. General........................................................ 25
10.2. After Additional Investments................................... 27
11. Exit Payments........................................................... 27
11.1. General........................................................ 27
11.2. Equitable Allocations.......................................... 28
11.3. Procedures for Payment; Characterization of Exit Payments;
Tax Reporting...................................................... 28
11.4. Limitation..................................................... 29
11.5. Permitted Assignees............................................ 29
ii
<PAGE>
12. Stock Certificate Legends............................................... 29
13. Absence of Other Arrangements........................................... 30
14. New Management Stockholders............................................. 31
15. Parties................................................................. 31
15.1. Assignment by the Company...................................... 31
15.2. Assignment Generally........................................... 31
15.3. Termination.................................................... 32
15.4. Agreements to Be Bound......................................... 32
16. Defined Terms........................................................... 33
17. Miscellaneous........................................................... 37
17.1. Recapitalizations, Exchanges, etc. Affecting the Common
Stock.............................................................. 37
17.2. Non-Competition Agreement...................................... 38
17.3. No Third Party Beneficiaries................................... 38
17.4. Mechanics of Payment........................................... 38
17.5. Further Assurances............................................. 39
17.6. Amendment and Modification..................................... 39
17.7. Governing Law.................................................. 39
17.8. Invalidity of Provision........................................ 39
17.9. Notices........................................................ 39
17.10. Headings; Execution in Counterparts........................... 42
17.11. Injunctive Relief............................................. 42
17.12. Entire Agreement.............................................. 43
iii
<PAGE>
SCHEDULES
Schedule A Management Stockholders
EXHIBITS
Exhibit A Investment Guidelines
Exhibit B Five Year Plan
Exhibit C Spousal Waiver
Exhibit D Amended and Restated Management Agreement
iv
<PAGE>
================================================================================
STOCKHOLDERS' AGREEMENT
OF
MJD COMMUNICATIONS, INC.
Dated as of July 31, 1997
================================================================================
<PAGE>
Exhibit A
Investment Guidelines
---------------------
1. The proposed investment shall be an investment in a rural local exchange
carrier.
2. The projected pre-tax internal rate of return for the proposed investment
shall be 30% or more based on projections presented to and accepted by the
Investor Stockholders.
3. The proposed investment shall be recommended by Johnson and Thomas.
<PAGE>
Exhibit B
Five Year Plan
--------------
See attached.
<PAGE>
Exhibit C
Spousal Waiver
--------------
_________________ [insert name of spouse] hereby waives and releases any
and all equitable or legal claims and rights, actual, inchoate or contingent,
which ___________ [insert he or she] may acquire with respect to the
disposition, voting or control of the shares of Common Stock subject to the
Stockholders' Agreement of MJD Communications, Inc., dated as of July 31, 1997,
as the same shall be amended from time to time, except for rights in respect of
the proceeds of any disposition of such Common Stock.
-------------------------
[signature of spouse]
<PAGE>
Schedule A
Management Stockholders
-----------------------
John P. Duda
Lisa R. Hood
Eugene B. Johnson
Walter E. Leach, Jr.
Peter G. Nixon
Michael J. Stein
Jack H. Thomas
<PAGE>
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT, dated as of July 31, 1997, among MJD
Communications, Inc., a Delaware corporation (the "Company"); Carousel Capital
-------
Partners, L.P., a Delaware limited partnership ("Carousel"); Kelso Investment
--------
Associates V, L.P., a Delaware limited partnership ("KIA V"), and Kelso Equity
-----
Partners V, L.P., a Delaware limited partnership ("KEP V", together with KIA V,
-----
"Kelso"); MJD Partners, L.P., a Delaware limited partnership ("MJD Partners");
----- ------------
Bugger Associates, Inc., a Delaware corporation, Daniel G. Bergstein, Meyer
Haberman, Eugene B. Johnson and Jack H. Thomas (collectively, the "MJD
---
Principals"); Joel Bergstein , Michael Bergstein and Lindy Sobel Bergstein; and
- ----------
those employees of the Company listed on Schedule A attached hereto
(collectively, the "Management Stockholders"). Schedule A shall be updated from
-----------------------
time to time to include each Management Stockholder who becomes a party to this
Agreement after the date hereof pursuant to Section 11.3. Carousel and Kelso
are hereinafter referred to collectively as the "Investor Stockholders". For
---------------------
purposes of this Agreement, KIA V and KEP shall be deemed to be a single
Investor Stockholder. Capitalized terms used herein without definition are
defined in Section 10.
1. Registrations Upon Request.
--------------------------
1.1. Requests. At any time after the fourth anniversary hereof, each
--------
Investor Stockholder shall have the right to make one request and at any time
after an IPO, each Investor Stockholder shall have the right to make up to two
additional requests that the Company effect the registration under the
Securities Act of any of the Registrable Securities of such Investor
Stockholder, each such request to specify the intended method or methods of
disposition thereof, provided, that the Company shall not be required to effect
--------
a registration pursuant to this Section 1.1 upon the request of any Investor
Stockholder until a period of 180 days shall have elapsed from the effective
date of the most recent registration previously effected pursuant to this
Section 1.1 and, provided, further, that (a) if the Requesting Stockholder
-------- ------- -
determines in its good faith judgment to withdraw the proposed registration of
any Registrable Securities requested to be registered pursuant to this Section
1.1 due to marketing or regulatory reasons or (b) the registration statement
-
relating to any such request is not declared effective within 90 days of the
date such registration statement is first filed with the Commission or (c) if,
-
within 180 days after the registration relating to any such request has become
effective, such registration is interfered with by any stop order, injunction
<PAGE>
or other order or requirement of the Commission or other governmental agency or
court for any reason and the Company fails to have such stop order, injunction
or other order or requirement removed, withdrawn or resolved to such Requesting
Stockholder's reasonable satisfaction within 30 days or (d) the conditions to
-
closing specified in the purchase agreement or underwriting agreement entered
into in connection with the registration relating to any such request are not
satisfied (other than conditions to be satisfied by such Requesting
Stockholder), then such request, shall not be counted for purposes of such
Requesting Shareholder's request limitations set forth above. Upon any request
by a Requesting Stockholder pursuant to this Section 1.1, the Company will
promptly, but in any event within 15 days, give written notice of such request
to the other Investor Stockholder and the other holders of Registrable
Securities and thereupon the Company will use its best efforts to effect the
registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so requested
to register by (A) the Requesting Stockholder and (B) the Other Investor
- -
Stockholder, MJD Partners, the MJD Principals and the Management
Stockholders by written request given to the Company within 20 days after
the giving of such written notice by the Company; and
(ii) all other Registrable Securities which the Company has been
requested to register by the other holders of Registrable Securities by
written request given to the Company within 20 days after the giving of
such written notice by the Company,
all to the extent required to permit the disposition of the Registrable
Securities so to be registered (in accordance with the intended method or
methods of disposition of each seller of Registrable Securities).
Notwithstanding the foregoing, but subject to the rights of holders of
Registrable Securities under Section 2, (a) if the Board determines in its good
-
faith judgment, after consultation with a firm of nationally recognized
underwriters, that there will be an adverse effect on a then contemplated
initial public offering of the Company's equity securities, the Company may
defer the filing (but not the preparation) of the registration statement which
is required to effect any registration pursuant to this Section 1.1, during the
period starting with the thirtieth day immediately preceding the date of
anticipated filing by the Company of, and ending on a date 60 days following the
effective date of, the registration statement relating to such initial public
offering, provided that at all times the Company is in good faith using all
--------
reasonable efforts to cause such registration statement to become effective and,
provided, further, that such period shall end on such earlier date as may be
- -------- -------
permitted by the underwriters of such underwritten public offering and (b) if
-
the Company shall
2
<PAGE>
at any time furnish to the Requesting Stockholder and the Other Investor
Stockholder, if any, a certificate signed by the President of the Company
stating that the Company has pending or in process a material transaction, the
disclosure of which would, in the good faith judgment of the Board, materially
and adversely affect the Company, the Company may defer the filing (but not the
preparation) of a registration statement for up to 60 days (but the Company
shall use its best efforts to resolve the transaction and file the registration
statement as soon as possible).
1.2. Registration Statement Form. Each registration requested
---------------------------
pursuant to Section 1.1 shall be effected by the filing of a registration
statement on a form agreed to by the Requesting Stockholder and the Other
Investor Stockholder, if any.
1.3. Expenses. The Company will pay all Registration Expenses in
--------
connection with any registrations requested under Section 1.1, whether or not
the related registration statement becomes effective; provided that any seller
--------
thereunder shall pay all Registration Expenses to the extent required to be paid
by such seller under applicable law.
1.4. Priority in Demand Registrations. If a registration pursuant to
--------------------------------
this Section 1 involves an underwritten offering, and the managing underwriter
(or, in the case of an offering which is not underwritten, an investment banker)
shall advise the Company in writing (with a copy to each Person requesting
registration of Registrable Securities) that, in its opinion, the number of
securities requested and otherwise proposed to be included in such registration
exceeds the number which can be sold in such offering, the Company will include
in such registration to the extent of the number which the Company is so advised
can be sold in such offering, first, the Registrable Securities of the
-----
Requesting Stockholder requested to be included in such registration and the
Registrable Securities of the Other Investor Stockholder, MJD Partners, the MJD
Principals and the Management Stockholders requested to be included in such
registration, pro rata, among such holders, on the basis of the number of
--- ----
Registrable Securities requested to be included by such holders, second, the
------
Registrable Securities of the other holders of Registrable Securities requested
to be included in such registration, pro rata, among such holders, on the basis
--- ----
of the number of Registrable Securities requested to be included by such
holders, and third, the securities, if any, being sold by the Company.
-----
Notwithstanding the foregoing, neither MJD Partners nor any MJD Principal nor
any Management Stockholder will be entitled to participate in any such
registration requested by either Investor Stockholder if the managing
underwriter (or, in the case of an offering that is not underwritten, an
investment banker) shall determine in good faith that the participation of
management
3
<PAGE>
would adversely affect the marketability or offering price of the securities
being sold by either Investor Stockholder in such registration.
1.5. No Company Initiated Registration. After receipt of notice of a
---------------------------------
requested registration pursuant to Section 1.1, the Company shall not initiate,
without the prior written consent of the Investor Stockholders, a registration
of any of its securities for its own account until 90 days after such
registration has been effected or such registration has been terminated.
2. Incidental Registrations. If the Company at any time proposes to
------------------------
register any of its equity securities under the Securities Act (other than
pursuant to Sec tion 1 or a registration on Form S-4 or S-8 or any successor
form), and the registration form to be used may be used for the registration of
Registrable Securities, it will give prompt written notice to all holders of
Registrable Securities of its intention to do so. Upon the written request of
any such holder made within 20 days after the receipt of any such notice (which
request shall specify the number of Registrable Securities intended to be
disposed of by such holder and the intended method or methods of disposition
thereof), the Company will use its best efforts to effect the registration under
the Securities Act of all such Registrable Securities in accordance with such
intended method or methods of disposition, provided that:
--------
(a) if such registration shall be in connection with an initial
public offering by the Company, (i) the Company shall not include any
-
Registrable Securities in such proposed registration if the Board shall
have determined, after consultation with the managing underwriter for such
offering, that it is not in the best interests of the Company to include
any Registrable Securities in such registration and (ii) the Company shall
--
not include any Registrable Securities of MJD Partners, any MJD Principal
or any Management Stockholder in such proposed registration if each
Investor Stockholder does not include any of its Registrable Securities in
such proposed registration because it believes in good faith that inclusion
of such securities would not be in the best interests of the Company;
(b) if, at any time after giving written notice of its intention to
register any equity securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such equity
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon,
shall not be obligated to register any Registrable Securities in connection
with such registration (but shall nevertheless pay the
4
<PAGE>
Registration Expenses in connection therewith), without prejudice, however,
to the rights of the Investor Stockholders to request that a registration
be effected under Section 1; and
(c) if a registration pursuant to this Section 2 involves an
underwritten offering, and the managing underwriter (or, in the case of an
offering that is not underwritten, an investment banker) shall advise the
Company in writing (with a copy to each holder of Registrable Securities
requesting registration thereof) that, in its opinion, the number of
securities requested and otherwise proposed to be included in such
registration exceeds the number which can be sold in such offering, the
Company will include in such registration to the extent of the number which
the Company is so advised can be sold in such offering, first, the
-----
securities, if any, being sold by the Company, second, the Registrable
------
Securities of the Investor Stockholders, MJD Partners, the MJD Principals
and the Management Stockholders requesting registration thereof, pro rata,
--- ----
among such holders, on the basis of the number of Registrable Securities
requested to be included by such holders, and third, the Registrable
-----
Securities of each other holder requesting registration thereof, pro rata,
--- ----
among such holders, on the basis of the number of Registrable Securities
requested to be included by such holders. Notwithstanding the foregoing,
neither MJD Partners nor any MJD Principal nor any Management Stockholder
will be entitled to participate in any such registration if the managing
underwriter (or, in the case of an offering that is not underwritten, an
investment banker) shall determine in good faith that the participation of
management would adversely affect the marketability or offering price of
the securities being sold by the Company in such registration.
The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 2,
provided that each seller of Registrable Securities shall pay all Registration
- --------
Expenses to the extent required to be paid by such seller under applicable law.
No registration effected under this Section 2 shall relieve the Company from its
obligation to effect registrations under Section 1.
3. Registration Procedures. If and whenever the Company is required
-----------------------
to use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 1 and 2, the Company will
promptly:
(a) prepare, and as soon as practicable, but in any event within 60
days thereafter, file with the Commission, a registration statement with
respect to
5
<PAGE>
such Registrable Securities, make all required filings with the NASD and
use best efforts to cause such registration statement to become effective;
(b) prepare and promptly file with the Commission such amendments and
post-effective amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for so long as is required to comply
with the provisions of the Securities Act and to complete the disposition
of all securities covered by such registration statement in accordance with
the intended method or methods of disposition thereof, but in no event for
a period of more than six months after such registration statement becomes
effective;
(c) furnish to counsel selected by each Investor Stockholder and MJD
Partners copies of all documents proposed to be filed with the Commission
in connection with such registration, which documents will be subject to
the review of such counsel and each such seller and the Company shall not
file any amendment or post-effective amendment or supplement to such
registration statement or the prospectus used in connection therewith to
which any such seller shall have reasonably objected in writing on the
grounds that such amendment or supplement does not comply (explaining why)
in all material respects with the requirements of the Securities Act or of
the rules or regulations thereunder;
(d) furnish to each seller of Registrable Securities, without charge,
such number of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits
and documents filed therewith) and such number of copies of the prospectus
in cluded in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under
Rule 424 under the Securities Act, in conformity with the requirements of
the Securities Act, and such other documents, as such seller may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by such seller in accordance with the intended method or
methods of disposition thereof;
(e) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each seller shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable to enable such seller to consummate the disposition of such
Registrable Securities in such jurisdictions in accordance with the
intended method or methods of disposition
6
<PAGE>
thereof, provided that the Company shall not for any such purpose be
--------
required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified, subject itself to taxation
in any jurisdiction wherein it is not so subject, or take any action which
would subject it to general service of process in any jurisdiction wherein
it is not so subject;
(f) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company and its subsidiaries to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof;
(g) furnish to each seller of Registrable Securities a signed
counterpart, addressed to the sellers, of
(i) an opinion of counsel for the Company experienced in
securities law matters, dated the effective date of the registration
statement (and, if such registration includes an underwritten public
offering, the date of the closing under the underwriting agreement), and
(ii) a "comfort" letter (unless the registration is pursuant to
Section 2 and such a letter is not otherwise being furnished to the
Company), dated the effective date of such registration statement (and if
such registration includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), signed by the independent
public accountants who have issued an audit report on the Company's
financial statements included in the registration statement,
covering such matters as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and such other matters as the
Investor Stockholders may reasonably request;
(h) notify each seller of any Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event or existence of any fact as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or
7
<PAGE>
necessary to make the statements therein not misleading in light of the
circumstances then existing, and, as promptly as is practicable, prepare
and furnish to such seller a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement of the
Company (in form complying with the provisions of Rule 158 under the
Securities Act) covering the period of at least 12 months, but not more
than 18 months, beginning with the first month after the effective date of
the registration statement;
(j) notify each seller of any Registrable Securities covered by such
registration statement (i) when the prospectus or any prospectus supplement
-
or post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the Commission for amendments or
--
supplements to such registration statement or to amend or to supplement
such prospectus or for additional information, (iii) of the issuance by the
---
Commission of any stop order suspending the effectiveness of such
registration statement or the initiation of any proceedings for that
purpose and (iv) of the suspension of the qualification of such securities
--
for offering or sale in any jurisdiction, or of the institution of any
proceedings for any of such purposes;
(k) use every reasonable effort to obtain the lifting of any stop
order that might be issued suspending the effectiveness of such
registration statement at the earliest possible moment;
(l) use its best efforts (i) (A) to list such Registrable Securities
- -
on any securities exchange on which the equity securities of the Company
are then listed or, if no such equity securities are then listed, on an
exchange selected by the Company, if such listing is then permitted under
the rules of such exchange, or (B) if such listing is not practicable, to
-
secure designation of such securities as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 under the Exchange Act or,
failing that, to secure NASDAQ authorization for such Registrable
Securities, and, without limiting the
8
<PAGE>
foregoing, to arrange for at least two market makers to register as such
with respect to such Registrable Securities with the NASD, and (ii) to
--
provide a transfer agent and registrar for such Registrable Securities not
later than the effective date of such registration statement and to
instruct such transfer agent (A) to release any stop transfer order with
-
respect to the certificates with respect to the Registrable Securities
being sold and (B) to furnish certificates without restrictive legends
-
representing ownership of the shares being sold, in such denominations
requested by the sellers of the Registrable Securities or the lead
underwriter;
(m) enter into such agreements and take such other actions as the
sellers of Registrable Securities or the underwriters reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities, including, without limitation, preparing for, and participating
in, such number of "road shows" and all such other customary selling
efforts as the underwriters reasonably request in order to expedite or
facilitate such disposition; and
(n) use its reasonable best efforts to take all other steps necessary
to effect the registration of such Registrable Securities contemplated
hereby.
The Company may require each seller of any Registrable Securities as
to which any registration is being effected to furnish to the Company such
information regarding such seller, its ownership of Registrable Securities and
the disposition of such Registrable Securities as the Company may from time to
time reasonably request in writing and as shall be required by law in connection
therewith. Each such holder agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such holder not materially misleading.
The Company agrees not to file or make any amendment to any
registration statement with respect to any Registrable Securities, or any
amendment of or supplement to the prospectus used in connection therewith, which
refers to any seller of any Registrable Securities covered thereby by name, or
otherwise identifies such seller as the holder of any Registrable Securities,
without the consent of such seller, such consent not to be unreasonably withheld
or delayed, unless such disclosure is required by law.
By acquisition of Registrable Securities, each holder of such
Registrable Securities shall be deemed to have agreed that upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3(h), such
9
<PAGE>
holder will promptly discontinue such holder's disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(h). If so directed by the Company,
each holder of Registrable Securities will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, in such
holder's possession of the prospectus covering such Registrable Securities at
the time of receipt of such notice. In the event that the Company shall give any
such notice, the period mentioned in Section 3(b) shall be extended by the
number of days during the period from and including the date of the giving of
such notice to and including the date when each seller of any Registrable
Securities covered by such registration statement shall have received the copies
of the supplemented or amended prospectus contemplated by Section 3(h).
4. Underwritten Offerings.
----------------------
4.1. Underwriting Agreement. If requested by the underwriters for any
----------------------
underwritten offering by holders of Registrable Securities pursuant to a
registration requested under Section 1 or Section 2, the Company shall enter
into an underwriting agreement with the underwriters for such offering, such
agreement to be reasonably satisfactory in substance and form to the Investor
Stockholders which are selling Registrable Securities pursuant to such
registration and to the underwriters and to contain such representations,
warranties and covenants by the Company and such other terms and provisions as
are customarily contained in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in Section 9.
The holders of Registrable Securities to be distributed by such underwriters
shall be parties to such underwriting agreement and may, at their option,
require that any or all of the representations and warranties by, and the
agreements on the part of, the Company to and for the benefit of such
underwriters be made to and for the benefit of such holders of Registrable
Securities and that any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement shall also be conditions
precedent to the obligations of such holders of Registrable Securities. No
underwriting agreement (or other agreement in connection with such offering)
shall require either Investor Stockholder to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, the ownership
of such holder's Registrable Securities and such holder's intended method or
methods of disposition and any other representation required by law or to
furnish any indemnity to any Person which is broader than the indemnity
furnished by such holder in Section 9.2.
10
<PAGE>
4.2. Selection of Underwriters. If the Company at any time proposes
-------------------------
to register any of its securities under the Securities Act for sale for its own
account pursuant to an underwritten offering, the Company will have the right to
select the managing underwriter (which shall be of nationally recognized
standing) to administer the offering, but only with the approval of (a) the
-
Investor Stockholders which are selling Registrable Securities pursuant to such
registration, such approval not to be unreasonably withheld or delayed, and (b)
-
MJD Partners, but only if it is selling Registrable Securities pursuant to such
registration, such approval not to be unreasonably withheld or delayed, provided
--------
that whenever a registration requested pursuant to Section 1 is for an
underwritten offering, the Investor Stockholders which are selling Registrable
Securities pursuant to such registration will have the right to select the
managing underwriter (which shall be of nationally recognized standing) to
administer the offering, but only with the approval of the Company and MJD
Partners, such approval not to be unreasonably withheld or delayed.
5. Holdback Agreements. (a) If and whenever the Company proposes to
-------------------
register any of its equity securities under the Securities Act for its own
account (other than on Form S-4 or S-8 or any successor form) or is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act pursuant to Section 1 or 2, each holder of Registrable
Securities agrees by acquisition of such Registrable Securities not to effect
any public sale or distribution, including any sale pursuant to Rule 144 under
the Securities Act, of any Registrable Securities within seven days prior to and
90 days (unless advised in writing by the managing underwriter that a longer
period, not to exceed 180 days, is required) after the effective date of the
registration statement relating to such registration, except as part of such
registration.
(b) The Company agrees not to effect any public sale or distribution
of its equity securities or securities convertible into or exchangeable or
exercisable for any of such securities within seven days prior to and 90 days
(unless advised in writing by the managing underwriter that a longer period, not
to exceed 180 days, is required) after the effective date of such registration
statement (except as part of such registration or pursuant to a registration on
Form S-4 or S-8 or any successor form). In addition, the Company shall cause
each holder of its equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, whether outstanding on
the date of this Agreement or issued at any time after the date of this
Agreement (other than any such securities acquired in a public offering), to
agree not to effect any such public sale or distribution of such securities
during such period, except as part of any such registration if permitted, and to
cause each such holder to enter into a similar agreement to such effect with the
Company.
11
<PAGE>
6. Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the holders of such
Registrable Securities so to be registered and their underwriters, if any, and
their respective counsel and accountants the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each of them such access to the financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have issued audit reports on its financial
statements as shall be reasonably requested by such holders in connection with
such registration statement.
7. No Grant of Future Registration Rights. The Company shall not
--------------------------------------
grant any other demand or incidental registration rights to any other Person
without the prior written consent of the Investor Stockholders.
8. Permitted Assignees. Each Investor Stockholder shall have the
-------------------
right to have included in any registration pursuant to Section 1 or Section 2
any shares of Common Stock owned by any Permitted Assignee as though such shares
were Registrable Securities owned by such Investor Stockholder. MJD Partners,
each MJD Principal and each Management Stockholder shall have the right to have
included in any registration pursuant to Section 1 or Section 2 any shares of
Common Stock owned by any permitted transferees of MJD Partners, such MJD
Principal or such Management Stockholder, as the case may be, under the
Stockholders' Agreement as those such shares were Registrable Securities owned
by MJD Partners, such MJD Principal or such Management Stockholder, as the case
may be.
9. Indemnification.
---------------
9.1. Indemnification by the Company. In the event of any registration
------------------------------
of any Registrable Securities pursuant to this Agreement, the Company will
indemnify and hold harmless (a) each seller of such Registrable Securities, (b)
- -
the directors, officers, partners, employees, agents and Affiliates of each such
seller, (c) each Person who participates as an underwriter in the offering or
-
sale of such securities and (d) each person, if any, who controls (with the
-
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
any such seller, partner or underwriter against any and all losses, claims,
damages or liabilities (or actions or proceedings in respect thereof), joint or
several, directly or indirectly based upon or arising out of (i) any untrue
-
statement or alleged untrue statement of a fact contained in any registration
statement
12
<PAGE>
under which such Registrable Securities were registered under the Securities
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein or used in connection with the offering of securities
covered thereby, or any amendment or supplement thereto, or (ii) any omission
--
or alleged omission to state a fact required to be stated therein or necessary
to make the statements therein not misleading; and the Company will reimburse
each such indemnified party for any legal and any other expenses reasonably
incurred by them in connection with investigating, preparing, pursuing or
defending any such loss, claim, damage, liability, action or proceeding, except
insofar as any such loss, claim, damage, liability, action, proceeding or
expense arises out of or is based upon an untrue statement or omission made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such seller expressly for
use in the preparation thereof. Such indemnity shall remain in full force and
effect, regardless of any investigation made by such indemnified party and shall
survive the transfer of such Registrable Securities by such seller. The
indemnity agreement contained in this Section 9.1 shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, action or
proceeding if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld or delayed).
9.2. Indemnification by the Sellers. The Company may require, as a
------------------------------
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 1 or 2 that the Company shall have received an
undertaking satisfactory to it from each of the prospective sellers of such
Registrable Securities to indemnify and hold harmless, severally, not jointly,
in the same manner and to the same extent as set forth in Section 9.1, the
Company, its directors and officers and each person, if any, who controls
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) the Company with respect to any statement or alleged statement in
or omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such seller
expressly for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling Person and shall survive the transfer of such Registrable
Securities by such seller. The indemnity agreement contained in this Section
9.2 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, action or proceeding if such settlement is effected without
the consent
13
<PAGE>
of such seller (which consent shall not be unreasonably withheld or
delayed). The indemnity provided by each seller of Registrable Securities under
this Section 9.2 shall be limited in amount to the net amount of proceeds
actually received by such seller from the sale of Registrable Securities
pursuant to such registration statement.
9.3. Notices of Claims, etc. Promptly after receipt by an indemnified
----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding paragraphs of this Section 9, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action or proceeding, provided that the failure of any indemnified party to
--------
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 9, except to the
extent that the indemnifying party is materially prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate therein and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof except for the reasonable fees and expenses of any counsel
retained by such indemnified party to monitor such action or proceeding.
Notwithstanding the foregoing, if such indemnified party and the indemnifying
party reasonably determine, based upon advice of their respective independent
counsel, that a conflict of interest may exist between the indemnified party and
the indemnifying party with respect to such action and that it is advisable for
such indemnified party to be represented by separate counsel, such indemnified
party may retain other counsel, reasonably satisfactory to the indemnifying
party, to represent such indemnified party, and the indemnifying party shall pay
all reasonable fees and expenses of such counsel. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of such
indemnified party, which consent shall not be unreasonably withheld or delayed,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of such
claim or litigation.
9.4. Other Indemnification. Indemnification similar to that specified
---------------------
in the preceding paragraphs of this Section 9 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration (other than under the Securities Act) or
other qualification of such
14
<PAGE>
Registrable Securities under any federal or state law or regulation of any
governmental authority.
9.5. Indemnification Payments. Any indemnification required to be
------------------------
made by an indemnifying party pursuant to this Section 9 shall be made by
periodic payments to the indemnified party during the course of the action or
proceeding, as and when bills are received by such indemnifying party with
respect to an indemnifiable loss, claim, damage, liability or expense incurred
by such indemnified party.
9.6. Other Remedies. If for any reason the foregoing indemnity is
--------------
unavailable, or is insufficient to hold harmless an indemnified party, other
than by reason of the exceptions provided therein, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities, actions, proceedings or
expenses in such proportion as is appropriate to reflect the relative benefits
to and faults of the indemnifying party on the one hand and the indemnified
party on the other in connection with the offering of Registrable Securities
(taking into account the portion of the proceeds of the offering realized by
each such party) and the statements or omissions or alleged statements or
omissions which resulted in such loss, claim, damage, liability, action,
proceeding or expense, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the indemnified party shall
be determined by reference to, among other things, whether the untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statements or omissions. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. No party shall be liable for
contribution under this Section 9.6 except to the extent and under such
circumstances as such party would have been liable to indemnify under this
Section 9 if such indemnification were enforceable under applicable law.
10. Definitions. For purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
"Affiliate": A Person that directly, or indirectly through one or
---------
more intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
15
<PAGE>
"Board": The Board of Directors of the Company.
-----
"Commission": The Securities and Exchange Commission.
----------
"Common Stock": The Company's Class A Voting common stock, $.01 par
------------
value, per share.
"Exchange Act": The Securities Exchange Act of 1934, as amended, or
------------
any successor federal statute, and the rules and regulations thereunder which
shall be in effect at the time.
"IPO": as defined in the Stockholders' Agreement.
---
"Other Investor Stockholder": The Investor Stockholder (other than
--------------------------
the Requesting Stockholder) which has elected to participate in a registration
pursuant to Section 1.
"NASD": National Association of Securities Dealers, Inc.
----
"NASDAQ": The Nasdaq National Market.
------
"Permitted Assignee": as defined in the Stockholders' Agreement.
------------------
"Person": An individual, corporation, limited liability company,
------
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Registrable Securities": The shares of Common Stock beneficially
----------------------
owned (within the meaning of Section 13d-3 of the Exchange Act) by Carousel,
Kelso, MJD Partners, any MJD Principal, any Management Stockholder, Joel
Bergstein, Michael Bergstein, Lindy Sobel Bergstein or any other Person made a
party hereto pursuant to Section 11.3 or 11.4. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when (i) a
-
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
--
been sold to the public pursuant to Rule 144 under the Securities Act, (iii)
---
they shall have been otherwise transferred and subsequent disposition of them
shall not require registration or qualification of them under the Securities Act
of or any similar state law then in force or (iv) they shall have ceased to be
--
outstanding.
16
<PAGE>
"Registration Expenses": All expenses incident to the Company's
---------------------
performance of or compliance with any registration pursuant to this Agreement,
including, without limitation, (i) registration, filing and NASD fees, (ii) fees
- --
and expenses of complying with securities or blue sky laws, (iii) fees and
---
expenses associated with listing securities on an exchange or NASDAQ, (iv) word
--
processing, duplicating and printing expenses, (v) messenger and delivery
-
expenses, (vi) fees and disbursements of counsel for the Company and of its
--
independent public accountants, including the expenses of any special audits or
"cold comfort" letters, (vii) reasonable fees and disbursements of any one
---
counsel retained by the sellers of Registrable Securities, which counsel shall
be designated by the Investor Stockholders, provided that if both Investor
--------
Stockholders participate in any registration, each Investor Stockholder shall be
entitled to designate one counsel and the reasonable fees and expenses of each
such counsel shall constitute "Registration Expenses", and (viii) any fees and
----
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any.
"Requesting Stockholder": The Investor Stockholder which exercises
----------------------
its rights to request that the Company effect a registration pursuant to Section
1.1.
"Securities Act": The Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations thereunder which shall
be in effect at the time.
"Stockholders' Agreement": The Stockholders' Agreement, dated as of
-----------------------
the date hereof, as the same shall be amended from time to time, among the
Company, Carousel, KIA V, KEP V, MJD Partners, MJD Partners, Inc., the MJD
Principals, Joel Bergstein, Michael Bergstein, Lindy Sobel Bergstein and the
Management Stockholders.
"Transfer": as defined in the Stockholders' Agreement.
--------
11. Miscellaneous.
-------------
11.1. Treatment of Certain Bergstein Family Members. Each of Joel
---------------------------------------------
Bergstein, Michael Bergstein and Lindy Sobel Bergstein hereby acknowledges that
all shares of Registrable Securities and all interests therein now or hereafter
owned by such Person shall for all purposes of this Agreement be treated as if
such shares and interests were owned by Bugger Associates, Inc. and each such
Person has as of the date hereof granted Bugger an irrevocable power of attorney
directing Bugger
17
<PAGE>
Associates, Inc. to exercise all rights and perform all obligations hereunder
and under the Stockholders' Agreement in respect of such Person's shares and
interests so long as this Agreement shall remain in full force and effect.
11.2. Rule 144 etc. If the Company shall have filed a registration
------------
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act
relating to any class of equity securities, the Company will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the Commission thereunder, and will take such
further action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
-
as such rule may be amended from time to time, or (b) any successor rule or
-
regulation hereafter adopted by the Commission. Upon the request of any holder
of Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
11.3. New Stockholders. (a) In the event that any Person shall
----------------
become a party to the Stockholders' Agreement after the date hereof pursuant to
Section 14 thereof, then upon the execution and delivery of a signature page
hereto, such Person shall be deemed to be a Management Stockholder for all
purposes of this Agreement and the Company shall amend Schedule A to reflect
such additional Management Stockholder.
(b) In the event any Person shall become a party to the Stockholders'
Agreement after the date hereof pursuant to Section 15.4 thereof as a result of
any Transfer of Registrable Securities by MJD Partners or any MJD Principal,
then any such transferee shall have the right to include its Registrable
Securities in any registration pursuant to this Agreement in which MJD Partners
or such MJD Principal, as the case may be, participates as if such transferee
were MJD Partners or such MJD Principal, as the case may be.
11.4. Successors, Assigns and Transferees. This Agreement shall be
-----------------------------------
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. In addition, and provided that an
express assignment shall have been made, and a copy of which shall have been
delivered to the Company, the provisions of this Agreement which are for the
benefit of a holder of Registrable Securities shall be for the benefit of and
enforceable by any subsequent holder of any
18
<PAGE>
Registrable Securities, provided that such subsequent holder acquired such
--------
Registrable Securities in accordance with the terms of the Stockholders'
Agreement.
11.5. Stock Splits, etc. Each holder of Registrable Securities
-----------------
agrees that it will vote to effect a stock split or combination with respect to
any Registrable Securities in connection with any registration of such
Registrable Securities hereunder, or otherwise, if the managing underwriter
shall advise the Company in writing (or, in connection with an offering that is
not underwritten, if an investment banker shall advise the Company in writing)
that in its opinion such a stock split or combination would facilitate or
increase the likelihood of success of the offering. The Company shall cooperate
in all respects in effecting any such stock split or combination.
11.6. Further Assurances. Subject to the specific terms of this
------------------
Agreement, each of the Company, Carousel, Kelso, MJD Partners, the MJD
Principals and the Management Stockholders shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
11.7. Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented by the Company with the written consent of the Investor
Stockholders and a majority (by number of shares) of any other holder of
Registrable Securities whose interests would be adversely affected by such
amendment.
11.8. Governing Law. This Agreement and the rights and obligations
-------------
of the parties hereunder and the persons subject hereto shall be governed by,
and construed and interpreted in accordance with, the law of the State of
Delaware, without giving effect to the choice of law principles thereof.
11.9. Invalidity of Provision. The invalidity or unenforceability of
-----------------------
any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction.
11.10. Notices. All notices, requests, demands, letters, waivers and
-------
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a) delivered
-
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
- -
sent by next-day or overnight mail or delivery or (d) sent by fax, as follows:
-
19
<PAGE>
(i) If to the Company, to it at:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Mr. Eugene B. Johnson
Phone: (704) 344-8150
Fax: (704) 344-8121
20
<PAGE>
with a copy to:
Carousel Capital Partners, L.P.
4201 Congress Street, Suite 440
Charlotte, North Carolina 28209
Attention: Mr. Nelson Schwab, III
Mr. Reid G. Leggett
Phone: (704) 643-3333
Fax: (704) 643-6403
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Attention: James J. Connors, II, Esq.
Phone: (212) 751-3939
Fax: (212) 223-2379
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attention: Neil A. Torpey, Esq.
Phone: (212) 318-6034
Fax: (212) 319-4090
(ii) If to Carousel, to it at:
Carousel Capital Partners, L.P.
4201 Congress Street, Suite 440
Charlotte, North Carolina 28209
Attention: Mr. Nelson Schwab, III
Mr. Reid G. Leggett
Phone: (704) 643-3333
Fax: (704) 643-6403
21
<PAGE>
(iii) If to KIA V or KEP V, to it at:
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Attention: James J. Connors, II, Esq.
Phone: (212) 751-3939
Fax: (212) 223-2379
(iv) If to MJD Partners, to it at:
MJD Partners, L.P.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Mr. Eugene B. Johnson
Phone: (704) 344-8150
Fax: (704) 344-8121
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attention: Neil A. Torpey, Esq.
Phone: (212) 318-6034
Fax: (212) 319-4090
(v) If to any of the MJD Principals, to him at:
MJD Partners, L.P.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Mr. Eugene B. Johnson
Phone: (704) 344-8150
Fax: (704) 344-8121
22
<PAGE>
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attention: Neil A. Torpey, Esq.
Phone: (212) 318-6034
Fax: (212) 319-4090
(vi) If to a Management Stockholder, to him or her, as listed below his or
her name on the signature pages hereto;
(vii) If to any other holder of Registrable Securities, to the address of
such holder as set forth in the books and records of the Company;
or to such other Person or address as any party shall specify by notice in
writing to the Company. All such notices, requests, demands, letters, waivers
and other communications shall be deemed to have been received (w) if by
-
personal delivery on the day after such delivery, (x) if by certified or
-
registered mail, on the fifth business day after the mailing thereof, (y) if by
-
next-day or overnight mail or delivery, on the day delivered or (z) if by fax,
-
on the next day following the day on which such fax was sent, provided that a
copy is also sent by certified or registered mail.
11.11. Headings; Execution in Counterparts. The headings and
-----------------------------------
captions contained herein are for convenience and shall not control or affect
the meaning or construction of any provision hereof. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original and which together shall constitute one and the same instrument.
11.12. Injunctive Relief. Each of the parties recognizes and agrees
-----------------
that money damages may be insufficient and, therefore, in the event of a breach
of any provision of this Agreement the aggrieved party may elect to institute
and prosecute proceedings in any court of competent jurisdiction to enforce
specific performance or to enjoin the continuing breach of this Agreement. Such
remedies shall, however, be cumulative and not exclusive, and shall be in
addition to any other remedy which such party may have.
11.13. Entire Agreement. This Agreement, together with the
----------------
Stockholders' Agreement, is intended by the parties hereto as a final expression
of their agreement and intended to be a complete and exclusive statement of
their agreement
23
<PAGE>
and understanding in respect of the subject matter contained herein. This
Agreement and the Stockholders' Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
11.14. Term. This Agreement shall be effective as of the date hereof
----
and shall continue in effect thereafter until the earlier of (a) its termination
-
by the consent of the parties hereto or their respective successors in interest
and (b) the date on which no Registrable Securities remain outstanding.
-
24
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by each of the
parties hereto, effective as of the date first above written.
MJD COMMUNICATIONS, INC.
By:
------------------------------------
Name:
Title:
CAROUSEL CAPITAL PARTNERS, L.P.
By: Carousel Capital Company, L.L.C.,
its General Partner
By:
------------------------------------
Name:
Title:
KELSO INVESTMENT ASSOCIATES V, L.P.
By: Kelso Partners V, L.P., its General Partner
By:
------------------------------------
Name:
Title:
KELSO EQUITY PARTNERS V, L.P.
By:
------------------------------------
Name:
Title:
25
<PAGE>
MJD PARTNERS, L.P.
By: MJD Partners, Inc., its General Partner
By:
------------------------------------
Name:
Title:
BUGGER ASSOCIATES, INC.
By:
------------------------------------
Name:
Title:
---------------------------------------
Daniel G. Bergstein
---------------------------------------
John P. Duda
6733 N. Baltusrol Lane
Charlotte, NC 28210
---------------------------------------
Meyer Haberman
---------------------------------------
Lisa R. Hood
P.O. Box 486
Bucklin, KS 67834
---------------------------------------
Eugene B. Johnson
26
<PAGE>
---------------------------------------
Walter E. Leach, Jr.
6419 Sharon Hills Road
Charlotte, NC 28210
---------------------------------------
Peter G. Nixon
P.O. Box 302
Westfield, NY 14787
---------------------------------------
Michael J. Stein
3016 Toalson
Dodge City, KS 67801
---------------------------------------
Jack H. Thomas
---------------------------------------
Joel Bergstein
---------------------------------------
Michael Bergstein
---------------------------------------
Lindy Sobel Bergstein
27
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Registrations Upon Request............................................. 1
1.1. Requests....................................................... 1
1.2. Registration Statement Form.................................... 3
1.3. Expenses....................................................... 3
1.4. Priority in Demand Registrations............................... 3
1.5. No Company Initiated Registration.............................. 4
2. Incidental Registrations............................................... 4
3. Registration Procedures................................................ 5
4. Underwritten Offerings................................................. 10
4.1. Underwriting Agreement......................................... 10
4.2. Selection of Underwriters...................................... 10
5. Holdback Agreements.................................................... 11
6. Preparation; Reasonable Investigation.................................. 11
7. No Grant of Future Registration Rights................................. 12
8. Permitted Assignees.................................................... 12
9. Indemnification........................................................ 12
9.1. Indemnification by the Company................................. 12
9.2. Indemnification by the Sellers................................. 13
9.3. Notices of Claims, etc......................................... 13
9.4. Other Indemnification.......................................... 14
9.5. Indemnification Payments....................................... 14
9.6. Other Remedies................................................. 15
10. Definitions............................................................ 15
11. Miscellaneous.......................................................... 17
11.1. Treatment of Certain Bergstein Family Members.................. 17
11.2. Rule 144 etc................................................... 17
11.3. New Stockholders............................................... 18
11.4. Successors, Assigns and Transferees............................ 18
i
<PAGE>
11.5. Stock Splits, etc............................................. 18
11.6. Further Assurances............................................ 19
11.7. Amendment and Modification.................................... 19
11.8. Governing Law................................................. 19
11.9. Invalidity of Provision....................................... 19
11.10. Notices....................................................... 19
11.11. Headings; Execution in Counterparts........................... 23
11.12. Injunctive Relief............................................. 23
11.13. Entire Agreement.............................................. 23
11.14. Term.......................................................... 24
ii
<PAGE>
================================================================================
REGISTRATION RIGHTS AGREEMENT
of
MJD COMMUNICATIONS, INC.
Dated as of July 31, 1997
================================================================================
<PAGE>
EXHIBIT 10.13
MJD COMMUNICATIONS, INC.
521 East Morehead Street
Suite 250
Charlotte, North Carolina 28202
as of July 31, 1997
Kelso & Company, L.P.
320 Park Avenue
New York, New York 10022
Attention: Mr. Thomas R. Wall, IV
Ladies and Gentlemen:
MJD Communications, Inc., a Delaware corporation (the "Company"),
hereby agrees to retain you, Kelso & Company, L.P., a Delaware limited
partnership ("Kelso"), to provide consulting and advisory services to the
Company commencing on the date hereof for a term ending on December 31, 2007,
and extending automatically for one year as of each January 1 thereafter,
unless, within 30 days prior to any such January 1, written notice of
termination is delivered by either party to the other. Such services may
include (i) assisting in the raising of additional debt and equity capital from
-
time to time for the Company, if deemed advisable by the board of directors of
the Company, (ii) assisting the Company in its long-term strategic planning
--
generally, and (iii) providing such other consulting and advisory services as
---
the Company may reasonably request.
In consideration of providing the foregoing services, the Company will
pay to Kelso an annual advisory fee of $50,000, payable quarterly in advance on
or before January 1, April 1, July 1, and October 1 of each year. The $12,500
payment with respect to the period from July 1, 1997 through September 30, 1997
will be paid on the date hereof. If Kelso or any of its affiliates or designees
invests additional
<PAGE>
equity in the Company or any of its affiliates on one or more occasions after
the date hereof, then, in each such case, the Company and Kelso will negotiate
in good faith to effect a mutually acceptable increase to such advisory fee. The
Company will also reimburse Kelso promptly for Kelso's reasonable out-of-pocket
costs and expenses incurred in connection with the performance of Kelso's duties
hereunder.
The Company represents and warrants to Kelso that the services to be
rendered hereunder by Kelso will be reimburseable expenses under the management
services agreements between the Company and its direct subsidiaries, including,
but not limited to, the Management Services Agreement (the "Management Services
Agreement"), made as of July 31, 1997, by and between the Company and MJD
Holdings Corp. ("Holdings"), and that no provision of the Management Services
Agreement affecting Kelso's right to payment hereunder will be amended, waived
or terminated by either the Company or Holdings without the prior written
consent of Kelso.
In the event the Company is not permitted to pay any amounts due
hereunder to Kelso by any debt instruments or agreements, including any
amendment, renewal, extension, substitution, refinancing, replacement or other
modification thereof ("Financing Documents") entered into by the Company or any
of its subsidiaries, the Company shall pay such deferred amounts together with
8% annual interest thereon as soon as such payment is permissible under such
Financing Documents.
The Company will indemnify Kelso and its affiliates, and their
respective officers, directors, employees, agents, partners, managers, members,
and control persons (as such term is used in the Securities Act of 1933, as
amended, and the rules and regulations thereunder) to the full extent lawful
against any and all claims, losses and expenses as incurred (including all
reasonable fees and disbursements of any such indemnitee's counsel and other
out-of-pocket expenses incurred in connection with the investigation of and
preparation for any such pending or threatened claims and any litigation or
other proceedings arising therefrom) arising out of any services rendered by
Kelso hereunder, provided, however, there shall be excluded from such
-------- -------
indemnification any such claim, loss or expense that is based upon any action or
failure to act by Kelso that is found in a final judicial determination to
constitute gross negligence or intentional misconduct on Kelso's part. The
Company will advance costs and expenses, including attorney's fees, incurred by
any such indemnitee in defending any such claim in advance of the final
disposition of such claim upon receipt of an undertaking by or on behalf of such
indemnitee to repay amounts so advanced if it shall ultimately be determined
that such indemnitee is not entitled to be indemnified by the Company pursuant
to this Agreement.
<PAGE>
The Company's obligations set forth in this Agreement shall survive
the termination of Kelso's services pursuant to paragraph one.
This agreement shall be governed by the laws of the State of New York.
<PAGE>
If you are in agreement with the foregoing, kindly so indicate by
signing a counterpart of this letter, whereupon it will become a binding
agreement between us.
Very truly yours,
MJD COMMUNICATIONS, INC.
By:
------------------------------
Name:
Title:
Agreed and accepted as of
July 31, 1997.
KELSO & COMPANY, L.P.
By: Kelso & Companies, Inc.,
its general partner
By:
----------------------------
Name:
Title:
Acknowledged as of
July 31, 1997.
MJD HOLDINGS CORP.
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.13
MJD COMMUNICATIONS, INC.
521 East Morehead Street
Suite 250
Charlotte, North Carolina 28202
as of July 31, 1997
Carousel Capital Company, L.L.C.
4201 Congress Street
Suite 440
Charlotte, North Carolina 28209
Attention: Nelson Schwab, III
Reid G. Leggett
Ladies and Gentlemen:
MJD Communications, Inc., a Delaware corporation (the "Company"),
hereby agrees to retain you, Carousel Capital Company, L.L.C., a North Carolina
limited liability company ("Carousel"), to provide consulting and advisory
services to the Company commencing on the date hereof for a term ending on
December 31, 2007, and extending automatically for one year as of each January 1
thereafter, unless, within 30 days prior to any such January 1, written notice
of termination is delivered by either party to the other. Such services may
include (i) assisting in the raising of additional debt and equity capital from
-
time to time for the Company, if deemed advisable by the board of directors of
the Company, (ii) assisting the Company in its long-term strategic planning
--
generally, and (iii) providing such other consulting and advisory services as
---
the Company may reasonably request.
In consideration of providing the foregoing services, the Company
will pay to Carousel an annual advisory fee of $50,000, payable quarterly in
advance on or
<PAGE>
before January 1, April 1, July 1, and October 1 of each year. The $12,500
payment with respect to the period for July 1, 1997 through September 31, 1997
will be paid on the date hereof. If Carousel or any of its affiliates or
designees invests additional equity in the Company or any of its affiliates on
one or more occasions after the date hereof, then, in each such case, the
Company and Carousel will negotiate in good faith to effect a mutually
acceptable increase to such advisory fee. The Company will also reimburse
Carousel promptly for Carousel's reasonable out-of-pocket costs and expenses
incurred in connection with the performance of Carousel's duties hereunder.
The Company represents and warrants to Carousel that the services to
be rendered hereunder by Carousel will be reimburseable expenses under the
management services agreements between the Company and its direct subsidiaries,
including, but not limited to, the Management Services Agreement (the
"Management Services Agreement"), made as of July 31, 1997, by and between the
Company and MJD Holdings Corp. ("Holdings"), and that no provision of the
Management Services Agreement affecting Carousel's right to payment hereunder
will be amended, waived or terminated by either the Company or Holdings without
the prior written consent of Carousel.
In the event the Company is not permitted to pay any amounts due
hereunder to Carousel by any debt instruments or agreements, including any
amendment, renewal, extension, substitution, refinancing, replacement or other
modification thereof ("Financing Documents") entered into by the Company or any
of its subsidiaries, the Company shall pay such deferred amounts together with
8% annual interest thereon as soon as such payment is permissible under such
Financing Documents.
The Company will indemnify Carousel and its affiliates, and their
respective officers, directors, employees, agents, partners, managers, members,
and control persons (as such term is used in the Securities Act of 1933, as
amended, and the rules and regulations thereunder) to the full extent lawful
against any and all claims, losses and expenses as incurred (including all
reasonable fees and disbursements of any such indemnitee's counsel and other
out-of-pocket expenses incurred in connection with the investigation of and
preparation for any such pending or threatened claims and any litigation or
other proceedings arising therefrom) arising out of any services rendered by
Carousel hereunder, provided, however, there shall be excluded from such
-------- -------
indemnification any such claim, loss or expense that is based upon any action or
failure to act by Carousel that is found in a final judicial determination to
constitute gross negligence or intentional misconduct on Carousel's part. The
Company will advance costs and expenses, including attorney's fees, incurred by
any
2
<PAGE>
such indemnitee in defending any such claim in advance of the final disposition
of such claim upon receipt of an undertaking by or on behalf of such indemnitee
to repay amounts so advanced if it shall ultimately be determined that such
indemnitee is not entitled to be indemnified by the Company pursuant to this
Agreement.
The Company's obligations set forth in this Agreement shall survive
the termination of Carousel's services pursuant to paragraph one.
This agreement shall be governed by the laws of the State of New York.
3
<PAGE>
If you are in agreement with the foregoing, kindly so indicate by
signing a counterpart of this letter, whereupon it will become a binding
agreement between us.
Very truly yours,
MJD COMMUNICATIONS, INC.
By:
------------------------------
Name:
Title:
Agreed and accepted as of
July 31, 1997.
CAROUSEL CAPITAL COMPANY, L.L.C.
By:
----------------------------
Name:
Title:
Acknowledged as of
July 31, 1997.
MJD HOLDINGS CORP.
By:
-----------------------------
Name:
Title:
4
<PAGE>
5
<PAGE>
EXHIBIT 10.14
SHARE EXCHANGE AGREEMENT
AMONG
MJD PARTNERS, L.P.
AND
MJD COMMUNICATIONS, INC.
____________
Dated as of July 31, 1997
____________
<PAGE>
This SHARE EXCHANGE AGREEMENT, dated as of July 31, 1997, is made and
entered into by and among MJD PARTNERS, L.P., a Delaware limited partnership
("Partners"), and MJD COMMUNICATIONS, INC., a Delaware corporation (the
"Company").
WHEREAS, Partners is the sole shareholder of MJD Holdings Corp., a
Delaware corporation ("Holdings"), and wishes to exchange all of its shares of
Holdings Common Stock (as defined below) for shares of Company Common Stock (as
defined below);
WHEREAS, for federal income tax purposes, it is intended that the
transaction contemplated by this Agreement shall qualify as a tax-free
reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended (the "Code");
NOW, THEREFORE in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending legally
to be bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1. Definitions. In addition to the terms defined in the
-----------
preamble above, the following terms shall, unless the context requires
otherwise, have the meanings indicated:
"Agreement" means this Share Exchange Agreement, as the same may be
---------
amended, supplemented or modified in accordance with the terms hereof.
"Business Day" means a day of the year on which banks are not required
------------
or authorized by the appropriate Governmental Authority to close in the City of
New York.
"Closing" has the meaning assigned thereto in Section 2.1.
-------
"Closing Date" has the meaning assigned thereto in Section 2.1.
------------
"Company Common Stock" means the Class A Voting common stock of the
--------------------
Company, par value $.01 per share.
"Governmental Authority" means any government or any agency, bureau,
----------------------
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
<PAGE>
"Holdings Common Stock" means the common stock, $0.01 par value per
---------------------
share, of Holdings.
"Material Adverse Effect" means, with respect to any Person, a
-----------------------
material adverse effect on the business, financial condition, properties, assets
or results of operations of such Person.
"Person" means an individual, a corporation or limited liability
------
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
ARTICLE II
EXCHANGE OF SHARES
-------------------
Section 2.1. Exchange of Shares. Subject to the terms and
------------------
conditions herein set forth, the Company agrees that it will exchange, on the
Closing Date, one and forty-five hundredths (1.45) shares of Company Common
Stock for each share of Holdings Common Stock delivered to the Company by
Partners, and Partners agrees to exchange, on the Closing Date, all 100 of its
shares of Holdings Common Stock for 145 shares of Company Common Stock.
The closing of the exchange of shares of Holdings Common Stock for
Company Common Stock (the "Closing") shall take place on the date (the "Closing
Date") and at the location of the closing of the transactions contemplated by
the Stock Purchase Agreement dated as of March 6, 1997 by and among the Company,
Partners, Carousel Capital Partners, L.P., Kelso Investment Associates V, L.P.
and Kelso Equity Partners V, L.P.
Delivery of the shares of Company Common Stock to be exchanged for
shares of Holdings Common Stock pursuant to this Agreement shall be made at the
Closing by the Company by delivering to Partners, against delivery to the
Company by Partners of all stock certificates duly endorsed in blank or together
with executed stock transfer powers attached thereto representing the shares of
Holdings Common Stock to be exchanged, a stock certificate representing Company
Common Stock registered in Partners' name and representing the number of shares
of Company Common Stock as Partners is entitled to receive in accordance with
the provisions of the first paragraph of this Section 2.1.
-ii-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.1. Representations and Warranties of the Company. The
---------------------------------------------
Company represents and warrants to Partners that, as of the date hereof:
(a) The shares of Company Common Stock to be issued to Partners under
the terms of this Agreement have been duly and validly authorized and, when
issued and delivered in accordance with this Agreement, will be duly and validly
issued, fully paid and nonassessable.
(b) No consent, approval, authorization or order of, or any filing or
declaration with, any Governmental Authority is required for the consummation by
the Company of the transactions on its part contemplated herein, except those
which have been obtained or made prior to the date hereof.
(c) The Company has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
issue the shares of Company Common Stock in exchange for shares of Holdings
Common Stock. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company and
is enforceable against the Company in accordance with its terms, except to the
extent that enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws and court
decisions now or hereafter in effect relating to or affecting creditors' rights
and remedies generally and to general principles of equity. The performance by
the Company of this Agreement and the consummation of the transactions
contemplated hereby do not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any other party a right
to terminate any of its obligations under, or result in the acceleration of any
obligation under, the certificate of incorporation or by-laws of the Company,
any contract or other agreement to which the Company is a party or by which the
Company or any of its properties is bound or affected, or violate or conflict
with any judgment, ruling, decree, order, statute, rule or regulation of any
court or governmental agency or body applicable to the business or properties of
the Company, except for any such breach, violation, default, termination,
acceleration or conflict which would not have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole.
Section 3.2. Representations and Warranties of Partners. Partners
------------------------------------------
represents and warrants to the Company as follows, as of the date hereof:
-iii-
<PAGE>
(a) Partners is the record and beneficial owner of 100 shares of
Holdings Common Stock, such shares representing all the outstanding capital
stock of Holdings as of the date hereof, and has, and will have at the Closing,
valid and marketable title to all of such shares of Holdings Common Stock, free
and clear of any liens, claims, charges, security interests or other legal or
equitable encumbrances, limitations or restrictions, including any restrictions
imposed by any shareholder or similar agreements or any of the constituent
corporate documents of Holdings. There are no outstanding options, warrants or
other rights that could require Holdings to issue any additional shares of its
capital stock. Delivery of certificates representing shares of Holdings Common
Stock to the Company, accompanied by appropriate instruments of transfer, will
transfer valid and marketable title thereto to the Company.
(b) No consent, approval, authorization or order of, or any filing or
declaration with, any Governmental Authority is required in connection with the
exchange by Partners contemplated by this Agreement, except those which have
been obtained or made prior to the date hereof.
(c) Partners has all requisite partnership power and authority to
enter into this Agreement and to perform its obligations hereunder. This
Agreement has been duly executed by Partners and constitutes the valid and
binding obligation of Partners, enforceable against Partners in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws and court
decisions now or hereafter in effect relating to or affecting creditors' rights
and remedies generally and to general principles of equity. The performance by
Partners of this Agreement and the consummation of the transactions contemplated
hereby do not result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of Partners pursuant to the terms or
provisions of, or result in a breach or violation of any of the terms or
provisions of, or constitute a default under the certificate of limited
partnership or the agreement of limited partnership of Partners, any contract or
other agreement to which Partners is a party or by which Partners or any of its
properties is bound or affected, or violate or conflict with any law, judgment,
ruling, decree, order, statute, rule or regulation applicable to Partners,
except for any such breach, violation, default or conflict which would not have
a Material Adverse Effect on Partners and its subsidiaries, taken as a whole.
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Section 4.1. Conditions Precedent to Obligations of Partners. The
-----------------------------------------------
obligation of Partners to consummate the exchange contemplated by this Agreement
is subject to the satisfaction of the following conditions at or prior to the
Closing:
-iv-
<PAGE>
(a) The representations and warranties made by the Company herein
shall be true and correct in all respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of the Closing Date.
(b) The exchange contemplated by this Agreement shall not, on the
Closing Date, be prohibited or enjoined (temporarily or permanently) under the
laws of any jurisdiction to which Partners is subject.
Section 4.2. Conditions Precedent to Obligations of the Company. The
--------------------------------------------------
obligation of the Company to consummate the exchange contemplated by this
Agreement is subject to the satisfaction of the following conditions at or prior
to the Closing:
(a) The representations and warranties made by Partners herein shall
be true and correct in all respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date. The tender of the shares of Holdings Common Stock by Partners
shall serve as confirmation of Partners' representations and warranties on the
Closing Date.
(b) The exchange contemplated by this Agreement shall not, on the
Closing Date, be prohibited or enjoined (temporarily or permanently) under the
laws of any jurisdiction to which the Company is subject.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1. Survival of Provisions. Each of the representations,
----------------------
warranties and covenants of the Company and Partners made herein shall survive
the Closing and remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto.
Section 5.2. No Waiver; Modifications in Writing. No failure or
-----------------------------------
delay on the part of the Company or Partners in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or Partners at law or in equity or
otherwise. No waiver of or consent to any departure by the Company or Partners
from any provision of this Agreement shall be effective unless signed in writing
by the party entitled to the benefit thereof, provided that notice of any such
--------
waiver shall be given to each party hereto as set forth below. Except as
otherwise provided herein, no amendment, modification or termination of any
provision of this Agreement shall be effective unless signed in writing by each
party
-v-
<PAGE>
hereto. Any amendment, supplement or modification of or to any provision of this
Agreement, any waiver of any provision of this Agreement, and any consent to any
departure by the Company or Partners from the terms of any provision of this
Agreement, shall be effective only in the specific instance and for the specific
purpose for which made or given.
Section 5.3. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same agreement.
Section 5.4. Binding Effect; Assignment. The rights and obligations
--------------------------
of Partners under this Agreement may not be assigned to any other Person except
with the prior consent of the Company. Except as expressly provided in this
Agreement, this Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Agreement, and their
respective successors and assigns. This Agreement shall be binding upon the
Company and Partners, and their successors and assigns.
Section 5.5. Governing Law. This Agreement shall be deemed to be a
-------------
contract made under the internal laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of such State, without
regard to the principles of the conflict of laws thereof.
Section 5.6. Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 5.7. Headings. The Article and Section headings used or
--------
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
[Remainder of Page Intentionally Left Blank]
-vi-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
MJD COMMUNICATIONS, INC.
By ___________________________________________
Name:
Title:
MJD PARTNERS, L.P.
by: MJD Partners, Inc., its general partner
By ___________________________________________
Name:
Title:
-vii-
<PAGE>
EXHIBIT 10.15
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT ("AGREEMENT") is made as of this 31st day
of July, 1997 among Meyer Haberman, Jack H. Thomas, Eugene B. Johnson and Bugger
Associates, Inc., a Delaware corporation (collectively, the "FOUNDERS"), and MJD
Partners, L.P., a Delaware limited partnership ("PARTNERS").
RECITALS:
WHEREAS, each Founder is the owner of certain subordinated promissory
notes (collectively, the "NOTES") of MJD Communications, Inc., a Delaware
corporation ("MJD"), in the amounts set forth opposite such Founder's name on
Schedule A attached hereto;
WHEREAS, each Founder has been unable to locate the original Notes
owned by such Founder and has executed a Lost Note Indemnity Agreement dated
July 31, 1997;
WHEREAS, on the date hereof and as evidenced by cross receipts being
executed by each Founder, the unpaid interest due on the Notes is being paid by
the Company to the Founders;
WHEREAS, the Founders hold partnership interests in Partners and
desire to contribute to Partners all right, title and interest in the Notes in a
transaction to be treated as a nontaxable contribution to capital pursuant to
Section 721 of the Internal Revenue Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties hereto agree as follows:
AGREEMENTS:
1. Contribution of Notes. Each Founder shall contribute, transfer
---------------------
and assign to Partners all of such Founder's right, title and interest in each
Note set forth opposite such Founder's name on Schedule A attached hereto, free
and clear of all restrictions, liens, security interests and other encumbrances.
<PAGE>
2. Payment of Accrued Interest. Each Founder acknowledges and
---------------------------
agrees that he has been paid all accrued and unpaid interest on each Note that
he or it is contributing, transferring and assigning to Partners on the Closing
Date (as hereinafter defined).
3. Closing. The closing (the "CLOSING") of the transactions
-------
contemplated by this Agreement shall occur on the date (the "CLOSING DATE") and
at the location of the closing of the transactions contemplated by the Stock
Purchase Agreement dated as of March 6, 1997 by and among MJD, Partners,
Carousel Capital Partners, L.P., Kelso Investment Associates V, L.P. and Kelso
Equity Partners V, L.P. The following actions shall be deemed to occur
simultaneously at the Closing:
(a) each Founder shall deliver to Partners such instruments and
agreements as may be appropriate, in each case duly executed by such
Founder, contributing, assigning and transferring to Partners all of such
Founder's right, title and interest in and to the Notes, free and clear of
all restrictions, liens, security interests and other encumbrances;
(b) Partners shall (i) cause the books and records of Partner's
to reflect an increase in the basis of such Founder's partnership interest
in Partners equal to the unpaid principal amount of the Notes contributed
and (ii) execute and deliver such other instruments and agreements as may
be appropriate, in each case duly executed by Partners.
4. Nontaxable Contribution to Capital. The parties hereto hereby
----------------------------------
acknowledge and agree that they intend for the transactions contemplated by this
Agreement to constitute a nontaxable contribution to capital pursuant to Section
721 of the Code.
5. Counterparts; Further Assurances. This Agreement may be executed
--------------------------------
in counterparts. The parties agree to execute such documents and instruments of
assignment as may be necessary or expedient to carry out the transactions
contemplated by this Agreement.
6. Miscellaneous. This Agreement shall be governed by the laws of
-------------
the State of New York without regard to the principles of conflicts of law
thereof.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above set forth.
MJD PARTNERS, L.P.
By: MJD Partners, Inc.,
its general partner
By:___________________________
Title:________________________
Print Name:___________________
______________________________
Meyer Haberman
______________________________
Jack H. Thomas
______________________________
Eugene B. Johnson
BUGGER ASSOCIATES, INC.
By:___________________________
Title:________________________
Print Name:___________________
-3-
<PAGE>
SCHEDULE A
SUBORDINATED PROMISSORY NOTES
Meyer Haberman
- --------------
1) Subordinated Promissory Note dated as of April 30, 1993 in the principal
amount of $187,500.00.
2) Subordinated Promissory Note dated as of May 31, 1993 in the principal
amount of $45,657.89.
Jack H. Thomas
- --------------
1) Subordinated Promissory Note dated as of April 30, 1993 in the principal
amount of $165,000.00.
2) Subordinated Promissory Note dated as of May 31, 1993 in the principal
amount of $40,178.95.
3) Subordinated Promissory Note dated as of December 7, 1993 in the principal
amount of $22,500.00.
Eugene B. Johnson
- -----------------
1) Subordinated Promissory Note dated as of April 30, 1993 in the principal
amount of $60,000.00.
2) Subordinated Promissory Note dated as of May 31, 1993 in the principal
amount of $14,610.53.
3) Subordinated Promissory Note dated as of December 7, 1993 in the principal
amount of $15,000.00.
Bugger Associates, Inc.
- -----------------------
1) Subordinated Promissory Note dated as of April 30, 1993 in the principal
amount of $300,000.00.
2) Subordinated Promissory Note dated as of May 31, 1993 in the principal
amount of $73,052.63.
-4-
<PAGE>
EXHIBIT 10.16
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT ("AGREEMENT") is made as of this 31st day
of July, 1997 between MJD Partners, L.P., a Delaware limited partnership
("PARTNERS"), and MJD Communications, Inc., a Delaware corporation (the
"CORPORATION").
RECITALS:
WHEREAS, pursuant to the Contribution Agreement dated as of the date
hereof among Meyer Haberman, Jack H. Thomas, Eugene B. Johnson, Bugger
Associates, Inc. and Partners, Partners became the owner of the subordinated
promissory notes (the "NOTES") of the Corporation listed on Schedule A hereto;
WHEREAS, Partners is a stockholder of the Corporation and desires to
contribute to the Corporation all of its right, title and interest in the Notes
in a transaction to be treated as a nontaxable contribution to capital pursuant
to the Internal Revenue Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties hereto agree as follows:
AGREEMENTS:
1. Contribution of Notes. Partners shall contribute, transfer and
---------------------
assign to the Corporation all of Partners' right, title and interest in and to
each Note listed on Schedule A attached hereto, free and clear of all
restrictions, liens, security interests and other encumbrances.
2. Payment of Accrued Interest. Partners acknowledges and agrees
---------------------------
that all accrued and unpaid interest on the Notes was paid to the original
holders thereof on the Closing Date (as hereinafter defined).
3. Closing. The closing (the "CLOSING") of the transactions
-------
contemplated by this Agreement shall occur on the date (the "CLOSING DATE") and
at the location of the closing of the transactions contemplated by the Stock
Purchase Agreement dated as of March 6, 1997 by and among
<PAGE>
the Corporation, Partners, Carousel Capital Partners, L.P., Kelso Investment
Associates V, L.P. and Kelso Equity Partners V, L.P. The following actions shall
be deemed to occur simultaneously at the Closing:
(a) Partners shall deliver to the Corporation such instruments
and agreements as may be appropriate, in each case duly executed by
Partners, contributing, assigning and transferring to the Corporation all
of Partners' right, title and interest in and to the Notes, free and clear
of all restrictions, liens, security interests and other encumbrances; and
(c) The Corporation shall execute and deliver such other
instruments and agreements as may be appropriate, in each case duly
executed by the Corporation.
4. Representations and Warranties of the Corporation. The
-------------------------------------------------
Corporation has all requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
has been duly authorized, executed and delivered by the Corporation and
constitutes a valid and binding agreement of the Corporation and is enforceable
against the Corporation in accordance with its terms, except to the extent that
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other laws and court decisions now or
hereafter in effect relating to or affecting creditors' rights and remedies
generally and to general principles of equity. The performance by the
Corporation of this Agreement and the consummation of the transactions
contemplated hereby do not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Corporation pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any other party a right
to terminate any of its obligations under, or result in the acceleration of any
obligation under, the certificate of incorporation or by-laws of the
Corporation, any contract or other agreement to which the Corporation is a party
or by which the Corporation or any of its properties is bound or affected, or
violate or conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or governmental agency or body applicable to the
business or properties of the Corporation, except for any such breach,
violation, default, termination, acceleration or conflict which would not have a
material adverse effect on the
2
<PAGE>
business, financial condition, properties, assets or results of operations (a
"Material Adverse Effect") of the Corporation and its subsidiaries, taken as a
whole.
5. Representations and Warranties of Partners Partners has all
------------------------------------------
requisite partnership power and authority to enter into this Agreement and to
perform its obligations hereunder. This Agreement has been duly executed by
Partners and constitutes the valid and binding obligation of Partners,
enforceable against Partners in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws and court decisions now or hereafter in effect
relating to or affecting creditors' rights and remedies generally and to general
principles of equity. The performance by Partners of this Agreement and the
consummation of the transactions contemplated hereby do not result in the
creation or imposition of any lien, charge or encumbrance upon any of the assets
of Partners pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under
the certificate of limited partnership or the agreement of limited partnership
of Partners, any contract or other agreement to which Partners is a party or by
which Partners or any of its properties is bound or affected, or violate or
conflict with any law, judgment, ruling, decree, order, statute, rule or
regulation applicable to Partners, except for any such breach, violation,
default or conflict which would not have a Material Adverse Effect on Partners.
6. Tax Representation and Warranty of Partners.
-------------------------------------------
Partners represents and warrants to the Corporation that its adjusted basis in
each Note for federal income tax purposes equals the outstanding principal
balance of such Note. This representation and warranty shall not survive the
closing.
7. Nontaxable Contribution to Capital. The parties hereto hereby
----------------------------------
acknowledge and agree that they intend for the transactions contemplated by this
agreement to constitute a nontaxable contribution to capital pursuant to Section
118 of the Code.
8. Counterparts; Further Assurances. This Agreement may be executed
--------------------------------
in counterparts. The parties agree to execute such documents, stock powers and
instruments of assignment as may be necessary or expedient to carry out the
transactions contemplated by this Agreement.
3
<PAGE>
9. Miscellaneous. This Agreement shall be governed by the laws of
-------------
the State of New York without regard to the principles of conflicts of law
thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above set forth.
MJD COMMUNICATIONS, INC.
By:___________________________
Title:________________________
Print Name:___________________
MJD PARTNERS, L.P.
by MJD Partners, Inc.
its general partner
By:___________________________
Title:________________________
Print Name:___________________
5
<PAGE>
SCHEDULE A
SUBORDINATED PROMISSORY NOTES
Meyer Haberman
- --------------
1) Subordinated Promissory Note dated as of April 30, 1993 in the principal
amount of $187,500
2) Subordinated Promissory Note dated as of May 31, 1993 in the principal
amount of $45,657.89
Jack H. Thomas
- --------------
1) Subordinated Promissory Note dated as of April 30, 1993 in the principal
amount of $165,000
2) Subordinated Promissory Note dated as of May 31, 1993 in the principal
amount of $40,178.95
3) Subordinated Promissory Note dated as of December 7, 1993 in the principal
amount of $22,500
Eugene B. Johnson
- -----------------
1) Subordinated Promissory Note dated as of April 30, 1993 in the principal
amount of $60,000
2) Subordinated Promissory Note dated as of May 31, 1993 in the principal
amount of $14,610.53
3) Subordinated Promissory Note dated as of December 7, 1993 in the principal
amount of $15,000
Bugger Associates, Inc.
- -----------------------
1) Subordinated Promissory Note dated as of April 30, 1993 in the principal
amount of $300,000
2) Subordinated Promissory Note dated as of May 31, 1993 in the principal
amount of $73,052.63
<PAGE>
EXHIBIT 10.17
Right to Purchase 20.64 Shares of
Class A Voting Common Stock
of
MJD COMMUNICATIONS, INC.
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR UNLESS, IN THE OPINION OF COUNSEL TO THE STOCKHOLDER, WHICH COUNSEL MUST
BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE, SATISFACTORY TO THE ISSUER,
SUCH OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER
DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE
ACT, SUCH LAWS AND THE STOCKHOLDERS' AGREEMENT OF THE ISSUER, DATED AS OF JULY
31, 1997 (THE "STOCKHOLDERS' AGREEMENT").
THIS WARRANT AND THE SHARES OF STOCK PURCHASABLE UNDER THIS WARRANT
ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER CONDITIONS, AS SPECIFIED IN
THE STOCKHOLDERS' AGREEMENT, COPIES OF WHICH ARE ON FILE AT THE OFFICE OF THE
ISSUER AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS WARRANT AND
SUCH SHARES UPON WRITTEN REQUEST.
No. AW1
MJD COMMUNICATIONS, INC.
Amended and Restated Class A Voting Common Stock Purchase Warrant
MJD COMMUNICATIONS, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Eugene Johnson ("Holder"), or its
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company at any time or from time to time after the date hereof, subject to the
provisions of Section 2.3 hereof, 20.64 fully paid and non-
<PAGE>
assessable shares of Class A Voting Common Stock (as defined in Section 11
hereof). In all cases the shares of Class A Voting Common Stock purchased
hereunder shall be at an initial purchase price per share of $.01 (such price
per share as adjusted from time to time as provided herein is referred to herein
as the "Exercise Price", which price shall in no event be less than the par
value of the Class A Voting Common Stock). The number and character of such
shares of Class A Voting Common Stock and the Exercise Price are subject to
adjustment as provided herein. This Warrant amends and restates in its entirety
the Class A Voting Common Stock Purchase Warrants represented by warrant
certificate nos. W-5 and W-13 issued by the Company to the Holder on June 6,
1996 (the "Original Warrants").
This Warrant shall be subject to all of the terms and conditions of
the Stockholders' Agreement as if it were "Common Stock" or otherwise
constituted an "interest therein" (as such terms are defined and used in the
Stockholders' Agreement).
1. DEFINITIONS. Terms defined in the Stockholders' Agreement and not
-----------
otherwise defined herein are used herein with the meanings so defined. Certain
terms used in this Warrant are specifically defined in Section 11 hereof.
2. EXERCISE OF WARRANT.
-------------------
2.1 Exercise. This Warrant may be exercised in whole or in part
--------
prior to its expiration by the holder hereof at any time or from time to time,
by surrender of this Warrant, with the form of subscription at the end hereof
duly executed by such holder, to the Company at its principal office,
accompanied by payment by check payable to the order of the Company or by wire
transfer to its account, in the amount obtained by multiplying the number of
shares of Class A Voting Common Stock for which this Warrant is then being
exercised by the Exercise Price then in effect. In the event the Warrant is not
exercised in full, the Company, at its expense, will forthwith issue and deliver
to or upon the order of the holder hereof a new Warrant or Warrants of like
tenor, in the name of the holder hereof or as such holder (upon payment by such
holder of any applicable transfer taxes) may request, calling in the aggregate
on the face or faces thereof for the number of shares of Class A Voting
-2-
<PAGE>
Common Stock equal (without giving effect to any adjustment therein) to the
number of such shares called for on the face of this Warrant minus the number of
such shares (without giving effect to any adjustment therein) for which this
Warrant shall have been exercised.
2.2 Warrant Agent. In the event that a bank or trust company
-------------
shall have been appointed as trustee for the holder of the Warrant pursuant to
Section 5.2 hereof, such bank or trust company shall have all the powers and
duties of a warrant agent appointed pursuant to Section 12 hereof and shall
accept, in its own name for the account of the Company or such successor entity
as may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 2.
2.3 Termination. This Warrant shall terminate upon the earliest
-----------
to occur of (i) its (and any replacement Warrant's) exercise in full or (ii)
July 31, 2016.
2.4 Commencement of Exercise Period. This Warrant shall be
-------------------------------
exercisable at any time and from time to time after the date hereof.
3. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
------------------------------------------
3.1 Delivery. As soon as practicable after the exercise of this
--------
Warrant in full or in part, and in any event within ten (10) days thereafter,
the Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the holder
hereof, or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock to which such holder shall
be entitled on such exercise, together with any other stock or other securities
and property (including cash, where applicable) to which such holder is entitled
upon such exercise.
3.2 Fractional Shares. In the event that the exercise of this
-----------------
Warrant, in full or in part, results in the issuance of any fractional share of
Common Stock, then in such
-3-
<PAGE>
event the holder of the Warrant shall be entitled to cash equal to the fair
market value of such fractional share as determined in good faith by the
Company's Board of Directors.
4. ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS. In
-------------------------------------------------------------
case at any time or from time to time, the holders of Class A Voting Common
Stock shall have received, or (on or after the record date fixed for the
determination of shareholders eligible to receive) shall have become entitled to
receive, without payment therefor:
(a) other or additional stock or other securities or property by
way of dividend; or
(b) other or additional stock or other securities or property by
way of spin-off, split-up, reclassification, recapitalization, combination
of shares or similar corporate restructuring;
other than additional shares of Class A Voting Common Stock issued as a stock
dividend or in a stock-split (adjustments in respect of which are provided for
in Section 6 hereof), then and in each such case the holder of this Warrant, on
the exercise hereof as provided in Section 2 hereof, shall be entitled to
receive the amount of stock and other securities and property which such holder
would have received prior to or would have held on the date of such exercise if
on the date hereof it had been the holder of record of the number of shares of
Class A Voting Common Stock called for on the face of this Warrant and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and all such other or additional stock and
other securities and property receivable by such holder as aforesaid during such
period, giving effect to all further adjustments called for during such period
by Sections 5 and 6 hereof.
5. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
----------------------------------------------------------
5.1 Certain Adjustments. In case at any time or from time to
-------------------
time, the Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii)
-4-
<PAGE>
consolidate with or merge into any other Person, or (iii) transfer all or
substantially all of its properties or assets to any other Person under any plan
or arrangement contemplating the dissolution of the Company, then in each such
case, the holder of this Warrant, on the exercise hereof as provided in Section
2 hereof at any time after the consummation of such reorganization,
recapitalization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Class A Voting
Common Stock issuable on such exercise prior to such consummation or effective
date, the stock and other securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such holder had so exercise this
Warrant immediately prior thereto, all subject to further adjustment thereafter
as provided in Sections 4 and 6 hereof.
5.2 Appointment of Trustee for Warrant Holders Upon Dissolution.
-----------------------------------------------------------
In the event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrant after the effective date of such dissolution
pursuant to this Section 5 to a bank or trust company having its principal
office in New York, as trustee for the holder or holders of the Warrant.
5.3 Continuation of Terms. Upon any reorganization,
---------------------
consolidation, merger, sale or transfer (and any dissolution following any
transfer) referred to in this Section 5, this Warrant shall continue in full
force and effect and the terms hereof shall be applicable to the shares of stock
and other securities and property receivable on the exercise of this Warrant
after the consummation of such reorganization, consolidation, merger, sale or
transfer or the effective date of dissolution following any such transfer, as
the case may be, and in the case of such reorganization, consolidation or merger
only, shall be binding upon the issuer of any such stock or other securities,
whether or not such Person shall have expressly assumed the terms of this
Warrant as provided in Section 7 hereof.
-5-
<PAGE>
6. ADJUSTMENTS FOR ISSUANCE OF CLASS A VOTING COMMON STOCK AND
-----------------------------------------------------------
AMOUNT OF OUTSTANDING CLASS A VOTING COMMON STOCK. If at any time there shall
- -------------------------------------------------
occur any stock split, stock dividend, reverse stock split or other subdivision
of the Company's Class A Voting Common Stock ("Stock Event"), then the number of
shares of Class A Voting Common Stock to be received by the holder of this
Warrant shall be appropriately adjusted such that the proportion of the number
of shares issuable hereunder to the total number of shares of the Company (on a
fully-diluted basis) prior to such Stock Event is equal to the proportion of the
number of shares issuable hereunder after such Stock Event to the total number
of shares of the Company (on a fully-diluted basis) after such Stock Event.
No adjustment of the Exercise Price shall be made in connection with
any adjustment of the number of shares of Class A Voting Common Stock receivable
upon exercise of this Warrant, except that the Exercise Price shall be
proportionately decreased or increased upon the occurrence of any stock split,
reverse stock split or other subdivision of the Class A Voting Common Stock.
7. NO IMPAIRMENT. The Company will not, by amendment of its
-------------
Certificate of Incorporation or thorough any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrant. Without limiting the generality of the foregoing, the
Company:
(i) will not increase the par value of any shares of stock
receivable on the exercise of the Warrant above the amount payable
therefor on such exercise;
(ii) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
non-assessable shares of stock on the exercise of the Warrant from
time to time outstanding; and
-6-
<PAGE>
(iii) will not transfer all or substantially all of its
properties and assets to any other entity (corporate or otherwise), or
consolidate with or merge into any other entity or permit any such
entity to consolidate with or merge into the Company (if the Company
is not the surviving entity), unless such other entity shall expressly
assume in writing and will be bound by all the terms of this Warrant
and the Agreement.
8. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
------------------------------------------
event that may require any adjustment or readjustment in the shares of Class A
Voting Common Stock issuable on the exercise of this Warrant, the Company at its
expense will promptly prepare a certificate setting forth such adjustment or
readjustment, or stating the reasons why no adjustment or readjustment is being
made, and showing, in reasonable detail, the facts upon which any such
adjustment or readjustment is based, including a statement of (i) the number of
shares of the Company's Class A Voting Common Stock then outstanding on a fully-
diluted basis, and (ii) the number of shares of Class A Voting Common Stock to
be received upon exercise of this Warrant, in effect immediately prior to such
adjustment or readjustment and as adjusted an readjusted (if required by Section
6) on account thereof. The Company will forthwith mail a copy of each such
certificate to each holder of a Warrant, and will, on the written request at any
time of any holder of a Warrant, furnish to such holder a like certificate
setting forth the calculations used to determine such adjustment or
readjustment. At its option the holder of a Warrant may confirm the adjustment
noted on the certificate by causing such adjustment to be computed by an
independent certified public accountant at the expense of such holder unless
such accountant determines an error of more than five percent (5%) was made in
the adjustment noted on such certificate, in which case such confirmation shall
be at the expense of the Company.
9. NOTICES OF RECORD DATE. In the event of:
----------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to
-7-
<PAGE>
receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to or
any consolidation or merger of the Company with or into any other Person;
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is anticipated to take place, and the time, if any is to be fixed, as
of which the holders of record of Class A Voting Common Stock shall be entitled
to exchange their shares of Class A Voting Common Stock for securities or other
property deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least thirty (30) days prior to the date specified in
such notice on which any such action is to be taken.
10. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company
----------------------------------------------------
will at all times reserve and keep available solely for issuance and delivery on
the exercise of this Warrant, a number of shares of Class A Voting Common Stock
equal to the total number of shares of Class A Voting Common Stock from time to
time issuable upon exercise of this Warrant and, from time to time, will take
all steps necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of Class A Voting Common Stock issuable upon
exercise of this Warrant.
-8-
<PAGE>
11. DEFINITIONS. As used herein the following terms, unless the
-----------
context otherwise requires, have the following respective meanings:
11.1 The term Company shall include the Company and any
-------
corporation which shall succeed to or assume the obligations of the Company
hereunder.
11.2 The term Class A Voting Common Stock includes (i) the
---------------------------
Company's Class A Voting Common Stock, $.01 par value per share, (ii) any other
capital stock of any class or classes (however designated) of the Company, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the right to vote at meetings of the shareholders
and (iii) any other securities into which or for which any of the securities
described in clause (i) or (ii) above have been converted or exchanged pursuant
to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
11.3 The term Stockholders' Agreement shall mean that certain
-----------------------
Stockholders' Agreement dated as of July 31, 1997 among the Company, Carousel
Capital Partners, L.P., Kelso Investment Associates V, L.P., Kelso Equity
Partners V, L.P., MJD Partners, L.P. and certain other parties thereto.
11.4 The term Person shall mean an individual, partnership,
------
corporation, association, trust, joint venture, unincorporated organization, and
any government, governmental department or agency or political subdivision
thereof.
12. WARRANT AGENT. The Company may, by written notice to the holder
-------------
of this Warrant, appoint an agent having an office in New York for the purpose
of issuing Class A Voting Common Stock on the exercise of this Warrant pursuant
to Section 2 hereof, and exchanging or replacing this Warrant pursuant to the
Agreement, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
-9-
<PAGE>
13. REMEDIES. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
14. NOTICES. All notices and other communications from the Company to
-------
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, or sent by overnight courier (or sent in the
form of a telex or telecopy) at such address as may have been furnished to the
Company in writing by such holder or, until any such holder furnished to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
15. MISCELLANEOUS. In case any provision of this Warrant shall be
-------------
invalid, illegal or unenforceable, or partially invalid, illegal or
unenforceable, the provision shall be enforced to the extent, if any, that it
may legally be enforced and the validity, legality and enforceability of the
remaining provisions shall not in any wa be affected or impaired thereby. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by a statement in writing signed by the party against which enforcement of
such change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the domestic substantive laws (and
not the conflict of law rules) of the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof.
16. CERTAIN OTHER AGREEMENTS. By executing the signature page hereto,
the Holder does acknowledge and agree that (a) the Holder has no further rights,
and the Company has no further obligations, under the Original Warrant
(including as a result of operation of Sections 4, 5, 6 or 7 thereof) and (b)
the consummation of the transactions contemplated by the Stock Purchase
Agreement dated as of March 6, 1997 by and among the
-10-
<PAGE>
Company, MJD Partners, L.P., Carousel Capital Partners, L.P., Kelso Investment
Associates V, L.P., and Kelso Equity Partners V, L.P. will not constitute an
event requiring any adjustment to the number of shares of Common Stock issuable
upon exercise pursuant to the terms of either this Warrant or the Original
Warrant.
-11-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated: July 31, 1997
MJD COMMUNICATIONS, INC.
(Corporate Seal)
By:__________________________________
Name:
Title:
Attest:
___________________________
Secretary
ACCEPTED AND AGREED TO:
___________________________
-12-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise
of Common Stock Purchase Warrant)
TO: MJD COMMUNICATIONS, INC.
The undersigned, the Holder of the Class A Voting Common Stock
Purchase Warrant, hereby irrevocably elects to exercise this Class A Voting
Common Stock Purchase Warrant for, and to purchase thereunder ___ shares of
Class A Voting Common Stock of MJD COMMUNICATIONS, INC. and herewith makes
payment of $_________ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to _________, whose address is
_________________________.
Dated:____________ ________________________________________
(Signatures must conform in all
respect to name of Holder as
specified on the face of the
Warrant)
___________________________________
(Address)
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto __________ the right represented by the within Warrant to
purchase ____ shares of Class A Voting Common Stock of MJD COMMUNICATIONS, INC.,
a Delaware corporation, to which the within Warrant related, and appoints
___________ attorney to transfer such right on the books of MJD COMMUNICATIONS,
INC., with full power of substitution in the premises.
Dated:_______________ By:_______________________________
Name:
Title:
_____________________________
(Address)
Signed in the present of:
___________________________
Name:
<PAGE>
EXHIBIT 10.18
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "AGREEMENT") is made and entered into as of
this 31st day of July, 1997 by and between MJD PARTNERS, INC., a Delaware
corporation (the "COMPANY"), and BUGGER ASSOCIATES, INC., a Delaware corporation
(the "CONSULTING COMPANY"). In consideration of the terms and conditions of
this Agreement, the parties hereto agree as follows:
1. ENGAGEMENT. The Company agrees to retain the services of the
----------
Consulting Company as provided for in this Agreement, and the Consulting Company
agrees to make available the services of Daniel G. Bergstein (the "CONSULTANT")
for such purpose, on a non-exclusive basis upon the terms and conditions as set
forth in this Agreement.
2. TERM OF AGREEMENT. The term of this Agreement shall commence as of
-----------------
July 31, 1997, and shall continue in effect until July 30, 1998 (the "INITIAL
TERM"), and shall automatically be extended for successive periods of one year
each thereafter (each, a "RENEWAL PERIOD"), unless terminated pursuant to
Section 6 hereof (the "TERM"); provided, however, that at the option of either
-------- -------
the Company or the Consulting Company, the Term shall not be extended for a
successive Renewal Period and this Agreement shall terminate at the expiration
of the Initial Term or the then current Renewal Period, as applicable, upon
written notice to the other party delivered no less than three (3) calendar
months prior to such scheduled expiration.
3. DUTIES. The Consulting Company agrees to provide the services of the
------
Consultant for general consulting services and advice to the Company. The
Consulting Company agrees to provide the services of the Consultant as
reasonably requested from time to time by the Company.
4. COMPENSATION. The Company shall pay an annual consulting fee for the
------------
consulting services provided hereunder in the amount of $120,000 for the Initial
Term and for each Renewal Period (the "ANNUAL CONSULTING FEE"), payable monthly
in installments of $10,000 each. Subject to the provisions of Section 6, the
monthly installments of the
<PAGE>
Annual Consulting Fee shall be paid on or before the 14th day after the close of
each month.
5. EXPENSES. The Company agrees to pay for or reimburse the Consulting
--------
Company for out-of-pocket business costs or expenses incurred by the Consultant
in connection with the performance of his duties under this Agreement. It is
anticipated that such expenses will not exceed $30,000 during the Initial Term
or any Renewal Period; provided, further, that the Company shall not be
-------- -------
obligated to reimburse the Consulting Company for any costs or expenses which
cannot be deducted from the Company's income for purposes of calculating its
U.S. income tax. Reimbursement for expenses shall be made only once each month
within a reasonable time after the submission of an expense report by the
Consulting Company or the Consultant to the Company, including appropriate
vouchers and receipts evidencing expenses for which reimbursement is requested.
6. TERMINATION.
-----------
This Agreement and the Term shall terminate automatically (i) on the last
day of the month in which the Consultant dies; (ii) upon the termination of the
Management Services Agreement dated as of July 31, 1997, by and between MJD
Communications, Inc. and the Company; and (iii) in the event the Consultant
shall not be able to perform his duties hereunder for a period of 12 consecutive
months.
7. INDEMNIFICATION. The Company agrees to indemnify the Consulting
---------------
Company and the Consultant for all liability resulting from acts or omissions of
the Consulting Company or the Consultant related to this Agreement to the
fullest extent permitted by law (including reasonable attorneys' fees and
expenses), other than any liability resulting from the gross negligence or
willful misconduct of the Consulting Company or the Consultant. Any payments
to be made by the Company under this paragraph shall be made as the expenses are
incurred.
8. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by
------------------------------
the substantive laws of the State of New York (without giving effect to its
conflict of law rules).
9. ENTIRE AGREEMENT. The parties hereto acknowledge and agree that this
----------------
Agreement constitutes the complete agreement between them and that no oral
modification of this Agreement is permissible. The parties
-2-
<PAGE>
hereto acknowledge and agree that in executing this Agreement they do not rely
and have not relied on any representation or statement not contained in this
Agreement.
10. SAVINGS CLAUSE. In the event that any provision of this Agreement
--------------
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions and portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the
day and year written above.
MJD PARTNERS, INC.
By:________________________
Name:
Title:
BUGGER ASSOCIATES, INC.
By:________________________
Name:
Title
<PAGE>
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: NY-222299.3 Type: AGR
<PAGE>
EXHIBIT 10.19
================================================================================
STOCK PURCHASE AGREEMENT
among
MJD SERVICES CORP.,
RICK A. MOORE,
TOM D. MOORE,
PENTA-GEN INVESTMENTS, INC.,
and
ODIN TELEPHONE EXCHANGE, INC.
dated as of March 28, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of this Agreement but is attached for
convenience only.
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale............................................................... 1
-----------------
Section 1.2 Purchase Price.................................................................. 2
--------------
Section 1.3 Excluded Assets and Liabilities................................................. 2
-------------------------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 2.1 Corporate Organization.......................................................... 2
----------------------
Section 2.2 Authorization................................................................... 3
-------------
Section 2.3 No Violation.................................................................... 3
------------
Section 2.4 Subsidiaries and Investments.................................................... 3
----------------------------
Section 2.5 Stock Record Book............................................................... 4
-----------------
Section 2.6 Corporate Books................................................................. 4
---------------
Section 2.7 Title to Stock.................................................................. 4
--------------
Section 2.8 Options and Rights.............................................................. 4
------------------
Section 2.9 Financial Statements............................................................ 4
--------------------
Section 2.10 Employees....................................................................... 5
---------
Section 2.11 Absence of Certain Changes...................................................... 6
--------------------------
Section 2.12 Contracts....................................................................... 7
---------
Section 2.13 True and Complete Copies........................................................ 8
------------------------
Section 2.14 Title and Related Matters....................................................... 8
-------------------------
Section 2.15 Litigation...................................................................... 10
----------
Section 2.16 Tax Matters..................................................................... 10
-----------
Section 2.17 Bank Accounts................................................................... 12
-------------
Section 2.18 Compliance with Applicable Laws, Regulations and Orders......................... 12
-------------------------------------------------------
Section 2.19 Employee Benefit Plans.......................................................... 13
----------------------
Section 2.20 Intellectual Property........................................................... 16
---------------------
Section 2.21 Environmental Matters........................................................... 16
---------------------
Section 2.22 Capital Expenditures and Investments............................................ 18
------------------------------------
Section 2.23 Dealings with Affiliates........................................................ 18
------------------------
Section 2.24 Insurance....................................................................... 18
---------
Section 2.25 Commissions..................................................................... 19
-----------
Section 2.26 Permits and Reports............................................................. 19
-------------------
Section 2.27 Absence of Undisclosed Liabilities.............................................. 20
----------------------------------
Section 2.28 Disclosure...................................................................... 20
----------
</TABLE>
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<TABLE>
<S> <C>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 3.1 Corporate Organization.......................................................... 20
----------------------
Section 3.2 Authorization................................................................... 21
-------------
Section 3.3 No Violation.................................................................... 21
------------
Section 3.4 Investment Intent............................................................... 21
-----------------
ARTICLE IV
COVENANTS OF THE SELLER AND THE COMPANY
Section 4.1 Regular Course of Business...................................................... 22
--------------------------
Section 4.2 Amendments...................................................................... 22
----------
Section 4.3 Capital Changes................................................................. 23
---------------
Section 4.4 Dividends....................................................................... 23
---------
Section 4.5 Capital Expenditures............................................................ 23
--------------------
Section 4.6 Borrowing....................................................................... 23
---------
Section 4.7 Property........................................................................ 23
--------
Section 4.8 Other Commitments............................................................... 23
-----------------
Section 4.9 Interim Financial Information................................................... 23
-----------------------------
Section 4.10 Consents and Authorizations..................................................... 23
---------------------------
Section 4.11 Access.......................................................................... 24
------
Section 4.12 Notice of Transfer.............................................................. 24
------------------
Section 4.13 Payment of Stamp Tax............................................................ 24
--------------------
Section 4.14 Access to and from RAM Building................................................. 24
-------------------------------
ARTICLE V
COVENANTS OF THE PURCHASER
Section 5.1 Consents and Authorizations..................................................... 24
---------------------------
ARTICLE VI
OTHER AGREEMENTS
Section 6.1 Agreement to Defend............................................................. 25
-------------------
Section 6.2 Further Assurances.............................................................. 25
------------------
Section 6.3 Consents........................................................................ 25
--------
Section 6.4 No Solicitation or Negotiation.................................................. 25
------------------------------
Section 6.5 No Termination of the Obligations by Subsequent Dissolution..................... 26
-----------------------------------------------------------
Section 6.6 Public Announcements............................................................ 26
--------------------
Section 6.7 Records and Information......................................................... 26
-----------------------
</TABLE>
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<TABLE>
<S> <C>
Section 6.8 Insurance Policies and Claims Administration.................................... 27
--------------------------------------------
Section 6.9 Other Tax Matters............................................................... 28
-----------------
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
Section 7.1 Representations and Warranties.................................................. 29
------------------------------
Section 7.2 Consents and Approvals.......................................................... 29
----------------------
Section 7.3 No Material Adverse Change...................................................... 29
--------------------------
Section 7.4 No Proceeding or Litigation..................................................... 29
---------------------------
Section 7.5 Secretary's Certificate......................................................... 30
-----------------------
Section 7.6 Certificates of Good Standing................................................... 30
-----------------------------
Section 7.7 Noncompetition Agreement........................................................ 30
------------------------
Section 7.8 Resignations.................................................................... 30
------------
Section 7.9 Other Documents................................................................. 30
---------------
Section 7.10 Liens........................................................................... 30
-----
Section 7.11 Agreement with Data and Communications Services, Inc............................ 30
----------------------------------------------------
Section 7.12 Collection of Note Payable...................................................... 30
--------------------------
Section 7.13 Distribution of RAM Capital Stock............................................... 30
---------------------------------
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLER
Section 8.1 Representations and Warranties.................................................. 31
------------------------------
Section 8.2 Consents and Approvals.......................................................... 31
----------------------
Section 8.3 No Proceeding or Litigation..................................................... 31
---------------------------
Section 8.4 Secretary's Certificate......................................................... 31
-----------------------
ARTICLE IX
CLOSING
Section 9.1 Closing......................................................................... 31
-------
Section 9.2 Closing Date Payment and Receipt of Shares...................................... 32
------------------------------------------
ARTICLE X
TERMINATION AND ABANDONMENT
Section 10.1 Methods of Termination.......................................................... 32
----------------------
Section 10.2 Procedure Upon Termination...................................................... 33
--------------------------
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
Section 11.1 Survival........................................................................ 33
--------
Section 11.2 Escrow of Liquid Assets......................................................... 34
-----------------------
Section 11.3 Indemnification by the Seller................................................... 34
-----------------------------
Section 11.4 Indemnification by the Purchaser................................................ 35
--------------------------------
Section 11.5 Third Party Claims.............................................................. 35
------------------
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Amendment and Modification...................................................... 37
--------------------------
Section 12.2 Waiver.......................................................................... 37
------
Section 12.3 Certain Definitions............................................................. 37
-------------------
Section 12.4 Notices......................................................................... 41
-------
Section 12.5 Assignment...................................................................... 42
----------
Section 12.6 Governing Law................................................................... 42
-------------
Section 12.7 Counterparts.................................................................... 43
------------
Section 12.8 Headings........................................................................ 43
--------
Section 12.9 Entire Agreement................................................................ 43
----------------
Section 12.10 No Benefit...................................................................... 43
----------
Section 12.11 Delays or Omissions............................................................. 43
-------------------
Section 12.12 Severability.................................................................... 43
------------
Section 12.13 Expenses........................................................................ 43
--------
Section 12.14 Interpretation/Legal Opinions................................................... 44
-----------------------------
</TABLE>
SCHEDULES
- ---------
1.3 Excluded Assets
2.3 No Violations
2.4 Subsidiaries and Investments
2.6 Corporate Books
2.7 No Liens
2.9 Changes Since December 31, 1995
2.10 Employees
2.11 Certain Changes
2.12 Contracts
2.14(a) Owned Property
2.14(b) Leased Property
2.14(c) Liens
21.4(e) Condition
2.15 Litigation
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<PAGE>
2.16 Tax Matters
2.17 Bank Accounts
2.19 Employee Benefit Plans
2.20 Intellectual Property
2.21 Environmental Matters
2.22 Capital Expenditures and Investments
2.23 Dealings with Affiliates
2.24 Insurance
2.26 Permits
2.27 Absence of Undisclosed Liabilities
3.3 Consents and Authorizations of Purchaser
EXHIBITS
- --------
7.7 Noncompetition Agreement
11.2 Escrow Agreement
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<PAGE>
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of the
28th day of March, 1996, among MJD Services Corp., a Delaware corporation (the
"PURCHASER"), Rick A. Moore, an Illinois resident ("RICK MOORE"), Tom D. Moore,
a Florida resident ("TOM MOORE") ("Tom Moore and Rick Moore collectively
referred to hereinafter as "SELLER") Penta-Gen Investments, Inc., an Illinois
corporation ( "PENTA-GEN"), and Odin Telephone Exchange, Inc., an Illinois
corporation ("ODIN") (Penta-Gen and Odin collectively referred to hereinafter
sometimes as the "COMPANY").
RECITALS
WHEREAS, Tom D. Moore owns 460 shares of common stock, $1.00 par value of
Penta-Gen, and Rick A. Moore owns 517 shares of common stock, $1.00 par value of
Penta-Gen, the 977 shares constituting all of the issued and outstanding shares
of capital stock of Penta-Gen (the "SHARES");
WHEREAS, Penta-Gen owns 95.2857 shares of common stock, no par value, of
Odin, constituting all of the issued and outstanding shares of capital stock of
Odin (the "ODIN CAPITAL STOCK");
WHEREAS, Penta-Gen is a newly formed holding company, the only assets of
which as of the date hereof are the capital stock of Odin and of RAM
Enterprises, Inc. ("RAM");
WHEREAS, Odin is an operating telephone company that provides wireline
telecommunications services in the exchanges of Odin and Shobonier, Illinois
(collectively the businesses of Penta-Gen and Odin are hereinafter referred to
as the "BUSINESS" or the "BUSINESS");
WHEREAS, the Seller desires to sell, and the Purchaser desires to purchase,
on the terms and subject to the conditions set forth in this Agreement, the
Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
AGREEMENT
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale. At the Closing Date, on the terms and
-----------------
subject to the conditions set forth in this Agreement, the Seller agrees to sell
to the Purchaser, and the Purchaser agrees to purchase from the Seller, the
Shares.
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<PAGE>
Section 1.2 Purchase Price. In consideration for the conveyance of the
--------------
Shares, the Purchaser shall pay to the Seller on the Closing Date, as provided
in Section 9.2 hereof, an aggregate amount equal to Five Million Dollars
($5,000,000) (the "PURCHASE PRICE").
Section 1.3 Excluded Assets and Liabilities. Notwithstanding that this
-------------------------------
Agreement relates to the purchase of capital stock from Seller by Purchaser,
which results in the Company retaining any and all of its assets and
liabilities, it is understood and agreed that Seller shall remove from the
Company's premises prior to Closing and/or, as appropriate, remove from the
Company's books and records, only those particular assets set forth on Schedule
1.3 hereto (the "EXCLUDED ASSETS"). Further, Seller shall assume any and all
liabilities set forth on Schedule 1.3 hereto (the "EXCLUDED LIABILITIES").
Purchaser agrees that it shall cause Penta-Gen and the Company to execute any
and all such bills of sale, assignments and/or agreements as may be necessary to
transfer title to the Excluded Assets to Seller and to assign and/or transfer
the Excluded Liabilities to Seller. The parties hereto further agree that no
other assets of the Company, whether tangible or intangible, shall be removed
from the Company's premises or from the Company's books and records except in
the ordinary course of the Company's Business as provided herein from and after
December 31, 1995 through the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Purchaser as follows (to
the extent a representation is modified by a knowledge requirement, it shall
speak to the knowledge of Seller, and Company), with respect to each of Penta-
Gen, Odin and RAM even though such representation and/or warranty shall speak
only of the Company:
Section 2.1 Corporate Organization. The Company is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to own,
operate and lease its properties and to conduct its business as presently
conducted. Rick Moore is a resident of Illinois and Tom Moore is a resident of
Florida. The Company is qualified to do business and is in good standing in
every jurisdiction in which the conduct of its business, the ownership or lease
of its properties, or the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby requires it to be so
qualified. True, complete and correct copies of the Company's charter and by-
laws as presently in effect have been delivered to the Purchaser.
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<PAGE>
Section 2.2 Authorization. Each of the Seller and the Company has full
-------------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Board of Directors (and as appropriate,
the stockholders) of the Company has duly authorized the execution, delivery and
performance of this Agreement, and no other corporate proceedings on its part
are necessary to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement constitutes a legal, valid and binding obligation of each of the
Seller and the Company enforceable against each such party in accordance with
its terms, subject to equitable considerations and the effect of bankruptcy and
other laws affecting the rights of creditors generally. The Seller will, at the
Closing, have full power and authority to deliver the Shares and the
certificates evidencing the Shares to the Purchaser as provided for herein.
Section 2.3 No Violation. Except as set forth on Schedule 2.3, the
------------
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby by each of the Seller and the Company do
not and will not (a) conflict with or result in a breach of the terms,
conditions or provisions of, (b) constitute a default or event of default under
(with due notice, lapse of time or both), (c) result in the creation of any Lien
upon the Company or its capital stock or assets pursuant to, (d) give any third
party the right to accelerate any obligation under, (e) result in a violation of
or (f) require any authorization, consent, approval, exemption or other action
by, or notice to, any Person pursuant to (i) the charter or by-laws of either
the Seller or the Company, (ii) any applicable Regulation (including, without
limitation, the Hart-Scott-Rodino Antitrust Improvements Act of 1976), (iii) any
Order to which either the Seller or the Company is subject or (iv) any Contract
to which the Seller or the Company or any of their properties are subject. The
Seller and the Company have complied with all applicable Regulations and Orders
in connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby, subject to the requirements which are
conditions to the Closing.
Section 2.4 Subsidiaries and Investments. Except as set forth in
----------------------------
Schedule 2.4, the Company has no subsidiaries or investments in any Person.
Except as set forth on Schedule 2.4, the transactions contemplated by this
Agreement will not conflict with or result in a breach of the terms, conditions
or provisions of any agreement to which the Company is a party with respect to
any such investments, nor shall the transactions contemplated by this Agreement
trigger any purchase, put, call or right of first refusal rights in any Person.
Any such investments constitute an asset of the Company and the Company is the
only Person with any
-3-
<PAGE>
rights thereto. Odin does not owe any indebtedness to Penta-Gen and Penta-Gen
does not owe any indebtedness to Odin.
Section 2.5 Stock Record Book. The stock record book of the Company is
-----------------
complete and correct in all material respects. No shares of capital stock of the
Company are currently reserved for issuance for any purpose or upon the
occurrence of any event or condition. The Shares constitute all of the
outstanding capital stock of Penta-Gen and Penta-Gen owns all outstanding
capital stock of Odin. Rick Moore and Tom Moore as individuals are the true and
lawful owners of the Shares and Penta-Gen is the true and lawful owner of the
Odin Capital Stock.
Section 2.6 Corporate Books. The corporate minute books of the Company
---------------
are complete and correct in all material respects and contain minutes of all of
the proceedings of the shareholders and directors of the Company since
incorporation or for at least the past seven (7) years, whichever is less. A
true and complete list of the directors and executive officers of the Company as
of the date hereof is set forth in Schedule 2.6.
Section 2.7 Title to Stock. The Shares and the Odin capital stock have
--------------
been duly authorized and validly issued and are fully paid and nonassessable.
The Shares and the Odin capital stock were issued pursuant to applicable
exceptions from registration under Federal securities laws and the securities
laws of the State of Illinois, are owned by the Seller and Penta-Gen and will be
sold pursuant hereto free and clear of all Liens. Except as otherwise provided
in Schedule 2.7 hereto, upon payment of the Purchase Price to the Seller in
accordance with this Agreement, the Seller will convey to the Purchaser good and
marketable title to the Shares, free and clear of all Liens whatsoever. The
assignments, endorsements, stock powers and other instruments of transfer
delivered by the Seller to the Purchaser at the Closing will be sufficient to
transfer the Seller's entire interest, legal and beneficial, in the Shares and
thereby in the Odin capital stock.
Section 2.8 Options and Rights. There are no outstanding subscriptions,
------------------
options, warrants, rights, puts, calls or other Contracts by which the Company
is bound to issue or to repurchase or otherwise acquire shares of its capital
stock, or pursuant to which any Person has a right to purchase or to acquire,
through conversion or otherwise, shares of the Company's capital stock.
Section 2.9 Financial Statements.
--------------------
(a) Generally. The Seller has delivered to the Purchaser correct and
complete copies of (i) the audited balance sheet of the Company as of December
31, 1995 and the related statements of income, cash flow and retained earnings
for the
-4-
<PAGE>
fiscal year reporting period then ended, together with all notes and schedules
thereto (the "FINANCIAL STATEMENTS") and (ii) the unaudited monthly balance
sheets of the Company as of January 31, 1996 and February 29, 1996 and the
related monthly statements of income, cash flow and retained earnings for the
periods then ended, together with all notes and schedules thereto (the
"UNAUDITED FINANCIAL STATEMENTS"). The Financial Statements have been certified
without qualification by Leymone Hardcastle & Co., Ltd., independent auditors
for the Company. The Financial Statements and the Unaudited Financial Statements
(a) have been prepared in accordance with the books and records of the Company
and (b) fairly present the financial condition and results of operations and
cash flows of the Company as of, and for the respective periods ended on, such
dates, all in conformity with GAAP consistently applied, except, with respect to
the Unaudited Financial Statements, for adjustments and notes that would result
from an audit. Since December 31, 1995 and except as fully set forth in the
Financial Statements and the Unaudited Financial Statements, the Company has no
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, whether known or unknown, and regardless of when
asserted) arising out of transactions or events heretofore entered into or any
action or inaction or state of facts existing, with respect to, or based upon
transactions or events heretofore occurring.
(b) Absence of Change. Except as set forth on Schedule 2.9 hereto,
since December 31, 1995, (i) the Company's business has been operated only in
the ordinary course; (ii) there has been no Material Adverse Change in, and no
event has occurred which is likely, individually or in the aggregate, to result
in any Material Adverse Change in, the business, properties, business prospects,
condition (financial or otherwise), or results of operations of the Company;
(iii) there has been no sale, assignment or transfer of any assets or properties
of the Company except in the ordinary course of business, or any theft, damage,
removal or destruction of such assets or properties or any casualty loss
affecting the Company or its business; (iv) there has been no amendment or
termination of any of the Company's Permits or material Contracts; (v) there has
been no waiver or release of any material right or claim of the Company; (vi)
there has been no labor dispute or union activity which affects the operation of
the Company; and (vii) there has been no agreement by either the Seller or the
Company to take any of the actions described in the preceding clauses (i)
through (vi), except as contemplated by this Agreement.
Section 2.10 Employees.
---------
(a) Schedule 2.10 sets forth a list of all of the Company's
employees, officers, directors, consultants and independent contractors,
together with a description of any
-5-
<PAGE>
Contract regarding the terms of service and the rate and basis for total
compensation of such persons.
(b) The Company has paid or made provision for the payment of all
salaries and accrued wages, accrued vacation and sick leave, and any other form
of accrued, but unpaid, compensation, and has complied in all material respects
with all applicable laws, rules and regulations relating to the employment of
labor, including those relating to wages, hours, collective bargaining and the
payment and withholding of taxes, and has withheld and paid to the appropriate
governmental authority, or is holding for payment not yet due to such authority,
all amounts required by law or agreement to be withheld from the wages or
salaries of its employees.
(c) Except as set forth on Schedule 2.10 hereto, the Company is not a
party to any (i) outstanding employment agreements or contracts with officers or
employees that are not terminable at will, or that provide for payment of any
bonus or commission, (ii) agreement, policy or practice that requires it to pay
termination or severance pay to salaried, non-exempt or hourly employees, (iii)
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company, nor do Seller or the Company know of any
activities or proceedings of any labor union to organize any such employees.
The Company has furnished to Purchaser complete and correct copies of all such
agreements, if any ("EMPLOYMENT AND LABOR AGREEMENTS"). The Company has not
breached or otherwise failed to comply with any provisions of any Employment or
Labor Agreement.
(d) Except as set forth in Schedule 2.10 hereto, (i) there is no
unfair labor practice charge or complaint pending before the National Labor
Relations Board ("NLRB"), (ii) there is no labor strike, material slowdown or
material work stoppage or lockout actually pending or, to Seller's or Company's
knowledge, threatened, against or affecting the Company, and the Company has not
experienced any strike, material slow down or material work stoppage, lockout or
other collective labor action by or with respect to employees of the Company,
(iii) there are no charges with respect to or relating to the Company pending
before the Equal Employment Opportunity Commission or any state, local or
foreign agency responsible for the prevention of unlawful employment practices,
and (iv) the Company has not received formal notice from any federal, state,
local or foreign agency responsible for the enforcement of labor or employment
laws of an intention to conduct an investigation of the Company and, to the
knowledge of Seller and Company, no such investigation is in progress.
Section 2.11 Absence of Certain Changes. Except as set forth in Schedule
--------------------------
2.11, since December 31, 1995, there has been no (a) Material Adverse Change in
the business, properties, financial statements, business prospects, condition
(financial or otherwise)
-6-
<PAGE>
or results of operations of the Company, (b) damage, destruction or loss,
whether covered by insurance or not, having a Material Adverse Effect on the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company, (c) declaration, setting aside or payment
of any dividend or distribution (whether in cash, stock or property) in respect
of the Shares or the Odin capital stock or any redemption of the Shares or the
Odin capital stock by the Company, (d) increase in the compensation payable to
or to become payable by the Company to its employees, officers, consultants or
independent contractors, (e) entry by the Company into any Contract not in the
ordinary course of business, including, without limitation, any borrowing or
capital expenditure or (f) change in accounting methods or principles used by
the Company, except for any such change which is necessitated by a change in
GAAP.
Section 2.12 Contracts.
---------
(a) Generally. Except as listed in Schedule 2.12, the Company is not
a party to any Contract relating to:
(i) Bonus, pension, profit sharing, retirement, stock
option, employee stock purchase or other plans providing for deferred
compensation.
(ii) Collective bargaining agreements or any other Contract
with any labor union.
(iii) Hospitalization insurance or other welfare benefit plans
or practices.
(iv) Loans to its employees, officers, directors or
Affiliates.
(v) The borrowing or loaning of money to or from any Person
or the mortgaging, pledging or otherwise placing a Lien on any asset of the
Company; including, but not limited to, any Contract with respect to Odin's
$600,000 Boatmen's Bank Senior Debt.
(vi) A guarantee of any obligation.
(vii) The ownership, lease (whether as lessee or lessor) or
operation of any property, real or personal.
(viii) Intangible property (including Proprietary Rights).
(ix) Warranties with respect to its services rendered or its
products sold or leased.
-7-
<PAGE>
(x) Registration or preemptive rights with respect to any
securities.
(xi) Prohibitions preventing it from freely engaging in any
business.
(xii) The purchase, acquisition, disposition or supply of
inventory and other property and assets.
(xiii) Employees, independent contractors, consultants, or other
agents.
(xiv) Sales, commissions, advertising or marketing.
(xv) Unconditional purchase or payment obligations.
(xvi) Any investment by the Company.
(xvii) Any other Contract not of the type covered by any of the
foregoing items of this Section 2.12(a) requiring total payments by the
Company in excess of ten thousand dollars ($10,000).
(b) Compliance. The Company has performed all obligations required to
be performed by it, and is not in receipt of any claim of default or breach or
notice of audit, under any Contract to which it is subject (including, without
limitation, those required to be disclosed on Schedule 2.12). Except as
disclosed in Schedule 2.12, no event has occurred which with the passage of time
or the giving of notice or both would result in a material default, breach or
event of non-compliance by the Company under any Contract to which it is
subject. Except as disclosed in Schedule 2.12, the Company has no present
expectation or intention of not fully performing all of its obligations under
any Contract to which it is subject and has no knowledge of any breach or
anticipated breach by any other party to any Contract to which it is subject.
Section 2.13 True and Complete Copies. The Seller and the Company have
------------------------
delivered or made available to the Purchaser true and complete copies of all
Contracts and documents listed in the Schedules to this Agreement.
Section 2.14 Title and Related Matters.
-------------------------
(a) Owned Property. Set forth in Schedule 2.14(a) is a description
of all real and personal property owned by the Company. The Company has valid
and marketable title to all such property, free and clear of all Liens, except
Permitted Liens. All
-8-
<PAGE>
properties used in the Company's business operations as of December 31, 1995 are
reflected in the Financial Statements in accordance with and to the extent
required by GAAP and, as of the date hereof, are fully set forth on Schedule
2.14(a) hereto. Seller has delivered, with respect to any real property owned by
the Company, true and complete copies of all deeds, title policies, surveys and
other title documents relating to such real property. Further, the Company has
valid, good and marketable title to its shares of capital stock in Southern
Illinois Cellular Corp., free and clear of all Liens.
(b) Leased Property. Set forth in Schedule 2.14(b) is a description
of all real and personal property leased or used by the Company. Except as
otherwise set forth in Schedule 2.14(b), the Company's leases are in full force
and effect and are valid and enforceable in accordance with their respective
terms. There exists no event of default or event which constitutes or would
constitute (with notice or lapse of time or both) a default by the Company or
any other Person under any such lease, and neither the Seller nor the Company
has received notice of such default or event. All rent and other amounts due
and payable with respect to each of the Company's leases have been paid through
the date of this Agreement. Except as set forth in Schedule 2.14(b), neither
the Seller nor the Company has received notice that the landlord with respect to
any real property or personal property lease would refuse to renew such lease
upon expiration of the period thereof upon substantially the same terms, except
for rent increases consistent with past experience or market rentals. Seller
has delivered, with respect to any leased real or personal property, true and
complete copies of all such leases.
(c) Liens. Except as set forth in Schedule 2.14(c), the real
property owned or leased by the Company and the buildings, structures and
improvements included within such real property (collectively, the
"IMPROVEMENTS") comply with all applicable restrictions, building ordinances and
zoning ordinances and all Regulations of the applicable health and fire
departments. Except as set forth in Schedule 2.14(c), no alteration, repair,
improvement or other work which could give rise to a Lien has been performed
with respect to such Improvements within the last one hundred twenty (120) days.
The Company's owned or leased real property and its continued use, occupancy and
operation as currently used, occupied and operated does not constitute a
nonconforming use under any Regulation or Order affecting such real property,
and the continued existence, use, occupancy and operation of such Improvements
is not dependent on any special permit, exception, approval or variance. There
is no pending or, to the Seller's or Company's knowledge, threatened or proposed
action or proceeding by any Authority to modify the zoning classification of, to
condemn or take by the power of eminent domain (or to purchase in lieu thereof),
to classify as a landmark, to impose special
-9-
<PAGE>
assessments on or otherwise to take or restrict in any way the right to use,
develop or alter all or any part of the Company's owned or leased real property.
(d) Utilities. The real property owned or leased by the Company has
access, sufficient for the conduct of the Company's business as presently
conducted and proposed to be conducted, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water, natural gas and
other utilities used in the operation of the Company's business as presently
conducted. Access to all such public roads and utilities will be available
after the Closing Date.
(e) Condition. Since December 31, 1995, the Company has not sold,
transferred, leased, distributed or disposed of any of its assets or properties,
except for (i) transactions in the ordinary and regular course of business, or
(ii) as otherwise consented to in writing by the Purchaser. The Company owns,
or has all rights necessary to use, all properties and assets necessary for the
conduct of its business as presently conducted. The assets and properties
owned, leased or used by the Company in the conduct of the Business are in good
condition (reasonable wear and tear excepted), are suitable for their respective
uses, and comply with all applicable Regulations. Further such assets and
properties constitute all of the assets and properties necessary for the Company
to conduct its Business as now conducted.
Section 2.15 Litigation. Except as set forth in Schedule 2.15, there is
----------
(a) no Claim pending or, to the Seller's knowledge, threatened against the
Company, (b) no Claim by the Company pending or threatened against any Person,
(c) no outstanding Order relating to the Company and (d) no Claim by any Person
relating to the Shares.
Section 2.16 Tax Matters.
-----------
(a) Generally. Except as set forth in Schedule 2.16, Odin, RAM, and
Penta-Gen have timely filed all federal, state, local and foreign tax reports,
returns, information returns and any other documents required to be filed by it
(collectively, "TAX RETURNS") and have duly paid all Taxes shown to be due and
payable on such Tax Returns and all estimated or advance payments required by
law. All Taxes for periods ending on or prior to or including the Closing Date
have been fully paid or reserved against on the Unaudited Financial Statements
and on the books of Penta-Gen and Odin in accordance with GAAP. All Taxes which
are required to be withheld or collected by Odin, RAM and Penta-Gen have been
duly withheld or collected and, to the extent required, have been paid to the
proper federal, state, local or foreign authorities or properly segregated or
deposited as required by applicable Regulations. There are no Liens for Taxes
upon any property or
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<PAGE>
assets of Odin, RAM and Penta-Gen, except for Liens for Taxes not yet due and
payable or for Taxes being contested in a manner permitted by applicable law (as
disclosed on Schedule 2.16 hereto). Except as disclosed in Schedule 2.16,
neither Odin, RAM nor Penta-Gen have requested an extension of time within which
to file any Tax Return and has not waived the statute of limitations on the
right of the IRS or any other taxing authority to assess or collect additional
Taxes or to contest the information reported on any Tax Return. All Taxes owed
by any affiliated group of which the Company has at any time been a member
(whether or not shown on any Tax Return) have been paid for each taxable period
during which Odin, RAM or Penta-Gen was a member of the affiliated group.
Neither Odin, RAM nor Penta-Gen has any liability for the unpaid Taxes of any
Person (other than the Company) under Treasury Regulation (S) 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise.
(b) Good Faith. All Tax Returns described in Section 2.16(a) have
been prepared in good faith and are correct and complete in all respects, and
there is no basis for assessment of any addition to the Taxes shown thereon.
(c) Claims. Except as disclosed in Schedule 2.16, (i) there are no
proceedings, examinations or claims currently pending by any taxing Authority in
connection with any Tax Returns described in Section 2.16(a) nor with respect to
the periods to which such Tax Returns relate and (ii) there are no unresolved
issues or unpaid deficiencies or outstanding or proposed assessments relating to
any such proceedings, examinations, claims or Tax Returns. None of the Tax
Returns described in Section 2.16(a) currently is under audit or has been
audited. The items relating to the Business, properties and operations of the
Company on the Tax Returns filed by the Company (including the supporting
schedules filed therewith), copies of which have been supplied to the Purchaser,
state accurately, in all respects, the information requested with respect to the
Company, which information was derived from the books and records of the
Company.
(d) Course of Business. The Company has not taken any action in
anticipation of the Closing that would have the effect of deferring any
liability for Taxes of the Company to any period (or portion thereof) ending
after the Closing Date.
(e) Withholdings. All payments for withholding Taxes, unemployment
insurance and other amounts required to be withheld and deposited or paid to any
relevant taxing authorities have been so withheld, deposited or paid by or on
behalf of the Company and RAM.
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<PAGE>
(f) Partnerships. The Company is not subject to any joint venture,
partnership or other arrangement or Contract which is treated as a partnership
for federal income tax purposes. Any tax-sharing agreement between the Company
and any other Person shall terminate as of the Closing Date and any such tax-
sharing agreement is fully disclosed on Schedule 2.16 hereto.
(g) Accounting Method Adjustments. Except as disclosed in Schedule
2.16, the Company will not be required to recognize after the Closing Date any
taxable income in respect of accounting method adjustments required to be made
under any Regulation relating to Taxes, including without limitation, the Tax
Reform Act of 1986 and the Revenue Act of 1987.
(h) Tax Exemptions. None of the assets of the Company constitutes
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the IRC, and the Company is not subject to a lease, safe
harbor lease or other arrangement as a result of which the Company is not
treated as the owner of leased property for federal income tax purposes.
(i) Tax Return Reviews. An accurate and complete description of the
most recent review, if any, of the Tax Returns of the Company by the IRS or any
other taxing authority is set forth in Schedule 2.16.
(j) Power of Attorney. Except as set forth in Schedule 2.16 hereto,
no power of attorney has been granted by the Company with respect to any matter,
including, without limitation, the payment of Taxes, which is currently in
force.
(k) True and Complete Copies. The Seller and the Company have
delivered to the Purchaser true and complete copies of all Tax Returns filed by
the Company with respect to its 1992, 1993, 1994 and [1995] fiscal years.
Section 2.17 Bank Accounts. Set forth in Schedule 2.17 hereto is a list
-------------
of the bank accounts maintained by the Company and the authorized signatories
for each such account.
Section 2.18 Compliance with Applicable Laws, Regulations and Orders.
-------------------------------------------------------
The Company has been and is presently in material compliance with all laws,
ordinances, codes, rules, Regulations and Orders applicable to the conduct of
its Business, including, without limitation, all Regulations relating to health,
sanitation, fire, zoning, building and occupational safety.
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<PAGE>
Section 2.19 Employee Benefit Plans.
----------------------
(a) Set forth on Schedule 2.19 hereto is a true and complete list of:
(i) each employee pension benefit plan, as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
maintained by the Company or to which the Company or the Seller is required
to make contributions ("PENSION BENEFIT PLAN"); and
(ii) each employee welfare benefit plan, as defined in Section
3(1) of ERISA, maintained by the Company or to which the Company or the
Seller is required to make contributions ("WELFARE BENEFIT PLAN").
True and complete copies of all Pension Benefit Plans and Welfare
Benefit Plans (collectively, "ERISA PLANS") have been delivered to or made
available to Purchaser together with, as applicable with respect to each such
ERISA Plan, trust agreements, summary plan descriptions, all IRS determination
letters or applications therefor with respect to any Pension Benefit Plan
intended to be qualified pursuant to Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and valuation or actuarial reports,
accountant's opinions, financial statements, IRS Form 5500s (or 5500-C or 5500-
R) and summary annual reports for the last three years.
(b) With respect to the ERISA Plans, except as set forth on Schedule
2.19:
(i) there is no ERISA Plan which is a "multiemployer" plan as
that term is defined in Section 3(37) of ERISA ("MULTIEMPLOYER PLAN");
(ii) no event has occurred or (to the knowledge of Seller or
Company) is threatened or about to occur which would constitute a
prohibited transaction under Section 406 of ERISA or under Section 4975 of
the Code;
(iii) each ERISA Plan has operated since its inception in
accordance with the reporting and disclosure requirements imposed under
ERISA and the Code and has timely filed Form 5500 (or 5500-C or 5500-R) and
predecessors thereof; and
(iv) no ERISA Plan is liable for any federal, state, local or
foreign Taxes.
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<PAGE>
(c) Each Pension Benefit Plan intended to be qualified under Section
401(a) of the Code:
(i) has been qualified, from its inception, under Section
401(a) of the Code, and the trust established thereunder has been exempt
from taxation under Section 501(a) of the Code and is currently in
compliance with applicable federal laws;
(ii) has been operated, since its inception, in accordance with
its terms and there exists no fact which would adversely affect its
qualified status; and
(iii) is not currently under investigation, audit or review by
the IRS or (to the knowledge of Seller or Company) no such action is
contemplated or under consideration and the IRS has not asserted that any
Pension Benefit Plan is not qualified under Section 401(a) of the Code or
that any trust established under a Pension Benefit Plan is not exempt under
Section 501(a) of the Code.
(d) With respect to each Pension Benefit Plan which is a defined
benefit plan under Section 414(j) and each defined contribution plan under
Section 414(i) of the Code:
(i) no liability to the Pension Benefit Guaranty Corporation
("PBGC") under Sections 4062-4064 of ERISA has been incurred by the Company
since the effective date of ERISA and all premiums due and owing to the
PBGC have been timely paid;
(ii) the PBGC has not notified the Company or any Pension
Benefit Plan of the commencement of proceedings under Section 4042 of ERISA
to terminate any such plan;
(iii) no event has occurred since the inception of any Pension
Benefit Plan or (to the knowledge of Seller or Company) is threatened or
about to occur which would constitute a reportable event within the meaning
of Section 4043(b) of ERISA;
(iv) No Pension Benefit Plan ever has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and Section 412 of
the Code); and
(v) if any of such Pension Benefit Plans were to be terminated
on the Closing Date (a) no liability under Title IV of ERISA would be
incurred by the Company and (B) all benefits accrued to the day prior to
the Closing Date (whether or not vested) would be fully funded in
accordance with the actuarial assumptions and method utilized by such plan
for valuation purposes.
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<PAGE>
(e) With respect to each Pension Benefit Plan, Schedule 2.19 contains
a list of all Pension Benefit Plans to which ERISA has applied which have been
or are being terminated, or for which a termination is contemplated, and a
description of the actions taken by the PBGC and the IRS with respect thereto.
(f) The aggregate of the amounts of contributions by the Company to
be paid or accrued under ERISA Plans is not expected to exceed approximately
$46,841.32 for the current fiscal year, all of which has been properly accrued
or reserved for on the Unaudited Financial Statements. To the extent required in
accordance with GAAP, the Company's Financial Statements reflect in the
aggregate an accrual of all amounts of employer contributions accrued but unpaid
by the Company under the ERISA Plans as of the date of the Financial Statements.
(g) With respect to any Multiemployer Plan (1) the Company has not,
since its formation, made or suffered a "complete withdrawal" or "partial
withdrawal" as such terms are respectively defined in Sections 4203 and 4205 of
ERISA; (2) there is no withdrawal liability of the Company under any
Multiemployer Plan, computed as if a "complete withdrawal" by the Company had
occurred under each such Plan as of December 31, 1995; and (3) the Company has
not received notice to the effect that any Multiemployer Plan is either in
reorganization (as defined in Section 4241 of ERISA) or insolvent (as defined in
Section 4245 of ERISA).
(h) With respect to the Welfare Benefit Plans:
(i) There are no liabilities of the Company under Welfare
Benefit Plans with respect to any condition which relates to a claim filed
on or before the Closing Date.
(ii) No claims for benefits are in dispute or in litigation.
(i) Set forth on Schedule 2.19 hereto is a true and complete list of:
(i) each employee stock purchase, employee stock option,
employee stock ownership, deferred compensation, performance, bonus,
incentive, vacation pay, holiday pay, insurance, severance, retirement,
excess benefit or other plan, trust or arrangement which is not an ERISA
Plan whether written or oral, which the Company maintains or is required to
make contributions to;
(ii) each other agreement, arrangement, commitment and
understanding of any kind, whether written or oral, with any current or
former employee, officer, director or consultant of the Company pursuant to
which payments may be required to be made at any time following the date
hereof
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<PAGE>
(including, without limitation, any employment, deferred compensation,
severance, supplemental pension, termination or consulting agreement or
arrangement); and
(iii) True and complete copies of all of the written plans,
arrangements and agreements referred to on Schedule 2.19 ("COMPENSATION
COMMITMENTS") have been provided to Purchaser together with, where prepared
by or for the Company, any valuation, actuarial or accountant's opinion or
other financial reports with respect to each Compensation Commitment for
the last three years. An accurate and complete written summary has been
provided to Purchaser with respect to any Compensation Commitment which is
unwritten.
(j) Each Compensation Commitment:
(i) since its inception, has been implemented in all material
respects in accordance with its terms;
(ii) is not currently under investigation, audit or review by
the IRS or any other federal or state agency and (to the knowledge of
Seller and Company) no such action is contemplated or under consideration;
(iii) has no liability for any federal, state, local or foreign
Taxes;
(iv) has no claims subject to dispute or litigation;
(v) has met all applicable requirements, if any, of the Code;
and
(vi) has been implemented since its inception in material
compliance with the reporting and disclosure requirements imposed under
ERISA and the Code.
Section 2.20 Intellectual Property. Schedule 2.20 sets forth a complete
---------------------
and accurate list of the Proprietary Rights owned or used by the Company. The
Company has no written documents relating to the Company's ownership or use of
the Proprietary Rights listed in Schedule 2.20. No other Person has any rights
to such Proprietary Rights, except pursuant to agreements or licenses specified
in Schedule 2.20. To the Seller's and Company's knowledge, no other Person is
infringing, violating or misappropriating any such Proprietary Right. If
necessary, the Company owns or holds valid licenses to use all Proprietary
Rights used in the operation of its business as presently conducted and proposed
to be conducted.
Section 2.21 Environmental Matters. The Company has obtained all
---------------------
Environmental Permits required in connection with the
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<PAGE>
operation of its business. The Company is and has been, and is capable of
continuing to be in compliance in all respects with (i) the terms and conditions
of all such Environmental Permits and (ii) all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables of any applicable Environmental Law or Regulation, Order, code, plan,
decree, judgment, injunction or demand letter issued, entered, promulgated or
approved thereunder. The Company currently possesses and maintains such
Environmental Permits in its name, and no amendments or modifications to such
Environmental Permits or filings with any permitting Authority are required to
permit the acquisition of the Shares as contemplated hereby. In addition, except
as set forth in Schedule 2.21:
(a) Generally. No notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no investigation or review is pending
or, to the Seller's and Company's knowledge, threatened by any Authority or
other entity with respect to the Company relating to any Environmental Permit,
license or authorization required in connection with the conduct of the business
of the Company or with respect to the generation, treatment, storage, recycling,
transportation, disposal or Release of any substance regulated under
Environmental Laws ("HAZARDOUS MATERIALS").
(b) Property.
(i) The Company has not handled any Hazardous Material on any
property now or previously owned or leased by the Company.
(ii) No PCB or asbestos is or has been present at any property
now or previously owned or leased by the Company.
(iii) There are no underground storage tanks for Hazardous
Materials, active or abandoned, at any property now or previously owned or
leased by the Company.
(iv) There has been no Release of Hazardous Materials at, on or
under any property now or previously owned or leased by the Company.
(c) Transportation. The Company has not (i) transported or arranged
for the transportation of any Hazardous Material to any location which is listed
on the National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for
possible inclusion on the National Priorities List by the Environmental
Protection Agency in the Comprehensive Environmental Response and Liability
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<PAGE>
Information System ("CERCLIS") or on any similar state list or which is the
subject of federal, state or local enforcement actions or other investigations
or (ii) stored, treated, transported or disposed, or arranged for storage,
treatment, transport or disposal of any Hazardous Materials, other than in
compliance with Environmental Law.
(d) Notification of Release. No oral or written notification of a
Release of a Hazardous Material has been filed by or on behalf of the Company,
and no property now or previously owned or leased by the Company is listed or
proposed for listing on the National Priorities List under CERCLA, on CERCLIS or
on any similar state list of sites requiring investigation or clean-up.
(e) Liens. There are no Liens arising under or pursuant to any
Environmental Laws on any of the real property owned or leased by the Company,
and no government actions have been taken or are threatened which could subject
any of such properties to such Liens. The Company is not required to place any
notice or restriction relating to the presence of Hazardous Materials at any
property owned by it in any deed to such property.
(f) Site Assessments. Except as set forth in Schedule 2.21, there
have been no Phase I or Phase II environmental site assessments conducted by or
which are in the possession of the Seller or the Company in relation to any
property or facility now or previously owned or leased by the Company.
Section 2.22 Capital Expenditures and Investments. The Company has no
------------------------------------
outstanding Contracts or commitments for capital expenditures and investments,
except as set forth in Schedule 2.22 attached hereto, which schedule includes a
list of all disbursements on account of capital expenditures and investments by
the Company since December 31, 1995.
Section 2.23 Dealings with Affiliates. Schedule 2.23 sets forth a
------------------------
complete and accurate list of all oral or written Contracts between the Company
and any one or more of its Affiliates. Except as set forth in Schedule 2.23,
since December 31, 1995, the Company has not made any payments, loaned any funds
or property or made any credit arrangement with any Affiliate or employee except
for the payment of employee salaries in the ordinary course of business.
Section 2.24 Insurance. The Company currently is covered by insurance
---------
policies which provide for coverages that are usual and customary as to amount
and scope in the business of the Company, descriptions of which policies,
including the names of the insurer and the insured, the amount of premiums, and
the types and amounts of coverage, are set forth on Schedule 2.24. All of such
policies are in full force and effect, all premiums with respect thereto have
been paid or accrued therefor, and no notice of cancellation
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or termination has been received with respect to any such policy. Such policies
are sufficient for compliance with (i) all applicable Regulations and (ii) all
Contracts to which the Company is a party. The Company has not breached or
otherwise failed to perform its obligations under any of such policies, nor has
the Company received any adverse notice from any of the insurers party to such
policies with respect to any alleged breach or failure in connection with any of
such policies. Such policies will not terminate or lapse by reason of the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. Except as set forth on Schedule 2.24, there are no pending
or, to the Seller's and Company's knowledge, threatened claims under any policy
relating to the Company.
Section 2.25 Commissions. There are and will be no claims for brokerage
-----------
commissions, finder's fees, fees for fairness opinions or financial advisory
services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Seller, the Company, or any of their Affiliates.
Section 2.26 Permits and Reports. Schedule 2.26 hereto sets forth a list
-------------------
of all permits, licenses, registrations, certificates, orders, approvals or
other authorizations from any Authority or other Person including, without
limitation, the FCC and the ICC ("PERMITS") issued to or held by the Company in
connection with its operations. Such Permits are the only Permits that are
required for the Company to conduct its business as presently conducted and
proposed to be conducted. Each such Permit is in full force and effect, and the
Company has not received notice that any suspension, cancellation or
modification of the terms of any such Permit is threatened. The Company is in
full compliance with the terms of each such Permit, and the Seller is not aware
of any reason not set forth in said Permit why any such Permit would not be
renewed, upon substantially the same terms as currently exist, upon expiration
of such Permit. Except as set forth in Schedule 2.26, no authorization, consent
or notification of or filing with any Authority is necessary in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and each Permit issued to or held by the
Company will continue in full force and effect following the Closing Date.
Except as set forth on Schedule 2.26, (i) all returns, reports, applications,
statements and other documents required to be filed by the Company with the FCC,
the ICC and any other regulatory or governmental authority or municipality
(including taxing authorities) with respect to the Business on or before the
date hereof have been duly filed or properly extended as permitted by law and
are true and complete in all material respects, and (ii) all reporting
requirements of the FCC, the ICC and other regulatory or governmental
authorities or municipalities (including taxing authorities) having jurisdiction
thereof have been complied with in all material respects. A listing of all
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returns, reports, applications, statements and other documents filed by the
Company within the past three (3) years with the FCC, the ICC and any other
regulatory or governmental authority (including taxing authorities) or
municipality is attached hereto as Schedule 2.26; true and complete copies of
all such returns, reports, applications, statements and other documents have
been previously provided to Purchaser by Seller.
Section 2.27 Absence of Undisclosed Liabilities. The Company does not
----------------------------------
have any liability of any nature whatsoever (whether known or unknown, due or to
become due, accrued, absolute, contingent or otherwise), including, without
limitation, any unfunded obligation under employee benefit plans or arrangements
as described in Section 2.19 hereof or liabilities for Taxes (as defined in
Section 2.16 hereof) or liabilities for under-reporting, under-billing or under-
collection of revenues or underpayment of revenues to a third party, except for
(i) liabilities stated or reserved against in the Financial Statements, (ii)
current liabilities incurred in the ordinary course of business and consistent
with past practice after the date of the Financial Statements which,
individually and in the aggregate, do not have, and cannot reasonably be
expected to have, a Material Adverse Effect, and (iii) liabilities disclosed on
Schedule 2.27 hereto. The Company is not a party to any Contract, or subject to
any articles of incorporation or bylaw provision, any other corporate limitation
or any legal requirement which has, or can reasonably be expected to have, a
Material Adverse Effect.
Section 2.28 Disclosure. Neither this Agreement nor any of the
----------
attachments, written statements, documents, certificates or other items prepared
for or supplied to the Purchaser by or on behalf of the Seller or the Company
with respect to the transactions contemplated hereby contains any untrue
statement of a material fact or omits any material fact necessary to make each
statement contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller as follows:
Section 3.1 Corporate Organization. The Purchaser is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to own,
operate and lease its properties and to conduct its business as presently
conducted and proposed to be conducted. The Purchaser is qualified to do
business and is in good standing in every jurisdiction in which the conduct of
its business, the ownership or lease of its properties,
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<PAGE>
or the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby requires it to be so qualified. True, complete
and correct copies of the Purchaser's charter and by-laws as presently in effect
have been delivered to the Seller.
Section 3.2 Authorization. The Purchaser has full corporate power and
-------------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Board of Directors of the Purchaser has
duly authorized the execution, delivery and performance of this Agreement, and
no other corporate proceedings on its part are necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes a legal, valid
and binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, subject to equitable considerations and the effect of
bankruptcy and other laws affecting the rights of creditors generally.
Section 3.3 No Violation. The execution, delivery and performance of
------------
this Agreement and the consummation of the transactions contemplated hereby by
the Purchaser do not and will not (a) conflict with or result in a breach of the
terms, conditions or provisions of, (b) constitute a default or event of default
under (with due notice, lapse of time or both), (c) result in the creation of
any Lien upon the Purchaser or its capital stock or assets pursuant to, (d) give
any third party the right to accelerate any obligation under, (e) result in a
violation of or (f) require any authorization, consent, approval, exemption or
other action by, or notice to, any Person pursuant to the charter or by-laws of
the Purchaser, any applicable Regulation (including, without limitation, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), any Order to which the
Purchaser is subject or any Contract to which the Purchaser or any of its
properties are subject. The Purchaser has complied with all applicable
Regulations and Orders in connection with the execution, delivery and
performance of this Agreement and the transactions contemplated hereby, subject
to the requirements which are conditions to the Closing.
Section 3.4 Investment Intent. The Purchaser represents and warrants to
-----------------
the Seller that it is purchasing the Shares for investment purposes and not with
a view to distribution thereof and agrees that it shall not make any sale,
transfer, or other disposition of the Shares in violation of the Securities Act
of 1933, as amended, or the Regulations thereunder or under any other applicable
securities laws.
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<PAGE>
ARTICLE IV
COVENANTS OF THE SELLER AND THE COMPANY
From and after December 31, 1995 until the Closing Date, each of the Seller
and the Company agree that they shall act, or refrain from acting where so
required, to comply (and in the case of the Seller, to cause the Company to
comply) with the following:
Section 4.1 Regular Course of Business.
--------------------------
(a) Generally. The Company shall operate its business diligently and
in good faith, consistent with past management practices, shall maintain all of
its properties in customary repair, order and condition, shall maintain (except
for expiration due to lapse of time or cancellation by another party pursuant to
the terms thereof) in the ordinary course of business all leases and Contracts
in effect without change except as expressly provided herein and shall comply
with the provisions of all Regulations, Orders and Permits applicable to the
Company and the conduct of its business. The Company shall comply, without
modification, with all Contracts and commitments relating to capital
expenditures as set forth on Schedule 2.22. The Company shall maintain its
financial and accounting records in a manner consistent with that employed at
December 31, 1995.
(b) Compensation. Without the prior written consent of the Purchaser,
the Company shall not hire any employee and shall not grant any increase in the
compensation of any employee, officer, board member, consultant or independent
contractor.
(c) Insurance. The Company shall maintain current its insurance
policies with the coverage and in the amounts set forth in Schedule 2.24.
(d) Claims. The Company shall promptly notify the Purchaser of any
Claims that may be commenced against it.
(e) Supplement. From time to time prior to the Closing Date, the
Seller shall promptly notify the Purchaser of any changes with respect to the
information set forth in this Agreement or the Schedules hereto and of any
matters hereafter arising which, if in existence at the date hereof, would have
been required to be set forth in this Agreement or the Schedules hereto.
Section 4.2 Amendments. No change or amendment shall be made to the
----------
charter or by-laws of the Company, and the Company shall not merge into or
consolidate with any other Person or change the character of its business.
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Section 4.3 Capital Changes. The Company shall not issue, sell,
---------------
purchase or redeem any shares of its capital stock of any class or issue or sell
any securities convertible into, or options, warrants or other rights to
subscribe for, any shares of its capital stock. The Company shall not pledge or
otherwise encumber any shares of its capital stock, nor shall the Company allow
the transfer of any shares of its capital stock on its stock transfer ledger or
other books and records.
Section 4.4 Dividends. The Company shall not declare, pay or set aside
---------
for payment any dividend or other distribution in respect of its capital stock.
Section 4.5 Capital Expenditures. The Company shall not make any capital
--------------------
expenditures, or commitments with respect thereto, except as provided in
Schedule 2.22. The Company shall not make or accept any loan or advance to or
from any of its Affiliates or Affiliates of the Seller.
Section 4.6 Borrowing. Without Purchaser's prior written approval, the
---------
Company shall not incur, assume or guarantee any indebtedness or obligation not
reflected on the Financial Statements, except for amounts not to exceed ten
thousand dollars ($10,000) in the ordinary course of business. Further, Odin
shall not incur, assume or guarantee any indebtedness or obligation to or of its
parent corporation, Penta-Gen, or to or of RAM.
Section 4.7 Property. The Company shall not sell, transfer, or dispose
--------
of any of its assets and properties, other than in the ordinary course of
business, or allow any of its assets and properties to become subject to a Lien.
The Company shall maintain the collateral pledged by it to CoBank to secure its
portion of the CoBank loan to Southern Illinois Cellular Corp.
Section 4.8 Other Commitments. Except as set forth in this Agreement
-----------------
or permitted in writing by the Purchaser, the Company shall not enter into any
transaction, make any commitment or incur any obligation other than in the
ordinary course of business.
Section 4.9 Interim Financial Information. The Company shall supply
-----------------------------
the Purchaser with a copy of its internal unaudited monthly financial statements
within thirty (30) days after the end of each month.
Section 4.10 Consents and Authorizations. The Seller and the Company
---------------------------
shall, promptly after the date hereof, commence efforts to obtain the consents,
waivers and authorizations listed in Schedules 2.3 and 2.26. The Seller and the
Company shall diligently pursue and use their best efforts to obtain such
consents, waivers and authorizations as promptly as practicable prior to the
Closing Date.
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Section 4.11 Access. Each of the Seller and the Company shall afford
------
to the Purchaser and its counsel, accountants, agents and other authorized
representatives and to financial institutions specified by the Purchaser
reasonable access during business hours to the Company's plants, properties,
books and records in order that the Purchaser may have full opportunity to make
such reasonable investigations as it shall desire to make of the affairs of the
Company. The Company shall cause its officers, employees and auditors to
furnish such additional financial and operating data and other information as
the Purchaser shall from time to time reasonably request.
Section 4.12 Notice of Transfer. Each of the Seller and the Company
------------------
shall cooperate in providing any required notices to the appropriate Authority
regarding any issues of ownership or control or change thereof (including,
without limitation, any such issues relating to the Permits).
Section 4.13 Payment of Stamp Tax. All transfer (including any real
--------------------
estate transfer tax), documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement shall be borne equally by the Seller and the
Purchaser when due, and the parties will file on a timely basis all necessary
Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable Regulation, will, and will cause its Affiliates to, join
in the execution of any such Tax Returns and other documentation.
Section 4.14 Access to and from RAM Building. Prior to the Closing
-------------------------------
Date Seller and the Company shall have sealed all access from and to its
corporate office headquarters located at 102 E. Kirkwood, Odin, Illinois, with,
to and from the offices of RAM located adjacent thereto.
ARTICLE V
COVENANTS OF THE PURCHASER
Section 5.1 Consents and Authorizations. The Purchaser shall, promptly
---------------------------
after the date hereof, commence efforts to obtain the consents, waivers and
authorizations listed in Schedule 3.3. The Purchaser shall diligently pursue and
use its best efforts to obtain such consents, waivers and authorizations as
promptly as practicable prior to the Closing Date.
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ARTICLE VI
OTHER AGREEMENTS
The parties hereto further agree as follows:
Section 6.1 Agreement to Defend. In the event any claim of the nature
-------------------
specified in Section 7.4 or Section 8.3 hereof is commenced, whether before or
after the Closing Date, the parties hereto agree to cooperate and use all
reasonable efforts to defend against and respond thereto.
Section 6.2 Further Assurances. On the terms and subject to the
------------------
conditions of this Agreement, the parties hereto shall use all reasonable
efforts at their own expense to take, or cause to be taken, all action, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable Regulations to consummate and make effective as promptly as possible
the transactions contemplated by this Agreement, and to cooperate with each
other in connection with the foregoing, including, without limitation, using all
reasonable efforts (a) to obtain all necessary waivers, consents and approvals
from other parties to loan agreements, leases, mortgages and other Contracts,
(b) to obtain all necessary consents, approvals and authorizations as are
required to be obtained under any Regulations or in connection with any Permits,
(c) to lift or rescind any injunction or restraining order or other Order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby and (d) to fulfill all conditions to the obligations of the
parties under this Agreement. Each of the parties hereto further covenants and
agrees that it shall use all reasonable efforts to prevent a threatened or
pending preliminary or permanent injunction or other Order.
Section 6.3 Consents. Without limiting the generality of Section
--------
6.2, each of the parties hereto shall use all reasonable efforts to obtain all
waivers, Permits, authorizations, consents and approvals of all Persons and
Authorities necessary, proper or advisable in connection with the consummation
of the transactions contemplated by this Agreement prior to the Closing Date.
Section 6.4 No Solicitation or Negotiation. Unless and until this
------------------------------
Agreement is terminated, neither the Seller nor the Company shall, and each
shall each use best efforts to cause its Affiliates, and the directors,
officers, employees, representatives, agents, advisors, accountants,
shareholders and attorneys of each of them, not to initiate or solicit, directly
or indirectly, any inquiries or the making of any proposal with respect to, or
engage in negotiations concerning, or provide any confidential information or
data to any Person with respect to, or have any discussions with any Person
relating to, any acquisition, business combination or purchase of all or any
significant asset of, or any equity interest in, directly or indirectly, the
Company,
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or otherwise facilitate any effort or attempt to do or seek any of the foregoing
and shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
Section 6.5 No Termination of the Obligations by Subsequent Dissolution.
-----------------------------------------------------------
Each of the parties hereto specifically agrees that its obligations hereunder,
including, without limitation, obligations pursuant to this Article VI, shall
not be terminated by the dissolution of such party, whether by operation of
Regulation or otherwise.
Section 6.6 Public Announcements. Prior to the Closing Date, no party
--------------------
hereto nor any Affiliate, representative or shareholder of such party, shall
disclose any of the terms of this Agreement to any third party, except as
required to obtain the consents, waivers and authorizations listed in Schedules
2.3, 2.26 and 3.3 and in connection with the Purchaser's financing of the
transactions contemplated hereby, without the other parties' prior written
consent. Prior to the Closing Date, the form, content and timing of all press
releases, public announcements or publicity statements with respect to this
Agreement and the transactions contemplated hereby shall be subject to the prior
approval of both the Seller and the Purchaser, which approval shall not be
unreasonably withheld; provided, however, that either party may withhold such
-----------------
approval in its sole discretion with respect to any of the foregoing which
discloses any of the financial terms of this transaction. Prior to the Closing
Date, no press releases, public announcements or publicity statements shall be
released by either party without such prior mutual agreement. Notwithstanding
the foregoing, no party hereto will disclose the Purchase Price or the manner in
which the Purchase Price is calculated, without the prior written consent of the
other parties hereto.
Section 6.7 Records and Information.
-----------------------
(a) Retention of Records. Except as otherwise required by Regulation
or agreed to in writing, each of the Seller and the Purchaser shall retain, and
shall cause its Affiliates to retain, for a period of at least four (4) years,
or the period required by applicable Regulation, following the Closing Date, all
records, books, contracts, instruments, computer data and other data and
information (collectively, "INFORMATION") relating to the Company.
(b) Access to Information. From and after the Closing Date, the
Seller shall afford to the Purchaser and its authorized accountants, counsel and
other designated representatives reasonable access (including using reasonable
efforts to give access to Persons or firms possessing Information) and
duplicating rights during normal business hours to all Information within the
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Seller's possession relating to the Company, insofar as such access is
reasonably required by the Purchaser. Similarly, the Purchaser shall afford to
the Seller and its authorized accountants, counsel, and other designated
representatives reasonable access (including reasonable efforts to give access
to Persons or firms possessing Information) and duplicating rights during normal
business hours to Information within the Purchaser's possession relating to the
Company or its business as conducted prior to the Closing Date, insofar as such
access is reasonably required by the Seller.
(c) Provisions of Corporate Records. The Seller shall arrange, as
soon as practicable following the Closing Date, to the extent not previously
delivered in connection with the transactions contemplated herein, for
transportation at the Seller's cost to the Purchaser of the records in the
Seller's possession relating to the Company, the corporate minutes books, stock
ledgers and certificates and corporate seals of the Company, and all Contracts
and litigation files relating to the Company, except to the extent (i) such
items are already in the possession of any of the Purchaser or the Company or
(ii) it is necessary or appropriate for the Seller to retain such records for
use in preparation of Tax Returns under the provisions hereof. Seller may make
and retain copies of all or any such records or documents at its expense.
(d) Witnesses. At all times from and after the Closing Date, each of
the Seller and the Purchaser shall use reasonable efforts to make available to
the other, upon written request, its and its Affiliates' officers, directors,
employees and agents as witnesses to the extent that such Persons may reasonably
be required in connection with any legal, administrative or other proceedings in
which the requesting party may from time to time be involved, at no cost;
provided, however, that a party producing such witnesses shall be entitled to
- --------
receive from the requesting party, upon presentation therefor, payment for such
out-of-pocket costs and disbursements as may be reasonably incurred in producing
such witnesses.
Section 6.8 Insurance Policies and Claims Administration.
--------------------------------------------
(a) Insurance Coverage Prior to the Closing Date. The Seller shall be
responsible for the administration of all claims under the Company's insurance
policies relating to periods prior to the Closing Date. If any claim is
asserted against the Company relating to periods prior to the Closing Date, the
Seller shall promptly assert and pursue coverage and payment for such claim with
the appropriate insurance carrier, and the Purchaser shall, and shall cause the
Company to, provide reasonable cooperation and assistance to the Seller in
asserting and pursuing such coverage. In particular, the Purchaser shall, upon
request by the Seller, cause the Company to file all necessary claims and take
all such other action as may reasonably be requested by the Seller to pursue
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such coverage. As between the Seller, on the one hand, and the Purchaser and
the Company, on the other hand, the Purchaser and the Company shall be entitled
to recover all insurance proceeds with respect to any claim, except to the
extent the Seller has previously provided indemnification therefor to the
Purchaser or the Company under this Agreement.
(b) Insurance Coverage After the Closing Date. Each party shall be
responsible for establishing and maintaining its own property and casualty
insurance (including, without limitation, primary and excess general liability,
automobile, workers' compensation, property, director and officer liability,
fire, crime, surety and other similar insurance policies) for the activities and
claims of such party and its Affiliates on and after the Closing Date.
Section 6.9 Other Tax Matters.
-----------------
(a) Tax Returns. The Purchaser, the Seller, the Company and their
successors shall cooperate in the preparation of all Tax Returns and reports and
shall make available all necessary records and timely take all action necessary
to allow for the preparation and filing of all Tax Returns and reports. Within
sixty (60) days following the Closing, the Seller shall deliver or shall cause
to be delivered to the Purchaser all books, records, returns, schedules, work
papers, and other documents (including without limitation, appraisals and other
background information) which are in the possession of the Seller or the Company
and which relate to any Taxes of the Company for any taxable period. Prior to
the delivery of the materials described in the preceding sentence, the Seller
shall cooperate with the Purchaser in providing access to such materials as is
reasonably required by the Purchaser.
The parties hereto agree that the Seller shall prepare, and pay all
taxes arising therefrom, all tax returns for Odin and for Penta-Gen for the
periods ending on or before December 31, 1995. Purchaser shall prepare, and pay
all taxes arising therefrom, all tax returns for Odin and for Penta-Gen for the
periods ending after January 1, 1996.
(b) Information. The Purchaser and the Seller agree to furnish or
cause to be furnished to each other, as promptly as practicable, such
information (including access to books and records) and assistance relating to
the Company as is reasonably requested for the filing of any Tax Return, in
determining a Tax liability or right to refund, for the preparation of any audit
or other proceeding, and for the prosecution of any claim, suit or proceeding
relating to a proposed Tax adjustment. The Purchaser and the Seller shall
cooperate with each other in the conduct of any Tax audit or other Tax
proceedings involving the Company. The parties shall execute and deliver such
powers of attorney and other
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documents as are reasonably requested to carry out the administration of the Tax
provisions of this Agreement.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser under this Agreement shall be subject
to the satisfaction of each of the following conditions unless waived in writing
by the Purchaser:
Section 7.1 Representations and Warranties. The representations and
------------------------------
warranties of the Seller and the Company contained in Article II hereof and
elsewhere in this Agreement and all information contained in any Exhibit,
Schedule or attachment hereto shall be true and correct in all material respects
when made and on the Closing Date as though then made. The Seller and the
Company shall have performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement to be performed
and complied with by them prior to the Closing Date. Seller shall have
delivered to the Purchaser a certificate, dated the Closing Date, in a form
reasonably satisfactory to the Purchaser, certifying to the foregoing.
Section 7.2 Consents and Approvals. The Seller, the Company and the
----------------------
Purchaser shall have obtained all consents, approvals, Orders, qualifications,
licenses, Permits or other authorizations, specified in Schedules 2.3, 2.26 and
3.3 hereto and, to the extent not listed in Schedules 2.3, 2.26 and 3.3 hereto,
required by all applicable Regulations, Orders and Contracts binding on any of
the Seller, the Company or the Purchaser or any of their respective properties
and assets, with respect to the execution, delivery and performance of this
Agreement, the financing and consummation of the transactions contemplated
herein and the conduct of the business of the Company in the same manner after
the Closing Date as before the Closing Date.
Section 7.3 No Material Adverse Change. There shall have been no Material
--------------------------
Adverse Change in the business, properties, Financial Statements, business
prospects, condition (financial or otherwise) or results of operations of the
Company since December 31, 1995. The Purchaser shall have received a
certificate, dated the Closing Date, from the Seller, in a form reasonably
satisfactory to the Purchaser, certifying to the foregoing.
Section 7.4 No Proceeding or Litigation. No Order or Regulation shall be
---------------------------
in effect which would prevent the consummation of the transactions contemplated
hereby.
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Section 7.5 Secretary's Certificate. The Purchaser shall have received a
-----------------------
certificate, signed by the Seretary of the Company, dated the Closing Date, as
to the charter and by-laws of the Company and the resolutions adopted by the
directors of the Company in connection with this Agreement in a form reasonably
satisfactory to the Purchaser.
Section 7.6 Certificates of Good Standing. At the Closing, the Company
-----------------------------
shall have delivered to the Purchaser certificates issued by the appropriate
governmental authorities evidencing the good standing of the Company in its
respective jurisdiction of incorporation and in each jurisdiction in which each
is qualified to do business as of a date not more than fifteen (15) days prior
to the Closing Date.
Section 7.7 Noncompetition Agreement. The Seller and Company shall have
------------------------
caused Rick A. Moore to enter into the Noncompetition Agreement attached hereto
as Exhibit 7.7.
Section 7.8 Resignations. The Seller shall have caused all directors and
------------
officers of the Company to have resigned.
Section 7.9 Other Documents. The Purchaser shall have been furnished
---------------
with such other and further documents and certificates, including certificates
of the Seller or the Company's officers, directors and others, as the Purchaser
shall reasonably request to evidence compliance with the conditions set forth in
this Agreement.
Section 7.10 Liens. The Seller shall have removed all Liens on the assets
-----
and properties of the Company other than Permitted Liens.
Section 7.11 Agreement with Data and Communications Services, Inc.
-----------------------------------------------------
The Seller shall have caused the Company, prior to Closing, to enter into a
billing services agreement with Data Communications Services, Inc., which
agreement shall be cancelable without penalty upon the giving of ninety (90)
days' prior written notice.
Section 7.12 Collection of Note Payable. The Company shall have
--------------------------
received, prior to the date of this Agreement, payment in full for the
promissory note to the Company in the approximate amount of $80,000 from Data
and Communications Services, Inc.
Section 7.13 Distribution of RAM Capital Stock. Penta-Gen shall have,
---------------------------------
prior to Closing, distributed the capital stock of RAM owned by Penta-Gen to
Rick Moore and to Tom Moore.
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ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS
OF THE SELLER
The obligations of the Seller under this Agreement shall be subject to
the satisfaction of each of the following conditions unless waived in writing by
the Seller:
Section 8.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in Article III hereof and elsewhere in
this Agreement and all information contained in any Exhibit, Schedule or
attachment hereto shall be true and correct in all material respects when made
and on the Closing Date as though then made, except as expressly provided herein
or therein. The Purchaser shall have performed and complied in all material
respects with all agreements, covenants and conditions required by this
Agreement to be performed and complied with by it prior to the Closing Date. An
officer of the Purchaser in his capacity as such shall have delivered to the
Seller a certificate, dated the Closing Date, certifying to the foregoing.
Section 8.2 Consents and Approvals. The Purchaser, the Seller and
----------------------
the Company shall have obtained all consents, approvals, orders, qualifications,
licenses, Permits or other authorizations, specified in Schedules 2.3, 2.26 and
3.3 hereto and, to the extent not listed in Schedules 2.3, 2.26 and 3.3 hereto,
required by all applicable Regulations, Orders and Contracts binding on the
Purchaser, the Seller or the Company or any of their respective properties and
assets with respect to the execution, delivery and performance of this
Agreement.
Section 8.3 No Proceeding or Litigation. No Order or Regulation shall be
---------------------------
in effect which would prevent the consummation of the transactions contemplated
hereby.
Section 8.4 Secretary's Certificate. The Seller shall have received a
-----------------------
certificate, signed by the Secretary of the Purchaser, dated the Closing Date,
as to the charter and by-laws of the Purchaser and the resolutions adopted by
the directors of the Purchaser in connection with this Agreement in a form
reasonably satisfactory to the Seller.
ARTICLE IX
CLOSING
Section 9.1 Closing. Unless this Agreement shall have been terminated
-------
or abandoned pursuant to the provisions of Article X hereof, a closing of the
transactions contemplated by this Agreement (the "CLOSING") shall be held on or
before June 28, 1996
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<PAGE>
(on such date either before or after June 28, 1996 as the parties hereto shall
mutually agree) (the "CLOSING DATE") in the offices of the Purchaser; provided,
--------
that the Closing shall occur as soon as practicable after the satisfaction of
the conditions contained in Articles VII and VIII hereof.
Section 9.2 Closing Date Payment and Receipt of Shares. On the Closing
------------------------------------------
Date, (i) the Seller will assign and transfer to the Purchaser good and valid
title in and to the Shares, free and clear of all Liens, by delivering to the
Purchaser a stock certificate or certificates representing the Shares, duly
endorsed for transfer or accompanied by duly executed stock powers endorsed in
blank with requisite stock transfer tax stamps, if any, attached; (ii) the
Purchaser shall, by wire transfer of same-day funds, pay to the Seller the
amount of Four Million Dollars ($4,000,000.00); (iii) the Purchaser shall, by
wire transfer of same-day funds, deposit in an escrow account at Boatmen's Bank
of South Central Illinois the amount of One Million Dollars ($1,000,000.00), all
as provided in the Escrow Agreement referred to in Section 11.2 hereof; and (iv)
the parties shall deliver to each other the documents required under this
Agreement to be delivered at or prior to the Closing.
ARTICLE X
TERMINATION AND ABANDONMENT
Section 10.1 Methods of Termination. This Agreement may be terminated
----------------------
and the transactions herein contemplated may be abandoned at any time:
(a) Mutual Consent. By mutual written consent of the Purchaser and
the Seller.
(b) Seller's Failure to Perform. By the Purchaser if as of the
Closing Date any of the conditions specified in Article VII hereof have not been
satisfied (and remain so unsatisfied for more than ten (10) days after the
Purchaser has notified the Seller in writing thereof) or if either the Seller or
the Company is otherwise in default in any material respect under this Agreement
(and remains in default for more than ten (10) days after the Purchaser has
notified the Seller in writing of such default) or if at any time prior to the
Closing Date it becomes apparent to the Purchaser (on reasonable grounds) that
either the Seller or the Company will be unable to satisfy one or more of the
representations and warranties in Article II hereof or one or more of the
covenants or agreements in Articles IV or VI hereof,
(c) Purchaser's Failure to Perform. By the Seller if as of the
Closing Date any of the conditions specified in Article VIII hereof have not
been satisfied (and remain so unsatisfied for more
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than ten (10) days after the Seller has notified the Purchaser in writing
thereof) or if the Purchaser is otherwise in default in any material respect
under this Agreement (and remains in default for more than ten (10) days after
the Seller shall have notified the Purchaser in writing of such default) or if
at any time prior to the Closing Date it becomes apparent to the Seller (on
reasonable grounds) that the Purchaser will be unable to satisfy one or more of
its representations and warranties in Article III hereof or one or more of the
covenants or agreements in Articles V or VI hereof.
(d) Remedies. In the event of any failure to perform as described in
this Section 10.1, the nonbreaching party shall have such remedies for breach of
contract as are allowed by law in addition to or in substitution of the right of
termination.
Section 10.2 Procedure Upon Termination. If this Agreement is terminated
--------------------------
as provided herein:
(a) Return of Records. Each party shall as promptly as practicable
redeliver to the party furnishing the same, all data, information and other
written material (including all copies thereof) of any other party relating to
the transactions contemplated hereby, whether obtained before or after the
execution hereof.
(b) Confidentiality. All information received by any party hereto
with respect to the business of any other party (other than information which is
a matter of public knowledge or which has heretofore been or is hereafter
published in any publication for public distribution or filed as public
information with any governmental authority) shall not at any time be used by,
or disclosed to, third parties.
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
Section 11.1 Survival. All of the terms and conditions of this Agreement,
--------
together with the representations, warranties and covenants contained herein or
in any instrument or document delivered or to be delivered pursuant to this
Agreement and the agreements of the parties to indemnify each other as set forth
in this Article XI shall survive the execution of this Agreement and the Closing
Date notwithstanding any investigation heretofore or hereafter made by or on
behalf of any party hereto and shall continue for, and all claims with respect
thereto shall be made prior to the end of, eighteen (18) months from the Closing
Date (the "INDEMNIFICATION PERIOD"); provided, however, that with respect to any
income tax liability of the Company attributable to any activities or
transactions occurring by it or RAM prior to the
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Closing Date, the agreement of Rick Moore to indemnify Purchaser and its
Affiliates shall survive until, and all claims with respect thereto shall be
made prior to, the expiration of the applicable statute of limitations
prescribed by Section 6501 of the Internal Revenue Code of 1986 (excluding
extensions thereof unless Rick Moore shall have consented to the same in
writing).
Section 11.2 Escrow of Liquid Assets. From and after the date of this
-----------------------
Agreement through the longer of (a) one (1) year from the Closing Date or
(b) so long as any Claim made during such one (1) year period is still
outstanding and unresolved as set forth in this Article XI hereof, One Million
Dollars ($1,000,000.00) of the Purchase Price otherwise payable to Rick Moore
for the Shares shall be maintained in an escrow account (the "ESCROW ACCOUNT"),
in Boatmen's Bank of South Central Illinois, pursuant to the terms and
provisions of an Escrow Agreement to be executed at Closing substantially in the
form attached hereto as Exhibit 11.2. Purchaser may make a claim for payment of
any indemnity payment due under Section 11.3 in the manner provided in the
Escrow Agreement.
Section 11.3 Indemnification by the Seller. After the Closing Date,
-----------------------------
subject to the limitations set forth in Sections 11.1 and 11.2 hereof, the
Purchaser and its Affiliates and their respective officers, directors,
employees, shareholders, representatives and agents shall, as their sole and
exclusive remedy, be indemnified and held harmless by Rick Moore against and in
respect of any and all (i) Penta-Gen and RAM Tax liabilities attributable to any
of their activities or transactions occurring through the Closing Date,
including, but not limited to any arising from the distribution or disposition
of RAM capital stock by Penta-Gen, and (ii) any and all other damage, loss,
liability, cost or expense (including, unless otherwise provided herein, the
reasonable fees and expenses of counsel and any Tax liability resulting from any
indemnity payment made hereunder) up to, but not in excess of One Million
Dollars ($1,000,000.00) in aggregate, resulting from, or in respect of, any of
the following:
(a) Misrepresentation or Breach. Any misrepresentation or breach of
warranty of the Seller, or nonfulfillment of any obligation on the part of
either the Company (to be performed prior to the Closing) or the Seller under
this Agreement, or contained in any Schedule or Exhibit to this Agreement or
from any misrepresentation in or omission from any certificate, Schedule,
Exhibit, related agreement, Financial Statement or instrument delivered by or on
behalf of the Seller or the Company hereunder.
(b) Taxes. All Taxes of the Seller or of Penta-Gen attributable to
any period which ends prior to or on the Closing Date and all Taxes of Odin
attributable to any periods which ends on or prior to December 31, 1995.
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(c) Third Party Claims. Any Claim of a third party arising out of the
business or operations of the Company prior to or on the Closing Date or any
Claim relating to the Excluded Liabilities or any Claim resulting from or
arising out of the ownership, management or use of the Shares and/or the
business of Penta-Gen or Odin or RAM prior to the Closing Date.
(d) Related Expenses. All expenses and costs, including but not
limited to legal fees, reasonably paid or incurred in connection with any such
indemnified Claim.
Section 11.4 Indemnification by the Purchaser. After the Closing, subject
--------------------------------
subject to the limitation set forth in Section 11.1, the Seller and its
Affiliates and their respective officers, directors, employees, shareholders,
representatives and agents shall be indemnified and held harmless by the
Purchaser against and in respect of any and all damage, loss, liability, cost or
expense (including, unless otherwise provided herein, the reasonable fees and
expenses of counsel and any Tax liability resulting from any indemnity payment
made hereunder) resulting from, or in respect of, any of the following:
(a) Misrepresentation or Breach. Any misrepresentation or breach of
warranty of the Purchaser, or nonfulfillment of any obligation on the part of
the Company (to be performed after the Closing) or the Purchaser under this
Agreement, or contained in any Schedule or Exhibit to this Agreement or from any
misrepresentation in or omission from any certificate, Schedule, Exhibit,
related agreement or instrument delivered by or on behalf of the Purchaser
hereunder.
(b) Taxes. All Taxes of the Purchaser or of Penta-Gen relating to the
Company attributable to any period which begins after the Closing Date and all
Taxes of Odin attributable to any periods which begin subsequent to December 31,
1995.
(c) Third Party Claims. Any Claim of a third party arising out of the
business or operations of the Company after the Closing Date.
(d) Related Expenses. All expenses and costs, including but not
limited to legal fees, reasonably paid or incurred in connection with any such
indemnified Claim.
Section 11.5 Third Party Claims.
------------------
(a) Generally. Except as otherwise provided in this Agreement, the
following procedures shall be applicable with respect to indemnification for
third party Claims. Promptly after receipt by the party seeking indemnification
hereunder (hereinafter referred to as the "INDEMNITEE") of notice of the
commencement of
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<PAGE>
any action or the assertion of any Claim, liability or obligation by a third
party (whether by legal process or otherwise), against which Claim, liability or
obligation another party to this Agreement (hereinafter the "INDEMNITOR") is, or
may be, required under this Agreement to indemnify such Indemnitee, the
Indemnitee shall, if a claim thereon is to be, or may be, made against the
Indemnitor, immediately notify the Indemnitor in writing of the commencement or
assertion thereof and give the Indemnitor a copy of such Claim or process and
all legal pleadings. The Indemnitee's failure to give timely notice as required
by this Section 11.5(a) shall not serve to eliminate or limit the Indemnitor's
obligation to indemnify the Indemnitee unless such failure prejudices the rights
of the Indemnitor, and then only to the extent of such prejudice. Moreover, the
Indemnitee shall have the right to take any actions or steps it deems reasonable
to avoid the occurrence of any prejudice to the rights of the Indemnitee. The
Indemnitor shall have the right to assume the defense of such action with
counsel of reputable standing unless with respect to such action (A) injunctive
or equitable remedies have been sought therein in respect of the Indemnitee or
its business or (B) such action is for an alleged amount of less than Five
Thousand Dollars ($5,000); provided, that the Indemnitee and counsel to the
--------
Indemnitee shall have the right to participate in the defense of any and all
Claims pursuant to the provisions of Section 11.5(b) hereof. The Indemnitor and
the Indemnitee shall reasonably cooperate in the defense of such Claims. If the
Indemnitee shall be required by judgment or a settlement agreement to pay any
amount in respect of any obligation or liability against which the Indemnitor
has agreed to indemnify the Indemnitee under this Agreement, the Indemnitor
shall pay such amount to the Indemnitee in order to enable the Indemnitee to
make such payment, and otherwise shall promptly reimburse the Indemnitee in an
amount equal to the amount of such payment, in either case, plus all reasonable
out-of-pocket expenses (including reasonable legal fees and expenses) incurred
by such Indemnitee at the specific request of the Indemnitor, as provided above,
or as otherwise authorized by Section 11.5(b) hereof, in connection with such
obligation or liability subject to this Article XI. No Indemnitor, in the
defense of any such Claim, shall, except with the consent of the Indemnitee,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnitee of a release from all liability with respect to such Claim.
In the event that the Indemnitor does not accept the defense of any matter for
which it is entitled to assume such defense as provided in this Section 11.5(a),
the Indemnitee shall have the full right to defend against any such Claim and
shall be entitled to settle or agree to pay in full such Claim in its sole
discretion. With respect to any matter as to which the Indemnitor is not
entitled to assume the defense pursuant to the terms of this Section 11.5(a),
the Indemnitee shall not enter into any settlement for which an indemnification
Claim will be made
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<PAGE>
hereunder without the approval of the Indemnitor, which shall not be
unreasonably withheld.
(b) Counsel. An Indemnitee shall have the right to employ its own
counsel, but the fees and expenses of such counsel shall be at the expense of
the Indemnitee unless (i) the employment of such counsel shall have been
authorized in writing by the Indemnitor in connection with the defense of such
Claim and the Indemnitor has agreed in writing to pay such fees and expenses, or
(ii) the Indemnitor shall not have employed counsel in the defense of such Claim
(which counsel may be in-house counsel unless and until a lawsuit has been
commenced). In either of which events, such fees and expenses of not more than
one additional counsel for the indemnified parties shall be borne by the
Indemnitor.
(c) Payment from Escrow Account. Purchaser may make a claim for
payment of any indemnity payment due under Section 11.3 in the manner provided
in the Escrow Agreement during the Escrow Period (as defined therein). To the
extent Purchaser shall have a further claim for payment of any indemnity payment
prior to expiration of the Indemnification Period, such claim may be brought
directly against Rick Moore, to the extent the aggregate of such claims have not
exceeded the Section 11.3(ii) One Million Dollar ($1,000,000.00) limitation
applicable to claims (which limitation is not applicable to Tax liabilities of
Penta-Gen and RAM as provided in Section 11.3(i)).
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Amendment and Modification. Subject to applicable
--------------------------
Regulations, this Agreement may be amended, modified and supplemented at any
time with respect to any of the terms contained herein, by a written agreement
signed by the parties hereto.
Section 12.2 Waiver. The failure of any party hereto to comply with
------
any obligation, covenant, agreement or condition herein may be waived in writing
by the other parties hereto, but such waiver shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing.
Section 12.3 Certain Definitions.
-------------------
"AFFILIATE" shall mean, with regard to any Person, any Person which,
directly or indirectly controls, is controlled by, or is under common control
with, such Person and, with respect to any Person who is an individual, the
spouse, ancestors and descendants
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<PAGE>
(lineal or by marriage) thereof. "Control" (including, with correlative
meaning, the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by Contract or
otherwise.
"AGREEMENT" shall have the meaning ascribed to such term in the preamble
hereof.
"AUTHORITY" shall mean any governmental authority, including, without
limitation, the FCC and the ICC and any other governmental, regulatory or
administrative body, agency, commission, board of arbitrators, or any court or
judicial authority, whether federal, state, local or foreign.
"BUSINESS DAY" shall mean any day that is not a Saturday or Sunday and that
in Odin, Illinois, or Denver, Colorado, is not a day on which banking
institutions are generally authorized or obligated by Regulation to close.
"CERCLA" shall have the meaning ascribed to such term in Section 2.21(c)
hereof.
"CERCLIS" shall have the meaning ascribed to such term in Section 2.21(c)
hereof.
"CLAIM" shall mean any action, written claim, complaint, lawsuit, written
demand, suit, notice of a violation, litigation, proceeding, arbitration or
other dispute noticed in writing, whether civil, criminal, administrative or
otherwise, by any Authority or other Person.
"CLOSING" shall have the meaning ascribed to such term in Section 9.1
hereof.
"CLOSING DATE" shall have the meaning ascribed to such term in Section 9.1
hereof.
"COMPANY" shall have the meaning ascribed to such term in the preamble
hereof.
"CONTRACT" shall mean any agreement, contract, commitment, instrument or
other binding arrangement or understanding, whether written or oral.
"ENVIRONMENTAL LAW" shall mean any Regulation or Order, including, but not
limited to, any term or condition included in a validly issued Permit to
construct or operate a facility subject to any Regulation or Order, which
relates to or otherwise imposes liability or standards of conduct concerning
environmental matters,
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<PAGE>
mining or reclamation of mined land, discharges, emissions, releases or
threatened releases of noises, odors or any pollutants, contaminants or
hazardous or toxic wastes, substances or materials, whether as matter or energy,
into ambient air, water or land or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage, disposal,
cleanup, transport or handling of pollutants, contaminants or hazardous wastes,
substances or materials, including (but not limited to) CERCLA, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, the Toxic Substances Control
Act of 1976, as amended, the Federal Water Pollution Control Act Amendments of
1972, the Clean Water Act of 1977, as amended, any so-called "SUPERLIEN" law and
any other similar Regulation by any Authority in effect on or before the Closing
Date.
"ENVIRONMENTAL PERMIT" shall mean a Permit relating to or required by any
Environmental Law.
"ERISA" shall have the meaning ascribed to such term in Section 2.19
hereof.
"ERISA PLANS" shall have the meaning ascribed to such term in Section 2.19
hereof.
"FCC" shall mean the Federal Communications Commission.
"FINANCIAL STATEMENTS" shall have the meaning ascribed to such term in
Section 2.9(a) hereof.
"GAAP" shall mean United States generally accepted accounting principles,
consistently applied, as in existence at the date hereof.
"HAZARDOUS MATERIALS" shall have the meaning ascribed to such term in
Section 2.21(a) hereof.
"IMPROVEMENTS" shall have the meaning ascribed to such term in Section
2.14(c) hereof.
"ICC" shall mean the Commerce Commission of the State of Illinois.
"INDEMNITEE" shall have the meaning ascribed to such term in Section
11.5(a) hereof.
"INDEMNITOR" shall have the meaning ascribed to such term in Section
11.5(a) hereof.
"INFORMATION" shall have the meaning ascribed to such term in Section
6.9(a) hereof.
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<PAGE>
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"LIEN" shall mean any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, claim, easement, restriction (on transfer or
otherwise) or interest of another Person of any kind or nature.
"MATERIAL ADVERSE CHANGE" shall mean any developments or changes which
would have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, any
circumstances, state of facts or matters which could reasonably be expected,
either individually or in conjunction with any other circumstance, state of
facts or matter, to have a material adverse effect in respect of such Person's
business, business prospects, properties, assets, condition (financial or
otherwise) or results of operations.
"ORDER" shall mean any judgment, decree (consent or otherwise), order,
injunction (preliminary or permanent), stipulation, ruling, decree or consent of
or by an Authority.
"PCB" shall mean polychlorinated biphenyls.
"PERMITS" shall have the meaning ascribed to such term in Section 2.26
hereof.
"PERMITTED LIENS" shall mean (i) statutory Liens for Taxes not yet due and
payable, (ii) such imperfections or irregularities of title, Liens, easements,
charges or encumbrances as do not interfere with the present use of the
properties or assets subject thereto or affected thereby, do not otherwise
impair present business operations at such properties, or do not have a Material
Adverse Effect on the value of such properties and assets and (iii) Liens
reflected in the Financial Statements.
"PERSON" shall mean any corporation, partnership, joint venture,
organization, entity, Authority or natural person.
"PENSION BENEFIT PLAN" shall have the meaning ascribed to such term in
Section 2.19 hereof.
"PROPRIETARY RIGHTS" shall mean all (i) patents, patent applications,
patent disclosures and all related continuation, continuation-in-part,
divisional, reissue, reexamination, utility, model, certificate of invention and
design patents, registrations and applications for registrations, (ii)
trademarks, service marks, logos, trade names and corporate names and
registrations and
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<PAGE>
applications for registration thereof and (iii) copyrights and registrations and
applications for registration thereof.
"PURCHASE PRICE" shall have the meaning ascribed to such term in Section
1.2 hereof.
"PURCHASER" shall have the meaning ascribed to such term in the preamble
hereof.
"REGULATION" shall mean any law, statute, regulation, ordinance,
requirement, rule, executive order or binding action of or by an Authority.
"RELEASE" shall have the meaning ascribed to such term in Section 9601(22)
of Title 42 of the United States Code.
"SELLER" shall have the meaning ascribed to such term in the preamble
hereof.
"SHARES" shall have the meaning ascribed to such term in the recitals
hereof.
"TAX RETURNS" shall have the meaning ascribed to such term in Section
2.16(a) hereof.
"TAX" or "TAXES" means any income, gross receipt, net proceeds, alternative
or add-on minimum, ad valorem, value added, estimated, turnover, sales, use,
property, personal property (tangible and intangible), stamp, leasing, lease,
user, excise, duty, franchise, transfer, license, withholding, payroll,
employment, foreign, fuel, excess profits, occupational and interest
equalization, windfall profits, severance and other taxes, charges, fees, levies
or other assessments of any kind whatsoever (including interest, penalties,
fines and additions thereto) imposed by any taxing authority, federal, state,
local or foreign.
"UNAUDITED FINANCIAL STATEMENTS" shall have the meaning ascribed to such
term in Section 2.9(a) hereof.
"WELFARE BENEFIT PLAN" shall have the meaning ascribed to such term in
Section 2.19 hereof.
Section 12.4 Notices. All notices, claims, requests, demands or other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand, by first class certified
mail, return receipt requested, with postage paid, or by receipted overnight
courier service to the intended recipient at the address specified below or at
such other address as shall be designated by such party in any notice to the
other parties.
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<PAGE>
Notices to Purchaser: With a Copy to:
-------------------- --------------
MJD Services Corp. Underwood Kinsey Warren &
5821 Fairview Road, Suite 409 Tucker, P.A.
Charlotte, NC 28209 201 S. College Street,
ATTN: Eugene B. Johnson, Suite 2020
Senior Vice President Charlotte, NC 28244
ATTN: Joseph Warren, Esq.
Notices to Seller: With a Copy to:
----------------- --------------
Rick A. Moore Ruden, McClosky, Smith,
16 Bryan Lane Schuster & Russell, P.A.
Salem, IL 62881 200 East Broward Blvd.
Post Office Box 1900
Fort Lauderdale, FL 33302
ATTN: Glen Stankee, Esq.
Tom D. Moore Ruden, McClosky, Smith,
12641 White Coral Drive Schuster & Russell, P.A.
Wellington 200 East Broward Blvd.
West Palm Beach, FL 33414 Post Office Box 1900
Fort Lauderdale, FL 33302
ATTN: Glen Stankee, Esq.
Notices to Penta-Gen:
--------------------
Penta-Gen Investments, Inc. Ruden, McClosky, Smith,
102 E. Kirkwood Schuster & Russell, P.A.
Post Office Box 278 200 East Broward Blvd.
Odin, IL 62870-0278 Post Office Box 1900
ATTN: Rick A. Moore, President Fort Lauderdale, FL 33302
ATTN: Glen Stankee, Esq.
Section 12.5 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties;
provided, that the Purchaser may, without the prior written consent of the
- --------
Seller, assign its rights hereunder and under any other Contracts or documents
executed or delivered in connection herewith to (i) an Affiliate of the
Purchaser or (ii) its lenders as collateral in connection with the financing of
the transactions contemplated hereby.
Section 12.6 Governing Law. This Agreement shall be governed by the laws
-------------
of the State of North Carolina, without regard to its principles of conflict of
laws.
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<PAGE>
Section 12.7 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 12.8 Headings. The Article and Section headings contained in
--------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 12.9 Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the parties hereto with regard to the subject
matter hereof and supersedes all prior agreements, representations, warranties,
promises, covenants, arrangements and understandings, oral or written, express
or implied, among the parties with respect to such subject matter. There are no
agreements, representations, warranties, promises, covenants, arrangements or
understandings among the parties with respect to such subject matter other than
those expressly set forth or referred to herein.
Section 12.10 No Benefit. This Agreement shall not be construed so as to
----------
confer any right or benefit upon any Person other than the signatories to this
Agreement and each of their respective successors and permitted assigns.
Section 12.11 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party hereto upon any breach or default
of another party hereto under this Agreement shall impair any such right, power
or remedy of such party nor shall it be construed to be a waiver of any such
breach or default or an acquiescence therein or of or in any similar breach or
default thereafter occurring. All remedies, whether under this Agreement, by
Regulation or otherwise, afforded to any party shall be cumulative and not
alternative.
Section 12.12 Severability. Unless otherwise provided herein, if any
------------
provision of this Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 12.13 Expenses. Each of the parties hereto shall bear its own
--------
expenses, including, without limitation, legal fees and expenses, with respect
to this Agreement and the transactions contemplated hereby; provided, however,
-------- -------
that in the event a breach of Section 6.4 hereof occurs and the transactions
contemplated hereby are not consummated, the Seller shall pay to the Purchaser
the Purchaser's out-of-pocket fees, including, without limitation, reasonable
legal fees and expenses, incurred in connection with the transactions
contemplated hereby. Further the parties hereto agree that the Company shall
pay the fees and expenses of ICC and FCC counsel with respect to the
transactions contemplated by this
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<PAGE>
Agreement and that the Company shall pay the fees and expenses of Ruden,
McClosky, Smith, Schuster & Russell, P.A. for professional services rendered to
the Company in connection with this transaction or otherwise for the periods
through February 21, 1996. Seller shall pay the fees and expenses of Ruden,
McClosky, Smith, Schuster & Russell, P.A. for professional services provided
after February 21, 1996.
Section 12.14 Interpretation/Legal Opinions. Notwithstanding anything
-----------------------------
herein to the contrary, wherever in this Agreement Penta-Gen, Odin, RAM, Rick
Moore or Tom Moore represent that any transaction contemplated hereunder (or any
aspect thereof) does not result in (i) a violation of any law, act, Regulation,
rule or Permit, or (ii) a breach of any agreement, contract or corporate charter
or bylaw (including, but not limited to, the representations in Sections 2.3,
2.4, 2.7, 2.16(b), 2.18, 2.19(b)(iv), and 2.26), such representation shall not
be construed as a legal opinion, but as a representation that Penta-Gen, Odin,
RAM, Rick Moore and Tom Moore are unaware of facts which,
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<PAGE>
individually or collectively, would constitute a violation of such law, act,
regulation or rule or breach of any such agreement, contract or corporate
charter or bylaw, as the case may be.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MJD SERVICES CORP.
/s/ Eugene B. Johnson
------------------------------------
By: Eugene B. Johnson
Title: Sr. Vice President
/s/ Rick A. Moore (SEAL)
------------------------------------
RICK A. MOORE
/s/ Tom D. Moore (SEAL)
------------------------------------
TOM D. MOORE
PENTA-GEN INVESTMENTS, INC.
/s/ Rick A. Moore
------------------------------------
By: Rick A. Moore
Title: President
ODIN TELEPHONE EXCHANGE, INC.
/s/ Rick A. Moore
------------------------------------
By: Rick A. Moore
Title: President
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<PAGE>
Exhibit 7.7
NONCOMPETITION AGREEMENT
------------------------
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made effective as of the
___ day of _______, 1996 (the "Effective Date"), by and between RICK A. MOORE, a
resident of Illinois ("Moore"), ODIN TELEPHONE EXCHANGE, INC., an Illinois
corporation ("Odin") and MJD SERVICES CORP., a Delaware corporation ("MJD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Penta-Gen Investments, Inc. ("Penta-Gen") is the record owner of
all of the issued and outstanding capital stock of Odin; and
WHEREAS, pursuant to that certain Stock Purchase Agreement by and among
Moore, Tom D. Moore, Penta-Gen, Odin and MJD dated as of March ___, 1996 (the
"Purchase Agreement"), MJD is purchasing all of the outstanding capital stock of
Penta-Gen; and
WHEREAS, Moore is a principal shareholder of Penta-Gen, and Moore's
knowledge of and contacts within Odin's relevant trade are such that MJD is
unwilling to enter into the Purchase Agreement in the absence of Moore's
agreement to the covenants set forth herein.
NOW, THEREFORE, in consideration of and as an inducement to MJD's entering
into the Purchase Agreement and the transactions contemplated thereby, and for
other good and valuable consideration as provided herein, the receipt and
sufficiency of which are hereby acknowledged, Moore hereby undertakes and agrees
as follows:
1. Moore will not directly or indirectly engage or attempt to engage in
any of the following competitive activities within the "Restricted Territory"
during the "Restricted Period" (as defined in Paragraphs 1(c) and 1(d) hereof,
respectively):
(a) ownership, management, operation or control of, or participation
in the ownership, management, operation or control of, or connection with or
ownership of any interest in, or exploitation of any customers, business or
opportunities of, to or with, or otherwise assisting in any manner, any entity
which is engaged in any one or more of the "Restricted Activities" (as defined
in Paragraph 1 (e) hereof). By way of example and not limitation, this
restriction shall apply to actions taken by Moore in the capacity of director,
officer, employee, agent, consultant, partner or stockholder (except that Moore
shall be permitted to acquire a stock interest in a corporation provided such
stock is publicly traded and the stock so acquired
<PAGE>
is not more than five percent (5%) of the total outstanding shares of such
corporation); or
(b) employing or engaging or attempting to employ or engage, or
knowingly arranging or soliciting to have any other person or entity employ or
engage or attempt to employ or engage, any person who heretofore has been
employed or engaged by Odin and who is, on the Effective Date or thereafter,
employed or engaged by Odin or MJD, including, without way of limitation, all
such persons working in the capacity of employee, agent, sales consultant or
independent contractor; provided, however, that such restriction shall not apply
to the following persons: Diane Borgelt, Scott Manifucci, Patricia Moore, and
Tom D. Moore.
(c) As used herein, the term "Restricted Territory" shall include any
and all locations which as of the Effective Date are within the operating
territory of Odin, as defined by the Illinois Commerce Commission.
(d) As used herein, the term "Restricted Period" shall be a period of
five (5) consecutive years, commencing with the Effective Date.
(e) As used herein, the term "Restricted Activities" shall mean the
provision or sale of any of the following services to any existing or future
wireline customer of Odin (i.e., any Person having a telephone number with a 775
or 846 prefix in Area Code 618), other than a customer who, as of the Closing
Date, is already a customer of RAM Enterprises, Inc.:
(1) Paging;
(2) Cellular Resale;
(3) Paging Resale;
(4) Internet Access;
(5) PCS;
(6) Voice Mail;
(7) Fax Store & Forward;
(8) Directory;
(9) Pre-Paid Calling Cards;
(10) Toll Resale;
(11) Cable Television (wired and/or wireless);
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<PAGE>
(12) Local Dial Tone; and
(13) Optional Wire Maintenance.
2. Moore shall not, directly or indirectly, at any and all times
hereafter, use, divulge or make available to any person or entity, any
confidential information or any documents, files or other papers concerning the
business of Odin, except for such disclosure which is consented to in writing in
advance by MJD, or otherwise required by applicable law or regulations.
3. As consideration for the foregoing restrictions upon competition (in
addition to MJD's execution of the Purchase Agreement), MJD shall pay Moore the
principal sum of Three Hundred Seventy-Five Thousand and no/100 Dollars
($375,000.00) (the "Noncompete Payment"). The Noncompete Payment shall be
payable in Twenty (20) equal quarterly installments of Eighteen Thousand Seven
Hundred Fifty and no/100 Dollars ($18,750.00) each. The quarterly installments
shall be payable in arrears, commencing on the last day of the first calendar
quarter ending after the Effective Date, and continuing on the last day of each
calendar quarter occurring thereafter until the Noncompete Payment has been paid
in full, subject to the provisions hereof. By way of example and not limitation,
if the Effective Date is August 1, 1996, the first quarterly payment shall be
due and owing on September 30, 1996. The Noncompete Payment may be prepaid in
part or in full at any time by MJD, in its sole discretion, without penalty or
premium.
4. Without limiting its other rights and remedies, MJD shall be entitled
to set off, against all sums otherwise due and payable hereunder, all amounts
with respect to which MJD is entitled to indemnification pursuant to the terms
of the Purchase Agreement. MJD shall notify Moore of any such sums to be set
off, specifying the basis for such set off and the amount thereof.
5. In the event of any breach by Moore of any provision contained herein,
all obligations and liabilities of MJD with respect to the Noncompete Payment
shall cease and terminate, and the Restricted Period shall, to the extent
permitted by law, be extended by any period of time during which (i) such breach
continues and (ii) there is pending litigation in which MJD is seeking to
enforce the terms of this Agreement.
6. In the event that any provision contained herein is held to be
invalid, prohibited or unenforceable because of the scope, duration or area of
its applicability or for other reasons, such provision shall be ineffective only
to the extent of such invalidity, prohibition or unenforceability, without
invalidating the remaining provisions hereof. No narrowed construction, court-
modification or invalidation of any provision
-3-
<PAGE>
hereof shall affect the construction, legality, validity or enforceability of
any other provision hereof.
7. Moore acknowledges that Odin and MJD will be irreparably damaged if
the provisions hereof are not specifically enforced, and agrees that either or
both of Odin and MJD shall be entitled to an injunction restraining any
violation or attempted violation of this Agreement (without any bond or other
security being required), or any other appropriate decree of specific
performance. Such remedies shall not be exclusive and shall be in addition to
any other remedy which Odin and MJD may have.
8. In the event any installment properly due and payable hereunder
remains unpaid at the expiration of twenty (20) days following MJD's receipt of
written notice of such delinquency (a "default"), then Moore may employ an
attorney to enforce his rights and remedies and MJD hereby agrees to pay to
Moore reasonable attorneys' fees, plus all other reasonable expenses and court
costs, incurred by Moore in exercising any of his rights and remedies upon
default.
9. This Agreement shall be governed and construed in accordance with the
laws of the State of North Carolina. This Agreement shall inure to the benefit
of Odin and MJD and their successors and assigns. This Agreement is personal to
Moore and may not be assigned by him. The restrictive covenants contained
herein shall apply to all actions taken by Moore or any person or entity
directly or indirectly controlling, controlled by or affiliated with Moore. The
terms hereof may not be modified or terminated except by a writing signed by
Odin, MJD and Moore.
10. Notwithstanding anything herein provided to the contrary, Moore will
have complied with the terms and conditions of this Noncompetition Agreement if,
prior to the consummation of any transaction for the sale or provision of any
service listed in Section 1(e) hereof, Moore, or any entity described in Section
1(a) or its employee, requests the prospective customer's telephone number and
declines to consummate the transaction if the customer reports a telephone
number with either a 775 or 846 prefix in Area Code 618. As long as Moore
implements and abides by a suitable procedure to ascertain whether a prospective
purchaser is a customer of Odin, MJD's remedies and right of offset as set forth
herein shall be limited to the amount of revenue to be collected by Moore under
his agreement with said
-4-
<PAGE>
customer during the unexpired portion of the term of this Noncompetition
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
as of the date first set forth above.
/s/ Rick A. Moore (SEAL)
---------------------------
RICK A. MOORE
ODIN TELEPHONE EXCHANGE, INC.
ATTEST:
By: /s/ Rick A. Moore
------------------------------
President
/s/ Diane M. Borgelt
- ---------------------------------
Secretary
(Corporate Seal)
MJD SERVICES CORP.
ATTEST:
By: /s/ Eugene Johnson
------------------------------
Sr. Vice President
/s/ W. E. Leach
- ---------------------------------
Asst. Secretary
(Seal)
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<PAGE>
---------
EXHIBIT
11.2
---------
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of _____________,
1996, between RICK A. MOORE, a resident of the State of Illinois ("Moore"), MJD
SERVICES CORP., a Delaware corporation ("Purchaser") and BOATMEN'S BANK OF SOUTH
CENTRAL ILLINOIS, an Illinois banking corporation (the "Escrow Agent").
STATEMENT OF PURPOSE
--------------------
On or about March 28, 1996, Moore and Purchaser, among others, entered into
a Stock Purchase Agreement (the "Purchase Agreement"), and pursuant to the
provisions of Section 9.2 of the Purchase Agreement, Moore and Purchaser agreed
that One Million Dollars ($1,000,000) (the "Escrow Funds") of the total purchase
price would be deposited with Escrow Agent to secure Moore's agreement to
indemnify Purchaser as set forth in Sections 11.2 and 11.3 of the Purchase
Agreement all in accordance with the terms of this Escrow Agreement.
The Escrow Agent has agreed to serve as escrow agent under this Escrow
Agreement and to accept delivery of the Escrow Funds in accordance with the
terms and conditions set out in this Escrow Agreement.
AGREEMENT
---------
In consideration of the Premises, and the agreements set out below, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties enter into the following Escrow Agreement.
1. Deposit with Escrow Agent. At Closing of the sale and purchase of
-------------------------
stock as provided in the Purchase Agreement, Purchaser shall deliver to the
Escrow Agent the sum of One Million Dollars ($1,000,000) to be held,
administered and distributed by the Escrow Agent pursuant to the terms of this
Escrow Agreement.
<PAGE>
2. Escrow Funds. Upon receipt of the Escrow Funds, the Escrow Agent shall
------------
deposit the Escrow Funds in an escrow account (the "Escrow Account") and shall
hold, administer, invest and distribute the Escrow Funds in accordance with the
terms of this Escrow Agreement. All references in this Escrow Agreement to
Escrow Funds shall include any investment of such funds and all investment
earnings thereon.
3. Purposes of Escrow. The Escrow Funds shall be used solely for the
------------------
purposes set forth in Sections 11.2 and 11.3 of the Purchase Agreement. The
Escrow Funds shall not constitute an asset of Moore until the distribution
thereof to Moore in accordance with the terms of the Purchase Agreement and of
this Escrow Agreement.
4. Term. The term of this Escrow Agreement ("Escrow Period") shall expire
----
on the first anniversary of the date upon which the Escrow Funds are deposited
with the Escrow Agent, except that it shall be automatically extended as
necessary to provide for the disposition of any Claims filed by the Purchaser
with the Escrow Agent during such one year period, in accordance with the
procedures set forth in Section 5 hereof.
5. Disbursement of Escrow Funds.
----------------------------
(a) In the event Purchaser determines that it is entitled to all or
any portion of the Escrow Funds pursuant to Sections 11.2 or 11.3 of the
Purchase Agreement, Purchaser shall deliver written notice to the Escrow Agent
and Moore, stating the factual basis for, and the amount of, such entitlement
("Claim"). Within ten (10) days following such delivery of the Claim, Moore may
deny all or any portion of the Claim by delivering written notice to the Escrow
Agent and Purchaser, indicating the amount or portion of the Claim which is
denied and the factual basis for such denial ("Denial").
<PAGE>
(b) In the event that Moore fails to timely deliver a Denial to the
Escrow Agent, the Escrow Agent shall immediately release and distribute to
Purchaser an amount equal to the Claim.
(c) In the event the Escrow Agent receives a timely Denial from Moore
as to all or any portion of a Claim, the Escrow Agent shall (i) immediately
distribute to Purchaser an amount, if any, equal to the portion of the Claim
that Moore has not denied, and (ii) within sixty (60) days of receipt of such
Denial, file an action in interpleader with any Illinois court of competent
jurisdiction to resolve such disagreement and deposit with the registry of the
court an amount equal to the denied portion of the Claim, unless a joint
instruction is received by the Escrow Agent from Moore and the Purchaser as to
the disposition of the denied portion of the Claim prior to the expiration of
such sixty (60) day period. If the Denial does not state the amount or portion
of the Claim denied, the total amount of the Claim shall be deemed denied.
(d) The Escrow Agent shall distribute any portion of the Escrow Funds
remaining in the Escrow Agent's possession immediately upon the expiration of
the Escrow Period to Moore, free and discharged from any further obligation with
respect to the same hereunder.
(e) Notwithstanding anything herein to the contrary, during the
Escrow Period, the Escrow Agent shall distribute so much of the Escrow Funds to
Moore as provided in a written joint instruction received by the Escrow Agent
from Moore and the Purchaser and signed by both of them.
6. Release from Escrow. As and when all of the Escrow Funds are either
-------------------
distributed as provided hereunder or deposited with the registry of the court in
interpleader, the Escrow Agent shall be released and discharged from any further
obligation hereunder without further action of any party. Compliance by the
Escrow Agent with any final, non-appealable order or a judgment of a court
concerning the subject matter of any such dispute or agreement shall thereupon
release and relieve
<PAGE>
the Escrow Agent from all obligations and responsibility with respect to the
Escrow Funds to which such order or judgement relates.
7. Investment of Escrow Funds. The Escrow Agent shall hold the Escrow
--------------------------
Funds delivered to it under the terms of this Escrow Agreement and shall invest
the Escrow Funds held by it (i) in interest bearing demand deposit accounts with
commercial banks whose accounts are insured by the Federal Deposit Insurance
Corporation, or (ii) in any other investment upon which Moore and the Purchaser
shall agree.
8. Agreement of Escrow Agent. The Escrow Agent hereby agrees to receive
-------------------------
the Escrow Funds and hold the same intact, and to deposit the Escrow Funds in
accordance with the terms of this Escrow Agreement, and shall not permit any
withdrawal except under the terms of this Escrow Agreement. The Escrow Agent
shall be responsible only for the safekeeping and the deposit of the Escrow
Funds and the disbursements or delivery in accordance with the terms of this
Escrow Agreement. The Escrow Agent shall not be responsible for the
appropriateness, sufficiency or accuracy of information contained in any written
notice.
9. Performance of Escrow Agent.
---------------------------
(a) There ar no implied duties under this Escrow Agreement. The
duties, obligations and acts of the Escrow Agent shall be construed as purely
ministerial in nature. Escrow Agent shall be responsible for only those duties
expressly set forth in this Escrow Agreement. In performing any of its duties
under this Escrow Agreement, or upon the claimed failure to perform its duties
under this Escrow Agreement, Escrow Agent shall not be liable to anyone for any
damages, losses, or expenses which they may incur as a result of the Escrow
Agent so acting, or failing to act; provided, however, Escrow Agent shall be
liable for damages arising out of its willful default or gross negligence under
this Escrow Agreement. Accordingly, Escrow Agent
<PAGE>
shall not incur any such liability with respect to (i) any action taken or
omitted to be taken in good faith upon advice of its counsel or counsel for any
other party to this Escrow Agreement given with respect to any questions
relating to the duties and responsibilities of the Escrow Agent hereunder or
(ii) any action taken or omitted to be taken in reliance upon any document,
including any written notice or instructions provided for in this Escrow
Agreement, not only as to its due execution and to the validity and
effectiveness of its provisions but also as to the truth and accuracy of any
information contained in any notice or document, which the Escrow Agent shall in
good faith believe to be genuine, to have been signed or presented by a proper
person or persons and to conform with the provisions of this Escrow Agreement.
(b) Moore and the Purchaser agree to indemnify and hold harmless
Escrow Agent against any and all losses, claims, damages, liabilities and
expenses, including without limitation, reasonable costs of investigation and
counsel fees and disbursements which may be imposed by Escrow Agent or incurred
by it in connection with its acceptance of this appointment as Escrow Agent or
the performance of its duties, including, without limitation, reasonable
attorneys fees and costs attributable to any interpleader action commenced by
the Escrow Agent or any other litigation arising from this Escrow Agreement or
involving the subject matter of this Escrow Agreement; provided, however, that
if Escrow Agent shall be found guilty of willful default or gross negligence
under this Escrow Agreement, then, in that event, Escrow Agent shall itself bear
all such losses, claims, damages, liabilities and expenses.
10. Fees of Escrow Agent. For its ordinary services hereunder (which shall
--------------------
include receipt, investment and disbursement of the Escrow Funds in the manner
described in this Escrow Agreement), the Escrow Agent shall receive compensation
of two hundred fifty dollars ($250) to be paid equally by Purchaser and Moore
upon execution of this Escrow Agreement and shall receive
<PAGE>
such additional reasonable compensation during the term hereof as is
commensurate with its services provided hereunder as Escrow Agent; any such
additional compensation to be similarly paid equally by Purchaser and Moore.
11. Resignation of Escrow Agent. The Escrow Agent or successor at any time
---------------------------
may resign by giving thirty (30) business days written notice to the parties
hereto, and such resignation shall take effect at the end of such thirty (30)
business days if all of the Escrow Funds have been tendered into the registry or
custody of an Illinois court in the manner provided in Section 5 hereof, or upon
the earlier appointment, with the approval of Moore and the Purchaser, of a
successor. From and after the effective date of such resignation or appointment
of a successor, the Escrow Agent shall not be obligated to perform any of the
duties of the Escrow Agent hereunder and will not be liable for any
nonperformance thereof nor for any act or failure to act whatsoever on the part
of any successor Escrow Agent. If Moore and the Purchaser are unable to agree
upon a successor Escrow Agent within thirty (30) days following notice of the
Escrow Agent's resignation, the Escrow Agent shall commence an action in
interpleader and deposit the Escrow Funds with the registry of the court in the
manner provided in Section 5 hereof.
12. Successor to Escrow Agent. Any corporation resulting from any merger
-------------------------
or consolidation to which the Escrow Agent or any successor to it shall be a
party, or any corporation in any manner succeeding to all or substantially all
of the business of the Escrow Agent or any successor, shall be the successor
escrow agent hereunder without the execution or filing of any paper or any
further acts on the part of any of the parties hereto. In the event of a
resignation of the Escrow Agent pursuant to paragraph 11 of this Escrow
Agreement, any person(s) or corporation hereafter agreed upon by the parties
shall be the successor escrow agent hereunder.
<PAGE>
13. Instructions and Notices. In executing and performing its duties
------------------------
hereunder, except as otherwise provided, the Escrow Agent shall be entitled to
rely upon instructions of Moore and the Purchaser. Any notice, payment, demand,
instruction or communication required or permitted to be given by this Escrow
Agreement shall be in writing and shall be given by hand delivery, overnight
messenger or certified mail, return receipt requested, addressed to the
appropriate party at the address stated below:
(a) If to Moore:
Rick A. Moore
16 Bryan Lane
Salem, IL 62881
(b) If to Purchaser:
MJD Services Corp.
5821 Fairview Road, Suite 409
Charlotte, NC.29209
Attention: Eugene B. Johnson,
Senior Vice President
(c) If to Escrow-Agent:
Boatmen's Bank of South Central Illinois
Salem Banking Center,
P.O. Box 880
Salem, IL 62881
Any notice sent by overnight messenger or hand delivery shall be deemed
made on the date received, and any notice sent be certified mail shall be deemed
made three (3) days after mailing.
14. Governing Law. This Escrow Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of North Carolina.
<PAGE>
15. Headings. The headings in this Escrow Agreement are inserted for
--------
convenience and indentification only and are in no way intended to interpret,
define or limit the scope, extent or intent of this Escrow Agreement or any
provision of this Escrow Agreement.
16. Severability. Each provision of this Escrow Agreement is intended to
------------
be severable. If any term or provision of this Escrow Agreement is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity or enforcement of the remainder of this Escrow Agreement.
17. Counterparts This Escrow Agreement and any amendment hereto may be
------------
executed in one or more Counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
18. Amendment. No modification or amendment to this Escrow Agreement
---------
shall be valid unless produced in writing and signed by all of the parties
hereto.
19. Successors. This Escrow Agreement shall be binding upon and inure to
----------
the benefit of the parties hereto and their respective assigns and transferees,
as the case may be. Escrow Agent shall not be bound by or incur any liability
with respect to this Escrow Agreement or any other agreement or understanding
between Moore and the Purchaser, except as in this Escrow Agreement expressly
provided.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be executed as of the date first above written.
_____________________________(SEAL)
Rick A. Moore
MJD SERVICES CORP.
By: _______________________________
<PAGE>
Its:_____________________________
BOATMEN'S BANK OF SOUTH CENTRAL
ILLINOIS
By:______________________________
Its:_____________________________
<PAGE>
Exhibit 10.20
AGREEMENT AND PLAN OF MERGER
Dated as of
MARCH 27, 1998
By and among
MJD VENTURES, INC.,
UTILITIES ACQUISITION CORP.
AND
UTILITIES, INC.*
- --------
* The material has been omitted subject to a request for confidential treatment
and has been filed separately.
<PAGE>
EXHIBIT 10.21
AGREEMENT AND PLAN OF MERGER
Dated as of
August 6, 1996
By and among
MJD HOLDINGS CORP.
C&E ACQUISITION CORP.
AND
CHAUTAUQUA AND ERIE TELEPHONE CORPORATION
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT made as of this 6th day of August, 1996 by and among CHAUTAUQUA
AND ERIE TELEPHONE CORPORATION, a New York corporation (the "COMPANY"), MJD
HOLDINGS CORP., a Delaware corporation (the "PARENT") and C&E ACQUISITION CORP.,
a New York corporation ("ACQUISITION SUB").
WITNESSETH
WHEREAS, the respective Boards of Directors of Parent, Acquisition Sub and
the Company have approved the merger of Acquisition Sub with and into the
Company (the "MERGER"), upon the terms and subject to the conditions set forth
herein and in the certificate of merger annexed as EXHIBIT A (the "CERTIFICATE
OF MERGER"), as a result of which Acquisition Sub will be merged into the
Company and the shareholders of the Company (other than shareholders who perfect
appraisal rights) will be entitled to receive the consideration provided in this
Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and of the representations, warranties, covenants and agreements
hereinafter contained, Parent, Acquisition Sub and the Company agree as follows:
SECTION 1. THE MERGER
----------
1.1 Surviving Corporation. In accordance with the provisions of
---------------------
this Agreement, the Articles of Merger, the Certificate of Merger and the
Business Corporation Law of the State of New York ("NYBCL"), at the Effective
Date (as defined in Section 1.6), Acquisition Sub shall be merged with and into
the Company, and the Company shall be the surviving corporation in the Merger
(hereinafter sometimes called the "SURVIVING CORPORATION"). At the Effective
Date, the separate existence of Acquisition Sub shall cease.
1.2 Certificate of Incorporation. As of the Effective Date, the
----------------------------
Certificate of Incorporation of the Company immediately prior to the Effective
Date shall be the Certificate of Incorporation of the Surviving Corporation,
until thereafter amended as otherwise provided by law or in such Certificate of
Incorporation.
<PAGE>
1.3 By-laws. The By-laws of the Company as in effect at the
-------
Effective Date shall be the By-laws of the Surviving Corporation, until
thereafter amended or repealed as provided by law.
1.4 Directors. The directors of Acquisition Sub at the Effective
---------
Date (whose names are set forth on SCHEDULE 1.4) shall, from and after the
Effective Date, be the directors of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and By-laws of the Surviving Corporation, or as otherwise provided
by law.
1.5 Officers. The officers of Acquisition Sub at the Effective
--------
Date (whose names are set forth on SCHEDULE 1.4) shall, from and after the
Effective Date, be the officers of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and By-laws of the Surviving Corporation, or as otherwise provided
by law.
1.6 Effective Date. The Merger shall become effective at the time
--------------
of filing of the Certificate of Merger with the Secretary of State of the State
of New York in accordance with Section 907 of the NYBCL. The Certificate of
Merger shall be filed with the Secretary of State of the State of New York on
the Closing Date (as defined in Section 8.1 hereof). The date when the Merger
becomes effective is herein referred to as the "EFFECTIVE DATE".
1.7 Additional Actions. If, at any time after the Effective Date,
------------------
the Surviving Corporation determines that any deeds, bills of sale, assignments,
assurances or any other acts or things are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, its
right, title or interest in, to or under any of the rights, properties or assets
of the Company or its Subsidiaries acquired or to be acquired by reason of, or
as a result of, the Merger, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors shall
be authorized to execute and deliver, in the name and on behalf of the Company
and its Subsidiaries, all such deeds, bills of sale, assignments and assurances
and to do, in the name and on behalf of the Company and its Subsidiaries, all
such
-2-
<PAGE>
other acts and things necessary or desirable to vest, perfect or confirm any and
all right, title or interest in, to or under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out the purposes of this
Agreement.
1.8 Conversion of Company Common Stock.
----------------------------------
(a) Each share of the Company's common stock, par value $.01
per share (the "COMPANY COMMON STOCK"), actually issued and outstanding at the
Effective Date (except for Dissenting Shares, as defined in Section 1.10) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive from the Parent consideration,
payable (subject to Section 1.12) as set forth on SCHEDULE 1.8 hereto (the
"MERGER CONSIDERATION"). The Merger Consideration consists of $22,000,000 in
cash.
(b) Any share of Company Common Stock held by Parent or in the
Company's treasury at the Effective Date shall, by virtue of the Merger, be
cancelled without payment of any consideration therefor and without any
conversion thereof.
1.9 Conversion of Acquisition Sub Common Stock. Each share of
------------------------------------------
common stock, par value $.01 per share, of Acquisition Sub (the "ACQUISITION SUB
COMMON STOCK") issued and outstanding at the Effective Date shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for one fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation (the
"SURVIVING CORPORATION COMMON STOCK"). From and after the Effective Date, each
outstanding certificate theretofore representing shares of Acquisition Sub
Common Stock shall be deemed for all purposes to evidence ownership of, and to
represent the number of shares of, Surviving Corporation Common Stock into which
such shares of Acquisition Sub Common Stock shall have been converted.
1.10 Dissenting Shares. Notwithstanding anything in this Agreement
-----------------
to the contrary, shares of Company Common Stock issued and outstanding on the
Effective Date which are held of record by shareholders who shall not have voted
such shares in favor of the Merger and who shall have properly exercised rights
to demand payment of the fair value of such shares in accordance with Section
910 of the NYBCL ("DISSENTING SHARES") shall not be converted into the
-3-
<PAGE>
right to receive any portion of the Merger Consideration specified in Section
1.8, but the holders thereof instead shall be entitled to payment of the fair
value of such shares in accordance with the provisions of Section 910 of the
NYBCL (the "DISSENTING CONSIDERATION"); provided, however, that (i) if such a
-------- -------
holder fails to file a notice of election to dissent in accordance with Section
623 of the NYBCL or, after filing such notice of election, subsequently delivers
an effective written withdrawal of such notice or fails to establish his
entitlement to appraisal rights as provided in Section 623 of the NYBCL, if he
or she be so required, or (ii) if a court shall determine that such holder is
not entitled to receive payment for his shares or such holder shall otherwise
lose his or her appraisal rights, then in either of such cases, each share of
Company Common Stock held of record by such holder or holders shall
automatically be converted into and represent only the right to receive the
portion of the Merger Consideration indicated on SCHEDULE 1.8 (subject to
Section 1.12), upon the surrender of the certificate or certificates
representing such Dissenting Shares. The Company shall give Parent prompt
notice of any demands received by the Company for payment of the fair value of
such shares, and Parent shall have the right to participate in all the
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment (except
to the extent that any such payment is made pursuant to a court order) with
respect to, or settle or offer to settle, any such demands.
1.11 Surrender of Shares.
-------------------
(a) Subject to Sections 1.11(b) and 1.12, at the Closing,
Parent shall deliver the Merger Consideration to the former shareholders of the
Company, pro rata in accordance with a schedule to be provided by the Company at
least five (5) days prior to the Closing Date.
(b) Subject to Section 1.12, upon surrender to Parent of a
certificate representing each of the shares of Company Common Stock (each, a
"CERTIFICATE") or an affidavit of loss stating that the holder of the
Certificate has lost such Certificate, together with an indemnity agreement
providing for indemnification of the Company, Parent and Surviving Corporation
for any loss, damage or other expense resulting from a third party having a
claim to such Certificate or the shares of stock underlying such Certificate
("Affidavit"), the holder of such Certificate or Affidavit shall be entitled to
receive
-4-
<PAGE>
in exchange for each share of Company Common Stock represented by such
Certificate or subject to the Affidavit, as the case may be, the portion of the
Merger Consideration indicated on SCHEDULE 1.8, and such Certificate shall
forthwith be canceled (if a Certificate is presented) and the records of the
Company shall be modified accordingly upon receipt by the holder of such
Certificate or Affidavit, as the case may be, of the indicated portion of the
Merger Consideration; such surrender of Certificates and Affidavits to Parent
shall be made at Closing by the Shareholder Representative. No interest will be
paid or accrued on any portion of the Merger Consideration payable upon the
surrender of such Certificates or Affidavit.
(c) If payment is to be made to a person other than the person
in whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition of payment of the Merger Consideration that the Certificate
so surrendered be properly endorsed or accompanied by appropriate stock powers,
in either case signed exactly as the name of the record holder appears on such
Certificate, with signature guaranteed, and is otherwise in proper form for
transfer, and that the Person requesting such payment shall pay any transfer or
other taxes required by law as a result of such payment to a Person other than
the record holder of the Certificate surrendered, or shall establish to Parent's
satisfaction that such tax has been paid or is not applicable.
(d) After the Effective Date, there shall be no further
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company Common Stock, which are outstanding at the Effective Date. If, after
the Effective Date, Certificates are presented to the Surviving Corporation for
transfer, they shall be canceled and there shall be issued to the transferee in
exchange for each share of Company Common Stock the portion of the Merger
Consideration indicated on SCHEDULE 1.8.
(e) The consideration payable upon the surrender for exchange of
Certificates in accordance with the terms of this Section 1 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock theretofore represented by such Certificates, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Date. If, after the Effective
Date, Certificates are
-5-
<PAGE>
presented to the Surviving Corporation or the Escrow Agent for any reason, they
shall be canceled and exchanged as provided in this Section 1.
1.12 Escrow Fund. In order to secure the Company's obligations to
-----------
indemnify Parent and Acquisition Sub under this Agreement, to make any
adjustments to the Merger Consideration in accordance with Section 1.13 and to
provide for the payment of certain expenses by the Selling Shareholders, Five
Hundred Fifty Thousand Dollars ($550,000) of the Merger Consideration (the
"ESCROW FUND") shall be held by the Escrow Agent and shall not be delivered to
the holders of any surrendered Certificate. The Escrow Fund shall be the
exclusive source of funding for such obligations and adjustments. Such Escrow
Fund shall be delivered to the appropriate party in accordance with the terms of
an Escrow Agreement substantially in the form of EXHIBIT B hereto (the "ESCROW
AGREEMENT").
1.13 Adjustments.
-----------
(a) Within sixty (60) days after the Effective Date, Parent
shall prepare, in accordance with GAAP, consistently applied, and deliver to the
Shareholder Representative, a balance sheet of the Company and its Subsidiaries
(the "EFFECTIVE DATE BALANCE SHEET") as of the close of business on the
Effective Date. The parties shall have the right to dispute the Effective Date
Balance Sheet as provided in Section 1.13(b) hereof. If the stockholders' equity
of the Company and its Subsidiaries as of the Effective Date (the "EFFECTIVE
DATE NET WORTH") is less than Ten Million Two Hundred Fifty Thousand Dollars
($10,250,000) then the Merger Consideration shall be reduced by the amount of
the shortfall. If the total current assets minus the total current
-----
liabilities (as determined in accordance with GAAP, but excluding the then
outstanding 5 3/4% demand notes in the current aggregate amount of $1,213,000)
reflected on the Effective Date Balance Sheet (the "EFFECTIVE DATE WORKING
CAPITAL") is less than Three Hundred Thousand Dollars ($300,000), then the
Merger Consideration shall be further reduced by the amount of the shortfall.
For purposes of this Section 1.13, the calculations of Effective Date Net Worth
and Effective Date Working Capital shall not include legal fees, brokerage fees,
PSC expenses, environmental audit expenses, Hart-Scott-Rodino fees (if any),
other expenses incurred by the Company in connection with the transactions
contemplated hereby or any tollpool adjustments. The total reductions in the
Merger Consideration shall not exceed $500,000. The amount of the
<PAGE>
Merger Consideration, as reduced pursuant to this Section 1.13, shall be
referred to herein as the "REDUCED PURCHASE PRICE".
(b) The Shareholder Representative shall have until thirty (30)
days after the delivery of the Effective Date Balance Sheet to him to review
such statement and propose any adjustments thereto. All adjustments proposed by
the Shareholder Representative shall be set out in detail in a written statement
delivered to Parent (an "ADJUSTMENT STATEMENT") and shall be incorporated into
the Effective Date Balance Sheet unless Parent shall object in writing to such
proposed adjustment within fifteen (15) days after delivery by the Shareholder
Representative to Parent of such Adjustment Statement. If Parent does object in
writing within fifteen (15) days to any such proposed adjustment (the proposed
adjustment or adjustments to which Parent objects, hereinafter the "CONTESTED
ADJUSTMENTS" and Parent's objection notice, hereinafter, a "CONTESTED ADJUSTMENT
NOTICE"), then Parent and the Shareholder Representative shall use reasonable
efforts to resolve their dispute regarding the Contested Adjustments, but if a
final resolution thereof is not obtained within fifteen (15) days after Parent
delivers to the Shareholder Representative the relevant Contested Adjustment
Notice, the Shareholder Representative and Parent shall promptly retain KPMG
Peat Marwick or another nationally recognized independent accounting firm
acceptable to both Parent and the Shareholder Representative (the "INDEPENDENT
ACCOUNTANT") to resolve any remaining disputes concerning the Contested
Adjustments. Within fifteen (15) days after the Independent Accountant is
retained, (i) Parent and the Shareholder Representative shall each submit to the
Independent Accountant in writing their respective positions with respect to the
Contested Adjustments, together with such supporting documentation as they deem
necessary or as the Independent Accountant requests, and (ii) Parent and the
Shareholder Representative shall cause the Independent Accountant to, within
fifteen (15) days after receiving the positions of both Parent and the
Shareholder Representative and all supplementary supporting documentation
requested by the Independent Accountant, render its decision as to the Contested
Adjustments, which decision shall be final and binding on, and nonappealable by,
Parent and the Shareholder Representative. The fees and expenses of the
Independent Accountant incurred in connection with the procedure set forth in
this Section 1.13(b) shall be borne equally by Parent and the Selling
Shareholders, respectively; provided that the Selling Shareholders' share of
such fees and
-7-
<PAGE>
expenses shall be satisfied solely out of the Escrow Fund. The decision of the
Independent Accountant shall also include a certificate (the "SETTLEMENT AMOUNT
CERTIFICATE") of the Independent Accountant setting forth the final amount of
the Effective Date Net Worth and/or Effective Date Working Capital, as the case
may be, and the amount, if any, which the Shareholder Representative shall cause
to be paid to Parent in respect thereof pursuant to the provisions of this
Agreement with respect to the Effective Date Balance Sheet. The Effective Date
Balance Sheet shall be deemed to include all proposed adjustments not disputed
by the Shareholder Representative and those adjustments accepted or made by the
decision of the Independent Accountant in resolving the Contested Adjustments.
(c) There shall be a "SETTLEMENT DATE" after the calculation of
the Effective Date Net Worth and/or Effective Date Working Capital, as the case
may be, as soon as possible after the Effective Date but in any event within the
four months after the Effective Date, which shall mean the following, as
applicable:
(i) If the Shareholder Representative has not timely delivered
an Adjustment Statement to Parent, then forty (40) days after the day the
Shareholder Representative receives the Effective Date Balance Sheet.
(ii) To the extent that the Shareholder Representative timely
delivers an Adjustment Statement to Parent and if Parent has not timely
delivered a Contested Adjustment Notice, then twenty (20) days after the
day Parent receives the Adjustment Statement.
(iii) If Parent and the Shareholder Representative have any
disputes regarding Contested Adjustments and they resolve those disputes,
then seven (7) days after such resolution.
(iv) Ten (10) days after the Independent Accountant delivers the
Settlement Amount Certificate, if applicable.
(v) Such other day as shall be agreed between Parent and the
Shareholder Representative.
(d) On the Settlement Date, the Shareholder Representative
shall cause to be paid to Parent by wire transfer of immediately available
funds, or such
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<PAGE>
other consideration as may be agreed by the Shareholder Representative and
Parent (such agreement not to be unreasonably withheld or delayed), the
difference between the Merger Consideration and the Reduced Purchase Price.
(e) In no event shall any adjustment in favor of Parent
pursuant to this Section 1.13 exceed $500,000. The amount of any adjustment
payable to Parent pursuant to this Section 1.13 shall be paid only from the
Escrow Fund in accordance with the Escrow Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES
------------------------------
The Company hereby represents and warrants to Parent and Acquisition
Sub as follows:
2.1 Organization and Corporate Power. Each of the Company and its
--------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation as specified in SCHEDULE
2.1 attached hereto, (b) except as provided in SCHEDULE 2.1, is qualified to do
business as a foreign corporation in each jurisdiction in which such
qualification is required, except where failure to so qualify would not have a
material adverse effect on the Company and its Subsidiaries, taken as a whole,
and (c) has all required corporate power and authority to own its property and
to carry on its business as presently conducted or contemplated. Subject to the
receipt of required PSC and FCC approvals (if any are required), each of the
Company and its Subsidiaries has all required corporate power and authority to
enter into and perform this Agreement and the Related Documents, and generally
to carry out the transactions contemplated hereby and by the Related Documents.
The copies of the charter and by-laws of each of the Company and each of its
Subsidiaries, as amended to date, which have been furnished to counsel for
Parent are correct and complete at the date hereof. Except as provided in
SCHEDULE 2.1, neither the Company nor any of its Subsidiaries is in violation of
any term of its charter or by-laws, or any material agreement, instrument,
judgment, decree, order, statute, rule or government regulation applicable to
it, which such violation could have a material adverse effect on the Company and
its Subsidiaries, taken as a whole.
2.2 Authorization and No Contravention. Subject to the receipt of
----------------------------------
the approval of the Company's stockholders, the execution and delivery of, and
performance
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<PAGE>
by the Company of its obligations under, this Agreement and the Related
Documents have been duly authorized by all corporate action of the Company, and
except as may otherwise be specifically provided in this Agreement, and subject
to the receipt of the approval of the Company's stockholders, each of this
Agreement and the Related Documents constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with their terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and general principles of equity and
the availability of equitable remedies. The Company's execution and delivery of
this Agreement and the Related Documents, and its respective performance of the
transactions contemplated hereby and thereby, will not: (i) except as set forth
on SCHEDULE 2.2, violate, conflict with or result in a default under any
contract, instrument, agreement, indenture, obligation or commitment to which
the Company or any of its Subsidiaries is a party or by which it its assets are
bound (including, without limitation, that certain Indenture of Mortgage dated
September 1, 1950 to Citizens Trust Company of Fredonia, as amended or
supplemented from time to time), or any charter provision or by-law of the
Company or any of its Subsidiaries, or the creation of any lien, charge or
encumbrance of any nature upon any of the properties or assets of the Company or
any of its Subsidiaries, except pursuant to this Agreement and the agreements
contemplated hereby; (ii) violate or result in a violation of, or constitute a
default under, any provision of any law, statute, ordinance, regulation or rule,
or any decree, judgment or order of, or any restriction imposed by, any court or
other federal, state or local governmental agency; or (iii) except as set forth
on SCHEDULE 2.2, require any notice to, filing with, or consent or approval of
any governmental authority or other third party.
2.3 Capitalization; Stockholders; Subsidiaries. The authorized and
------------------------------------------
issued capital stock of the Company and each of its Subsidiaries is as set forth
in SCHEDULE 2.3. All of the presently issued shares of capital stock of the
Company and each of its Subsidiaries have been duly and validly authorized and
issued in accordance, in all material respects, with all applicable federal and
state securities laws and are fully paid and non-assessable, except as provided
for in NYBCL (S)630. Neither the Company nor any of its Subsidiaries has issued
any other shares of its capital stock and there are no outstanding warrants,
options or other rights to purchase or acquire any of such shares, nor
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<PAGE>
any outstanding securities convertible into such shares or outstanding warrants,
options or other rights to acquire any such convertible securities. The
authorized shares of preferred stock of the Company referred to on SCHEDULE 2.3
have been cancelled by the Company and there is no amount due and owing by the
Company with respect to any shares of the preferred stock other than $6,100
(which the Company has set aside for the payment of such liability with respect
to the preferred stock and which is reflected on its balance sheet). There are
no preemptive rights with respect to the issuance or sale by the Company, or any
of its Subsidiaries of the Company's or such Subsidiary's capital stock. Except
as disclosed in SCHEDULE 2.3, there are no restrictions on the transfer of the
Company's capital stock other than those rising from federal and state
securities laws or under this Agreement. The outstanding shares of capital stock
of the Company and its Subsidiaries are held of record by the persons identified
in SCHEDULE 2.3 in the amounts indicated therein. Except as set forth in
SCHEDULE 2.3, the Company has no subsidiaries and neither the Company nor any of
its Subsidiaries has any investments in, or loans or advances to, any other
corporation, trust, partnership or business entity and is not a party to any
joint venture.
2.4 Financial Statements. Attached hereto as SCHEDULE 2.4 are the
--------------------
Company's consolidated and consolidating audited statements of operations, cash
flow and stockholders' equity and the related balance sheets for the fiscal
years ended December 31, 1993, December 31, 1994 and December 31, 1995,
consolidated and consolidating unaudited statements of operations, cash flow and
stockholders' equity and the related balance sheet for the fiscal period ended
April 30, 1996 (such interim balance sheet is herein referred to as the "BASE
BALANCE SHEET"). Except as set forth in the Base Balance Sheet, neither the
Company nor any of its Subsidiaries has any material contingent obligations,
liabilities or material forward or long-term commitments. The foregoing
financial statements have been prepared (i) to the extent required, in material
accordance with the rules and regulations of the PSC and the FCC and (ii) in
accordance with generally accepted accounting principles applied on a consistent
basis, except that the interim pro forma financial statements have, in
accordance with generally accepted accounting principles, been prepared without
footnote disclosures and year-end audit adjustments, which will not, in any
event, be material to the Company and its Subsidiaries, taken as a whole. All
of such financial statements contain notations for all significant accruals or
contingencies, fairly represent the
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<PAGE>
financial condition of the Company and its Subsidiaries as of the date thereof,
and are true and correct as of the date thereof in all material respects.
Nothing has come to the attention of the senior management of the Company since
such dates which would indicate that such financial statements were not true and
correct in all material respects as of the date thereof.
2.5 Projections. The Company has provided to Parent certain
-----------
financial projections which are specified in SCHEDULE 2.5 and attached hereto as
Exhibit 2.5 (the "PROJECTIONS"). The assumptions underlying the projections are
believed by the Company to be reasonable and the Projections are based upon good
faith and diligent estimates of the anticipated operating results and financial
condition of the Company.
2.6 Business; Franchises and Regulations. Except as set forth in
------------------------------------
SCHEDULE 2.6, the Company and each of its Subsidiaries has ownership of and/or
the right to use (i) all franchises, permits, licenses (other than FCC Licenses)
required by applicable law or regulation, and (ii) all patent, copyright,
trademark, or other rights and privileges, in the case of both (i) and (ii) used
or useful in their respective businesses as presently conducted or contemplated
to be conducted or required or necessary to permit it to own its properties and
to conduct its business as presently conducted or contemplated to be conducted
and neither their present nor contemplated activities infringe any such patent,
copyright, trademark or other proprietary rights of others. SCHEDULE 2.6
correctly sets forth all of the franchises, authorizations, permits and licenses
(other than FCC Licenses) which are held by the Company and its Subsidiaries
(the "COMPANY FRANCHISES") and correctly sets forth the issuer and termination
date of each Company Franchise. Each Company Franchise was duly and validly
issued by the issuer thereof pursuant to procedures which complied with all
requirements of applicable law. Each Company Franchise or other right held by
the Company or any of its Subsidiaries is in full force and effect, free of any
lien, charge or encumbrance of any nature, and the Company and each of its
Subsidiaries are in compliance with the terms thereof with no known conflict
with the valid rights of others which could affect or impair in any manner the
business, assets or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole except as set forth in SCHEDULE 2.6. No event has
occurred which permits, or after notice or lapse of time or both would permit,
the revocation or termination of any Company
-12-
<PAGE>
Franchise so as to adversely affect in any manner the business or assets or
condition, financial or otherwise, of the Company and its Subsidiaries, taken as
a whole, except as set forth in SCHEDULE 2.6.
Except as described on SCHEDULE 2.11, the Company has timely and
properly made all filings and reports required by the PSC, the FCC and all other
regulatory entities having jurisdiction over the Company.
2.7 Tariffs: FCC Licenses.
---------------------
(a) The regulatory tariffs applicable to the Company and its
Subsidiaries stand in full force and effect in accordance with their terms, and
there is no outstanding notice of cancellation or termination or, to the
Company's knowledge, any threatened cancellation or termination in connection
therewith. Except as otherwise disclosed on SCHEDULE 2.7(a), neither the
Company nor any of its Subsidiaries is subject to any restrictions or conditions
applicable to its regulatory tariffs that limit or would limit the operations of
the Company or any of its Subsidiaries (other than restrictions or conditions
generally applicable to tariffs of that type). Each such tariff has been duly
and validly approved by the appropriate regulatory agency. Except as otherwise
disclosed on SCHEDULE 2.7(a), neither the Company nor any of its Subsidiaries is
in material violation under the terms and conditions of any such tariff, and
there is no basis for any claim of material violation by the Company or any of
its Subsidiaries under any such tariff. There are no applications by the
Company or any of its Subsidiaries, nor any complaints or petitions by others,
or proceedings pending or threatened, before the PSC relating to the Company or
any of its Subsidiaries, or their respective operations or regulatory tariffs.
To the knowledge of the Company, there are no material violations by subscribers
or others under any such tariff. A true and correct copy of each tariff
applicable to the Company or any of its Subsidiaries has been delivered to
Parent.
(b) Listed on SCHEDULE 2.7(b) are the FCC Licenses held by the
Company or any of its Subsidiaries. Except as disclosed on SCHEDULE 2.7(b), each
such FCC License is valid and in full force and effect in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
the Company's knowledge, any threatened cancellation or termination in
connection therewith nor are any of such FCC Licenses subject to any
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<PAGE>
restrictions or conditions that limit the operations of the Company or any of
its Subsidiaries (other than restrictions or conditions generally applicable to
licenses of that type).
2.8 Rate Base. Neither the Company nor any of its Subsidiaries has
---------
any material amount of inventory, plant or equipment that has been disallowed
from rate base or excluded from the revenue calculations for any pool, and
neither the Company nor any of its Subsidiaries has received notification that
the FCC or any state regulatory authority or pool administrator proposes to
exclude any material assets from rate base or revenue calculations for the
pools.
2.9 Overbillings; Refunds. Except as set forth on SCHEDULE 2.9,
---------------------
neither the Company nor any of its Subsidiaries has any material liabilities for
any customer overbillings or prospective refunds of overearnings.
2.10 Capital Improvements Required by State Authorities. Except as
--------------------------------------------------
set forth on SCHEDULE 2.10, neither the Company nor any of its Subsidiaries is
required by any state regulatory body to make any changes, upgrades or
enhancements with respect to its physical plant and neither the Company nor any
of its Subsidiaries has reason to believe that any such changes, upgrades or
enhancements will be so required in the foreseeable future.
2.11 Compliance with Law. Except as set forth in SCHEDULE 2.11,
-------------------
neither the Company nor any of its Subsidiaries is in violation of any statute,
law, ordinance, regulation, rule or order of any foreign, federal, state or
local government or any governmental department or agency (including without
limitation, the PSC and the FCC), or any judgment, decree or order of any court,
applicable to its business or operations except where any such violation would
not have a material adverse effect on the Company and its Subsidiaries, taken as
a whole; and the conduct of the Company's and each of its Subsidiaries'
respective businesses is in conformity with all federal, state and local energy,
public utility, health, workplace or worker safety and health, including but
limited to OSHA, and environmental requirements and all other federal, state and
local governmental regulatory requirements (including, without limitation,
requirements of the PSC and the FCC) except where any such non-conformity
individually or in the aggregate, and taking into account the passage of time
and accumulation of penalties and other obligations, would not have a material
adverse effect on the Company or any of its
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<PAGE>
Subsidiaries. The Company and its Subsidiaries have all permits, licenses and
franchises from, and have made all necessary filings with, all governmental
agencies, including the PSC and the FCC, required to conduct their businesses as
now being conducted.
2.12 Absence of Undisclosed Liabilities. Except as otherwise
----------------------------------
specifically disclosed in the Base Balance Sheet or as set forth in Section 2.4,
neither the Company nor any of its Subsidiaries has any material accrued or
contingent liability or liabilities arising out of any transaction or state of
facts existing prior to the date hereof, accrued, to become due, contingent, or
otherwise.
2.13 Absence of Certain Developments. Except as specifically
-------------------------------
disclosed in SCHEDULE 2.13, since March 31, 1996 there has been (i) no material
adverse change in the assets, liabilities, properties, business, prospects or
condition (financial or otherwise) of the Company or any of its Subsidiaries,
(ii) no declaration, setting aside or payment of any dividend or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of the Company or any of its
Subsidiaries (except as set forth in Section 7.4 hereof), (iii) no waiver of any
valuable right of the Company or any of its Subsidiaries or the cancellation of
any debt or claim held by the Company or any of its Subsidiaries, (iv) no loan
by the Company or any of its Subsidiaries to any officer, director, employee or
stockholder of the Company or any of its Subsidiaries, or any agreement or
commitment therefor, (v) other than pursuant to the current contractual
obligations set forth on SCHEDULE 2.13, no increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee or agent of the
Company or any of its Subsidiaries, (vi) no material loss, destruction or damage
to any property of the Company or any of its Subsidiaries, whether or not
insured, (vii) no strikes, work stoppages, union organizing or recognition
efforts involving the Company or any of its Subsidiaries and no material change
in the personnel of the Company or any of its Subsidiaries or the terms and
conditions of any employment contracts to which any of them are parties, and
(viii) no acquisition or disposition of any assets (or any contract or
arrangement therefor) nor any other transaction by the Company or any of its
Subsidiaries otherwise than in the ordinary course of business.
-15-
<PAGE>
2.14 Title to Properties.
-------------------
(a) Except as specifically disclosed on SCHEDULE 2.14, the
Company and each of its Subsidiaries has good and marketable title to all of its
properties and assets, free and clear of all mortgages, liens, restrictions or
encumbrances, except in such cases as would not have a material adverse effect
on the use of such properties or assets by the Company; provided, however, that
SCHEDULE 2.14(a) (to be delivered at the Closing) indicates certain items of
personal property currently owned by the Company that will not be transferred to
the Surviving Corporation. All owned or leased real estate of the Company and
its Subsidiaries is listed on SCHEDULE 2.14. A true copy of each lease to which
the Company or any of its Subsidiaries is a party, is listed on SCHEDULE 2.14
and has been delivered by the Company to Parent, is in full force and effect and
affords the Company or the Subsidiary, as the case may be, peaceful and
undisturbed possession of the subject matter of such lease. No material default
or event of default on the part of the Company or any of its Subsidiaries or on
the part of the lessor, exists under any lease, and neither the Company nor any
of its Subsidiaries has received any notice of default under any such lease or
any indication that the owner of the leased property intends to terminate such
lease. Except as specifically disclosed on SCHEDULE 2.14, the Company holds all
easements, rights-of-way and other rights necessary to own, operate and maintain
its physical plant (including all telephone lines) and the Company is not in
breach of, or default under, any such easement, right-of-way or other right and
there are not any materially burdensome limitations or obligations on the
Company under any such easement, right-of-way or other right.
(b) Neither the Company nor any of its Subsidiaries is in
violation of any zoning, land-use, building or safety law, ordinance, regulation
or requirement or other law or regulation applicable to the operation of its
owned or leased properties, nor has it received any notice of violation with
which it has not complied, in any case in which the consequences of such
violation if asserted by the applicable regulatory authority would be materially
adverse with respect to the Company or such Subsidiary. All real property
occupied pursuant to leases, and substantially all tangible personal property
owned or leased by the Company and its Subsidiaries taken as a whole and
required for the purpose of carrying on its business and operations, is in good
operating condition and repair, reasonable wear
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<PAGE>
and tear excepted, and no material portion of any such real or personal property
has suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition if and to the extent
necessary or useful in the continued operation of its business.
2.15 Tax Matters.
-----------
(a) Each of the Company and its Subsidiaries has filed all Tax
reports and returns that it was required to file. All such reports and returns
were correct and complete in all respects. All Taxes owed by any of the Company
and its Subsidiaries (whether or not shown on any report or return) have been
paid. Except as disclosed on SCHEDULE 2.15, none of the Company or its
Subsidiaries currently is the beneficiary of any extension of time within which
to file any report or return. Except as disclosed on SCHEDULE 2.15, no claim has
ever been made by an authority in a jurisdiction where any of the Company or its
Subsidiaries does not file reports and returns that it is or may be subject to
taxation by that jurisdiction. There are no security interests on any of the
assets of the Company and its Subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Tax.
(b) Except as disclosed in SCHEDULE 2.15, each of the Company
and its Subsidiaries has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, stockholder or other third party.
(c) None of the three (3) senior executive officers of the
Company and of its Subsidiaries has actual knowledge that or has any reasonable
basis to believe that any authority will assess any additional Taxes for any
period for which returns have been filed. Except as disclosed in SCHEDULE 2.15,
there is no dispute or claim concerning any Tax liability of any of the Company
or its Subsidiaries either (i) claimed or raised by any authority in writing or
(ii) as to which any of the directors and officers (and employees responsible
for Tax matters) of the Company and its Subsidiaries has knowledge based upon
personal contact with any agent of such authority. All federal, state, local,
and foreign income tax returns filed with respect to the Company and/or any of
the Subsidiaries for taxable periods ended on or after December 31, 1992,
December 31, 1993 and December 31, 1994 are set forth on
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<PAGE>
SCHEDULE 2.15, and SCHEDULE 2.15 indicates those returns that have been audited
or currently are the subject of an audit. The Company has delivered to the
Parent correct and complete copies of all federal income Tax returns,
examination reports and statements of deficiencies assessed against or agreed to
by any of the Company and its Subsidiaries since December 31, 1992.
(d) None of the Company and its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency. Neither the Company nor any of its
Subsidiaries has entered into a closing agreement pursuant to Section 7121 of
the Internal Revenue Code of 1986, as amended (the "CODE").
(e) The unpaid Taxes of the Company and its Subsidiaries (i) did not,
as of March 31, 1996 exceed the reserve for Tax liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Base Balance Sheet (rather
than in any notes thereto) and (ii) do not exceed that reserve as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company and its Subsidiaries in filing their Tax returns.
(f) None of the Company and its Subsidiaries has filed a consent under
Code Section 341(f) concerning collapsible corporations. None of the Company
and its Subsidiaries has made any payments, is obligated to make any payments,
or is a party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section 280G.
None of the Company and its Subsidiaries has been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). Each of the
Company and its Subsidiaries has disclosed on its federal income Tax returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. None of the Company
and its Subsidiaries is a party to any Tax allocation or sharing agreement.
None of the Company and its Subsidiaries (i) has been a member of an Affiliated
Group filing a consolidated federal income Tax return (other than a group the
common parent of which was the Company) or (ii) has any liability for the Taxes
of any Person (other than any of the Company and its Subsidiaries) under
Treasury Regulation Section
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<PAGE>
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(g) SCHEDULE 2.15 sets forth the following information with
respect to each of the Company and its Subsidiaries as of the most recent
practicable date: (i) the basis of the Company and its Subsidiaries in their
respective assets; (ii) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company or any of its Subsidiaries and (iii) the
amount of any deferred gain or loss allocable to the Company or any of its
Subsidiaries arising out of any Deferred Intercompany Transaction.
2.16 Insurance. The Company has in force all policies of insurance
---------
described in SCHEDULE 2.16, in the amounts and covering the risks described
therein. Neither the Company nor any of its Subsidiaries has ever been refused
any insurance coverage for which it has applied.
2.17 Contracts and Commitments. Except as set forth in SCHEDULES
-------------------------
2.5 and 2.17, neither the Company nor any of its Subsidiaries (a) is a party to
any contract, obligation or commitment which involves a potential commitment or
aggregate payments in excess of $20,000, or which is otherwise material and not
entered into in the ordinary course of business, or (b) has any employment
contracts; stock redemption or purchase agreements; financing agreements; or
agreements with officers, directors, employees or shareholders of the Company or
any of its Subsidiaries or persons or organizations related to or affiliated
with any such persons. Except as disclosed in SCHEDULE 2.17, neither the
Company nor any of its Subsidiaries is in default under any contract, obligation
or commitment (including, without limitation, that certain Indenture of Mortgage
dated September 1, 1950 to Citizens Trust Company of Fredonia, as amended or
supplemented from time to time, and the requirement to make payments to any
"sinking fund" as set forth therein), and to the best knowledge of the Company,
there is no state of facts which upon notice or lapse of time or both would
constitute such a default, the consequences of which default if asserted by the
other contracting party would be materially adverse with respect to the Company
and its Subsidiaries, taken as a whole. Except as set forth in SCHEDULE 2.17,
neither the Company nor any of its Subsidiaries is a party to any contract or
arrangement which is likely to have a material
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<PAGE>
adverse effect on the assets, liabilities, properties, business, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries, taken
as a whole. Neither the Company nor any of its Subsidiaries has entered into
any government contracts or subcontracts that remain in full force and effect.
2.18 Litigation. Except as set forth in SCHEDULE 2.18, there is no
----------
investigation, action, suit or proceeding at law or in equity or by or before
any governmental instrumentality or other agency (including, without limitation,
the PSC or the FCC) now pending or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries, or, to the best
knowledge of the Company, any director, officer or key employee of the Company
or any of its Subsidiaries which has a reasonable possibility of calling into
question the validity, or hindering the enforceability or performance, of this
Agreement or any action taken or to be taken pursuant hereto or any of the other
agreements and transactions contemplated hereby, or which might, if adversely
determined, have a material adverse effect on the Company and its Subsidiaries,
taken as a whole, or their respective business prospects; nor, to the best
knowledge of the Company, has there occurred any event or does there exist any
condition on the basis of which any such litigation, proceeding or investigation
might properly be instituted.
2.19 Environmental Matters. Except as disclosed in the Phase I
---------------------
Audit provided to the Parent:
(a) No hazardous wastes, hazardous substances, or hazardous
materials have ever been or are being generated, used, stored, treated, or
otherwise managed on any real property owned or leased by the Company or any of
its Subsidiaries (the "PROPERTIES") by the Company or any of its Subsidiaries,
or to the best knowledge of the Company, any other persons, except in compliance
with applicable law and regulations, and then only in the ordinary course of
business as then conducted and only in such amounts as will not have a material
adverse effect on the business, operations, prospects or assets of the Company
or any of its Subsidiaries. No hazardous wastes, hazardous substances, hazardous
materials, oil, or petroleum products have ever been, are being, are intended to
be, or are threatened to be spilled, released, discharged, disposed, placed, or
otherwise caused to become located in the soil or water in, under, or upon any
of the Properties by the Company or any of its Subsidiaries, or to the best
knowledge
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<PAGE>
of the Company, any other persons. No hazardous wastes, hazardous substances,
hazardous materials, oil, or petroleum products which may pose a risk to human
health or the environment have been shipped from any of the Properties for
treatment, storage, or disposal at any other site or facility by the Company or
any of its Subsidiaries, or to the best knowledge of the Company, any other
persons. For purposes of this paragraph and paragraph (b) below, "hazardous
wastes", "hazardous substances", "hazardous materials", "oil", and "petroleum
products" shall have the meanings set forth in the federal Resources
Conservation and Recovery Act, the federal Comprehensive Environmental Response
Compensation and Liability Act, the federal Hazardous Materials Transportation
Act, the federal Clean Water Act, and corresponding state and local laws and
ordinances, as such acts, laws, or ordinances may be amended through the date
hereof, or as defined in any federal, state, or local regulation adopted under
such acts, laws, or ordinances.
(b) The Company and its Subsidiaries have no material liability
(contingent or otherwise) under, have never materially violated, and are
presently in compliance in all material respects with all federal, state, and
local environmental laws, regulations, ordinances, and other requirements
including, but not limited to, all laws, regulations, ordinances, and other
requirements relating to the spilling, release, discharge, storage, treatment,
disposal, management, control, and reporting of pollutants, contaminants,
hazardous wastes, hazardous materials, hazardous substances, oil, petroleum
products, and other materials which may pose a risk to human health or the
environment. The Company and each of its Subsidiaries have not disposed or
treated, or sent for disposal or treatment, any solid waste, pollutants,
contaminants, hazardous wastes, hazardous materials, hazardous substances, oil
or petroleum products except to a facility which possessed a proper permit for
the storage and treatment of the material or waste, and then only in compliance
with all applicable legal requirements.
(c) To the best knowledge of the Company, no circumstances exist to
support any, and the Company and its Subsidiaries have not received, and have no
reason to believe they will receive any: (i) notice of violation of any federal,
state, or local environmental law, regulation, ordinance, or other requirement;
or (ii) notice of any suit, action, claim, liability (contingent or otherwise),
or legal, administrative, or other proceeding concerning
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environmental conditions or matters, including but expressly not limited to
notice of responsibility under the federal Comprehensive Environmental Response,
Compensation and Liability Act or any similar state or local law, regulation, or
ordinance.
2.20 Investment Company. Neither the Company nor any of its
------------------
Subsidiaries is an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
2.21 Margin Securities. Neither the Company nor any of its
-----------------
Subsidiaries owns or has any present intention of acquiring, any "margin
security" within the meaning of Regulation G (12 C.F.R. Part 207), or any
"margin stock" within the meaning of Regulation U (12 C.F.R. Part 221), of the
Board of Governors of the Federal Reserve System (herein called "MARGIN
SECURITY" and "MARGIN STOCK").
2.22 Employee Benefit Programs.
-------------------------
(a) SCHEDULE 2.22 sets forth a list of every Employee Program
that has been maintained by the Company and its Subsidiaries at any time during
the period beginning or ending on the date hereof.
(b) Each Employee Program which has ever been maintained by the
Company or any of its Subsidiaries and which has been intended to qualify under
Section 401(a) or 501(c)(9) of the Code has received a favorable determination
letter from the Internal Revenue Service ("IRS") regarding its qualification
under such section. Each such Employee Program has, in fact, remained qualified
under the applicable section of the Code from the effective date of the
favorable determination letter for such Employee Program through and including
the date hereof (or, if earlier, the date that all of such Employee Program's
assets were distributed). No event or omission has occurred which would cause
any such Employee Program to lose its qualification under the applicable Code
section.
(c) The Company does not know, nor should it reasonably know,
of any material failure of any party to comply with any laws applicable with
respect to the Employee Programs that have been maintained by the Company or any
of its Subsidiaries. With respect to any Employee Program ever maintained by the
Company, any Subsidiary or any affiliate thereof, there has been no "prohibited
transaction" as defined in Section 406 of the Employee Retirement Income
-22-
<PAGE>
Security Act of 1974, as amended ("ERISA") or Code Section 4975, or breach of
any duty under ERISA or other applicable law or any agreement which could
subject the Company or any of its Subsidiaries thereof to material liability
either directly or indirectly (including, without limitation, through any
obligation of indemnification or contribution) for any damages, penalties, or
taxes, or any other loss or expense. To the best knowledge of the Company, no
litigation or governmental administrative proceeding (or investigation) or other
proceeding (other than those relating to routine claims for benefits) is pending
or overtly threatened with respect to any such Employee Program.
(d) Neither the Company, any of its Subsidiaries nor any affiliate
thereof has incurred any liability under Title IV of ERISA which has not been
paid in full prior to the date hereof. There is no "accumulated funding
deficiency" (whether or not waived) with respect to any Employee Program
maintained by the Company or any Subsidiary thereof and subject to Code Section
412 or ERISA Section 302. With respect to any Employee Program maintained by
the Company, any of its Subsidiaries or any affiliate thereof and subject to
Title IV of ERISA there (i) has been no "reportable event," within the meaning
of Section 4043 of ERISA (for which the notice requirement is not waived under
29 C.F.R, Part 2615) and (ii) no event or condition which presents a material
risk of plan termination. All payments and/or contributions required to have
been made (under the provisions of any agreements or other governing documents
or applicable law) with respect to all Employee Programs maintained by the
Company or any of its Subsidiaries, for all periods prior to the date hereof,
either have been made or have been accrued (and all such unpaid but accrued
amounts are described on SCHEDULE 2.22). Except as described in SCHEDULE 2.22,
no Employee Program maintained by the Company, any of its Subsidiaries or any
affiliate thereof and subject to title IV of ERISA has ever had any "unfunded
benefit liabilities" within the meaning of Section 4001(a)(18) of ERISA, as of
the date hereof. Except as described in SCHEDULE 2.22, none of the Employee
Programs maintained by the Company or any Subsidiary thereof has ever provided
or promised health care or non-pension benefits to former employees (other than
as required by Part 6 of subtitle B of title I of ERISA).
(e) With respect to each Employee Program maintained by the Company or
any of its Subsidiaries within the three years preceding the date hereof,
complete and
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<PAGE>
correct copies of the following documents (if applicable to such Employee
Program) have previously been delivered to Parent: (i) all documents embodying
or governing such Employee Program, as they may have been amended to the date
hereof; (ii) the most recent IRS determination letter with respect to such
Employee Program and any applications for determination subsequently filed with
the IRS; (iii) the three most recently filed IRS Forms 5500, with all applicable
SCHEDULES attached thereto; (iv) the three most recent actuarial valuation
reports completed with respect to such Employee Program; (v) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; and (vi) any
insurance policy (including any fiduciary liability insurance policy) related to
such Employee Program.
(f) Except as disclosed in SCHEDULE 2.22 hereto, no collective
bargaining agreement or other contract, written or oral, with any trade or labor
union, employees' association or similar organization is in effect as of the
date hereof with respect to any employee of the Company or any of its
Subsidiaries, and neither the Company, any of its Subsidiaries nor any affiliate
has ever maintained or participated in any multiemployer plan, as defined in
Section 3(37) of ERISA.
(g) For purposes of this section:
(i) "EMPLOYEE PROGRAM" means (A) all employee benefit plans
within the meaning of Section 3(3) of ERISA (including, but not limited to,
employee benefit plans such as foreign or excess benefit plans which are
not subject to ERISA); and (B) all stock option plans, bonus, incentive
award or profit sharing plans, severance pay policies or agreements,
deferred compensation agreements, supplemental income arrangements, and all
other employee benefit plans, agreements, and arrangements not described in
(A) above.
(ii) An entity "MAINTAINS" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program,
or has any obligation (by agreement or under applicable law) to contribute
to or provide benefits under such Employee Program, or if such Employee
Program provides benefits to or otherwise covers employees of such
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<PAGE>
entity (or their spouses, dependents, or beneficiaries).
(iii) An entity is an "AFFILIATE" of the Company or any of its
Subsidiaries if it would have ever been considered a single employer with
the Company or such Subsidiary under Section 4001(b) of ERISA or part of
the same "controlled group" as the Company or such Subsidiary for purposes
of 302(d)(8)(C) of ERISA.
2.23 Solvency. Neither the Company nor any of its Subsidiaries has
--------
(i) made a general assignment for the benefit of creditors, (ii) filed any
voluntary petition in bankruptcy or suffered the filing of any involuntary
petition by its creditors, (iii) suffered the appointment of a receiver to take
possession of all, or substantially all, of its assets, (iv) suffered the
attachment or other judicial seizure of all, or substantially all, of its
assets, (v) admitted in writing its inability to pay its debts as they come due
or (vi) made an offer of settlement, extension or composition to its creditors
generally. To the best knowledge of the Company after giving effect to the
transactions provided for herein, the Company, on a consolidated basis, will not
have liabilities which exceed the present fair saleable value of its assets; be
left with unreasonably small capital with which to engage in its respective
businesses for the foreseeable future; or have incurred, or anticipate or should
anticipate incurring, debts beyond its ability to pay such debts as they mature.
2.24 Brokers or Finders. Other than GVNW Inc./Management, none of
------------------
the Company or any Subsidiary thereof has engaged the services of any brokers or
finders in connection with the execution of this Agreement.
2.25 Corporate Records. (a) The minute books of the Company and its
-----------------
Subsidiaries contain true and complete records of all meetings of, or written
consents in lieu of meetings executed by, their respective boards of directors
(and all committees thereof) and shareholders; (b) all material actions and
transactions taken or entered into by the Company or any of its Subsidiaries, or
otherwise requiring action by their respective boards of directors or
shareholders, have been duly authorized or ratified as necessary and are
evidenced in such minute books; (c) the stock certificate books and stock
records of the Company and its Subsidiaries are true and complete; and (d) the
signatures appearing in such minute books, stock certificate
-25-
<PAGE>
books and stock records are the genuine signatures of the persons purporting to
have signed them.
2.26 Books of Account. The books of account of the Company and its
----------------
Subsidiaries have been maintained in accordance with normal business practices,
and accurately and fairly reflect all of the properties, assets, liabilities,
transactions and appropriate accruals of the Company and each of its
Subsidiaries.
2.27 Certain Employment Matters.
--------------------------
(a) SCHEDULE 2.27 contains a true and complete list of names
and current hourly wage, monthly salary or other compensation of all directors,
officers, management employees, consultants or managers of the Company, with a
summary of existing bonuses, additional compensation and other benefits (whether
current or deferred), if any, paid or payable to each such person for services
rendered in the fiscal year ended December 31, 1995, or, determined as of the
date hereof, to be rendered in the fiscal year ended December 31, 1996. SCHEDULE
2.27 contains a true and complete listing and summary description of all
employment, deferred compensation, noncompensation, confidential information and
consulting agreements between the Company or any Subsidiary thereof and its
directors, officers, management employees, consultants and managers.
(b) Except as set forth in SCHEDULE 2.27, the Company and its
Subsidiaries have complied in all material respects with all applicable laws
relating to the payment and withholding of taxes, including income and social
security taxes, and has withheld (and paid over to the appropriate authorities)
all amounts required by local, state or federal law or by other agreement to be
withheld from the wages or salaries of its employees. Neither the Company nor
any Subsidiary thereof has any liability or obligation for any arrears of wages
or benefits or any taxes or penalties for failure to comply with any of the
foregoing.
(c) Except as set forth on SCHEDULE 2.27, the Company and its
Subsidiaries are not parties to any contract with any labor organization, nor
have they agreed to recognize any union or other collective bargaining unit, nor
has any union or other collective bargaining unit been certified as representing
any of their respective employees. Neither the Company nor any Subsidiary
thereof has knowledge of any organization currently being made or threatened by
or
-26-
<PAGE>
on behalf of any labor union with respect to their respective employees. Except
as set forth on SCHEDULE 2.27, neither the Company nor any Subsidiary thereof
has, within the last three years, experienced any strike, work stoppage,
grievance proceeding, claim of unfair labor practices or other significant labor
difficulty of any nature, nor are any material claims pending or, to the best
knowledge of the Company, threatened between the Company or its Subsidiaries and
any of their respective employees.
(d) Except as set forth on SCHEDULE 2.27, neither the Company
nor any Subsidiary thereof has received notification that any of its current
management employees presently plan to terminate employment, whether by reason
of the transactions contemplated hereby or otherwise. Except as set forth on
SCHEDULE 2.27, the employment of all persons presently employed or retained by
the Company is terminable at will, and neither the Company nor any of its
Subsidiaries will be, pursuant to any current contract, arrangement or
understanding, applicable law, or otherwise, obligated to pay any severance pay
or other benefit by reason of the voluntary or involuntary termination of
employment of any present or former employee, consultant, agent or manager,
prior to, on or after the Effective Date.
2.28 Intercompany Contracts. SCHEDULE 2.28 contains a true and
----------------------
complete list of any and all contracts (written and oral), between and or among
the Company and any Subsidiary thereof and the Company will make available all
underlying documentation including worksheets, memoranda and accounting records,
underlying any such transactions for the preceding seven (7) years.
2.29 No Material Misstatement or Omission. No statement of fact
------------------------------------
made by or on behalf of the Company or any of its Subsidiaries in this Agreement
or in any certificate, schedule or exhibit furnished to Parent pursuant hereto,
or otherwise delivered by the Company or any of its Subsidiaries to Parent
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements contained therein or herein not
misleading. There is no fact relating to the Company or any of its
Subsidiaries, or the business, property operations, or condition (financial or
otherwise) of the Company or any of its Subsidiaries, presently known to the
Company which has not been disclosed to the Parent and which materially
adversely affects or in the future is reasonably likely to materially adversely
affect the assets, liabilities, property, business, operations, condition
(financial or
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<PAGE>
otherwise) or prospects of the Company and its Subsidiaries, taken as a whole.
2.30 Franchises. The Company is the successor in interest to the
----------
Westfield Telephone Company, the Portland Telephone Company and the Mayville
Telephone Company, and the Company owns and has the right to use all assets,
franchises, authorizations, permits and licenses previously held by such
entities.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
Parent hereby represents and warrants to the Company as follows:
3.1 Organization and Corporate Power. Parent and each of its
--------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (b) is qualified to do
business as a foreign corporation in each jurisdiction in which such
qualification is required, except where failure to so qualify would not have a
material adverse effect on the Parent or its Subsidiaries and (c) has all
required corporate power and authority to own its property and to carry on its
business as presently conducted or contemplated. Subject to PSC and FCC
approvals, the Parent has all required corporate power and authority to enter
into and perform this Agreement and the Related Documents and generally to carry
out the transactions contemplated hereby and by the Related Documents.
3.2 Authorization and No Contravention. The execution and delivery
----------------------------------
of, and performance by the Parent of its obligations under, this Agreement and
the Related Documents and the delivery of the Merger Consideration have been
duly authorized by all requisite corporate, director and stockholder action of
Parent, and except as otherwise may be specifically provided in this Agreement,
each of this Agreement and the Related Documents constitutes the legal, valid
and binding obligation of Parent, enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally, and general principles
of equity and the availability of equitable remedies. Parent's execution and
delivery of this Agreement and the Related Documents, and its performance of the
transactions contemplated hereby and thereby, will not:
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<PAGE>
(i) violate, conflict with or result in a default under any contract,
instrument, agreement, indenture, obligation or commitment to which Parent is a
party or by which it or its assets are bound, or any charter provision or by-law
of Parent, or the creation of any lien, charge or encumbrance of any nature upon
any of the properties or assets of Parent; (ii) violate or result in a violation
of, or constitute a default under, any provision of any law, statute, ordinance,
regulation or rule, or any decree, judgment or order of, or any restriction
imposed by, any court or other federal, state or local governmental agency; or
(iii) except as set forth on SCHEDULE 3.2, require any notice to, filing with,
or consent or approval of any governmental authority or other third party which
will not, prior to the closing, have been duly and properly given, made or
obtained.
3.3 Brokers or Finders. Neither Parent or any of its Subsidiaries
------------------
has engaged in the services of any brokers or finders in connection with the
execution of this Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUB
-------------------------------------------------
Acquisition Sub hereby represents and warrants to the Company as
follows:
4.1 Organization and Corporate Power. Acquisition Sub (a) is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, (b) is qualified to do business as a foreign
corporation in each jurisdiction in which such qualification is required, except
where failure to so qualify would not have a material adverse effect on
Acquisition Sub and (c) has all required corporate power and authority to own
its property and to carry on its business as presently conducted or
contemplated. Acquisition Sub has all required corporate power and authority to
enter into and perform this Agreement and the Related Documents and to generally
carry out the transactions contemplated hereby and by the Related Documents.
4.2 Authorization and No Contravention. The execution and delivery
----------------------------------
of, and performance by Acquisition Sub of its obligations under, this Agreement
and the Related Documents have been duly authorized by all requisite corporate
action of Acquisition Sub, and except as may
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<PAGE>
otherwise be specifically provided in this Agreement, each of this Agreement and
the Related Documents constitutes the legal, valid and binding obligation of
Acquisition Sub, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and general principles of equity and
the availability of equitable remedies. Acquisition Sub execution and delivery
of this Agreement and the Related Documents, and its performance of the
transactions contemplated hereby and thereby, will not: (i) violate, conflict
with or result in a default under any contract, instrument, agreement,
indenture, obligation or commitment to which Acquisition Sub is a party or by
which it or its assets are bound, or any charter provision or by-law of
Acquisition Sub or the creation of any lien, charge or encumbrance of any nature
upon any of the properties or assets of Acquisition Sub, except pursuant to this
Agreement and the agreements contemplated hereby; (ii) violate or result in a
violation of, or constitute a default under, any provision of any law, statute,
ordinance, regulation or rule, or any decree, judgment or order of, or any
restriction imposed by, any court or other federal, state or local governmental
agency; or (iii) except as set forth on SCHEDULE 4.2, require any notice to,
filing with, or consent or approval of any governmental authority or other third
party which will not, prior to the closing, have been duly and properly given,
made or obtained.
4.3 Capitalization. The authorized and issued capital stock of
--------------
Acquisition Sub is as set forth on SCHEDULE 4.3.
4.4 Brokers or Finders. Acquisition Sub has not engaged in the
------------------
services of any brokers or finders in connection with the execution of this
Agreement.
SECTION 5. PARENT'S AND ACQUISITION SUB'S CONDITIONS OF MERGER
---------------------------------------------------
Parent's and Acquisition Sub's obligations hereunder shall be subject
to compliance by the Company with its agreements herein contained and to the
fulfillment to the Parent's and Acquisition Sub's satisfaction on or before and
at the Closing Date of the following conditions:
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<PAGE>
5.1 Certificate. The representations and warranties of the Company
-----------
contained in this Agreement, including but not limited to the representations
and warranties made in Section 2 shall be true and correct in all material
respects with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date; each of the conditions
hereafter specified in this Section shall have been satisfied in all material
respects; and on the Closing Date one or more certificates to such effect
executed by the President and the Chief Financial Officer of the Company shall
be delivered to Parent.
5.2 Delivery of Documents. The Company shall have executed and
---------------------
delivered to Parent (or shall have caused to be executed and delivered to Parent
by the appropriate persons) the following:
(a) Certified copies of resolutions of the Board of Directors
and the stockholders of the Company and its Subsidiaries authorizing the
execution and delivery of this Agreement and the Related Documents;
(b) A copy of the Company's and each of its Subsidiaries'
corporate charter certified as of a recent date by the appropriate Secretary of
State and the secretary of the pertinent corporation;
(c) A copy of the by-laws of each of the Company and each of its
Subsidiaries certified, in each case, by the secretary of the pertinent
corporation;
(d) A certificate issued by the appropriate Secretary of State
of the state of incorporation of the Company and each of its Subsidiaries
certifying that the Company or such Subsidiary, as the case may be, is in good
standing in such state;
(e) True and correct copies of all consents, instruments and
other documents specified in SCHEDULE 2.2 attached hereto which have not
otherwise been made available for review by Parent;
(f) A certificate signed by the President and Chief Financial
Officer of the Company to the effect that, after the transactions contemplated
hereby and by the Related Documents have been consummated: (i) the present fair
saleable value of the assets of the Company and its Subsidiaries on a
consolidated basis exceed their
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<PAGE>
liabilities on a consolidated basis, (ii) the Company and its Subsidiaries have
not been left with unreasonably small capital with which to engage in their
respective businesses for the foreseeable future; and (iii) the Company and its
Subsidiaries on a consolidated basis have not incurred, and do not and should
not anticipate incurring, debts beyond their ability to pay such debts as they
mature;
(g) All other certificates and other documents reasonably
requested by Parent in writing at least two (2) days before the Closing Date.
The form and substance of all such certificates and other documents hereunder
shall be reasonably satisfactory in all respects to Parent and its counsel;
(h) The Escrow Agreement; and
(i) A copy of the Shareholder Representative Appointment
Agreement.
5.3 Opinion of Company's Counsel. Parent shall have received the
----------------------------
favorable written opinion of counsel for the Company dated the date hereof, in
substantially the form attached hereto as EXHIBIT C.
5.4 Opinion of Special PSC Counsel. To the extent required by any
------------------------------
lender, Parent shall have received the favorable written opinion of special
communications counsel for the Company, dated the date hereof, with respect to
PSC and related matters.
5.5 Compliance with Agreements. The Company shall have performed
--------------------------
and complied with all agreements, covenants and conditions contained herein, in
any other document contemplated hereby and all other Related Documents which are
required to be performed or complied with by the Company on or before the
Closing Date.
5.6 All Proceedings Satisfactory. All corporate and other
----------------------------
proceedings taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to Parent, and
Parent shall receive such copies thereof and other materials (certified, if
requested) as they may reasonably request in connection therewith.
5.7 Directors and Officers. Duly and validly obtained resignations
----------------------
of all directors and officers of the
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<PAGE>
Company and each of its Subsidiaries whose resignation is requested by Parent at
least two (2) days before the Closing Date, to be effective as of the Effective
Date.
5.8 Employment Agreements. The existing employment contracts
---------------------
between the Company and each of Messrs. Roderick Nixon, Peter Nixon and Mark
Nixon shall have been terminated.
5.9 Regulatory Matters.
------------------
(a) All required waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or been
terminated and the Company shall have paid 50% of (i) any filing fee imposed
under such Act in connection with the transactions contemplated by this
Agreement and the Related Documents, and (ii) any fees and expenses incurred in
connection with obtaining PSC approval of the transactions contemplated by this
Agreement and the Related Documents.
(b) The PSC and the FCC shall, if required by law, have
approved the consummation of the transactions contemplated hereby (including the
transfer of any cable system franchises) and such approvals shall: (i) be free
of any terms, conditions or restrictions that are reasonably unacceptable to
Parent and (ii) have become Final Orders.
(c) The approval of any other governmental entity required for
the consummation of the transactions contemplated hereby shall have been
obtained including, without limitation, the approval of any local or municipal
governmental entity necessary or appropriate in connection with the transfer of
control of the Company Franchises.
5.10 Litigation. There shall be no investigation, action, suit or
----------
proceeding at law or in equity or by or before any governmental instrumentality
or other agency pending or threatened against the Company or any of its
Subsidiaries, or, to the best knowledge of the Company, any director, officer or
key employee of the Company or any of its Subsidiaries which would have a
reasonable possibility of calling into question the validity, or hinder the
consummation, enforceability or performance, as the case may be, of the Closing,
this Agreement, any action taken or to be taken pursuant hereto or any of the
other agreements and transactions contemplated hereby.
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<PAGE>
5.11 Properties. Parent shall have received SCHEDULE 2.14(a) in form
----------
and substance mutually acceptable to Parent and the Company.
SECTION 6. COMPANY'S CONDITIONS OF MERGER
------------------------------
The Company's obligation hereunder shall be subject to compliance by
the Parent and Acquisition Sub with their agreements herein contained and to the
fulfillment to the Company's satisfaction on or before and at the Closing Date
of the following conditions:
6.1 Certificate. The representations and warranties of the Parent
-----------
and Acquisition Sub contained in this Agreement, including but not limited to
the representations and warranties made in Sections 3 and 4 shall be true and
correct in all material respects with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date; each
of the conditions hereafter specified in this Section 6 shall have been
satisfied; and on the Closing Date one or more certificates to such effect
executed by the President and the Chief Financial Officer of the Parent and
Acquisition Sub shall be delivered to the Company.
6.2 Delivery of Documents. Parent shall have executed and
---------------------
delivered to the Company (or shall have caused to be executed and delivered to
the Company by the appropriate persons) the following:
(a) Certified copies of resolutions of the Board of Directors
and the stockholders of the Parent and Acquisition Sub authorizing the execution
and delivery of this Agreement and the Related Documents;
(b) A certificate issued by the appropriate Secretary of State
of the state of incorporation of the Parent and Acquisition Sub certifying that
the Parent or such Acquisition Sub as the case may be, is in good standing in
such state;
(c) True and correct copies of all consents, instruments and
other documents specified in SCHEDULES 3.2 and 4.2 attached hereto which have
not otherwise been made available for review by Company; and
(d) All other certificates and other documents reasonably
requested by the Company in writing at
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<PAGE>
least two (2) days before the Closing Date. The form and substance of all such
certificates and other documents hereunder shall be reasonably satisfactory in
all respects to the Company and its counsel.
6.3 Opinion of Parent's Counsel. The Company shall have received
---------------------------
the favorable written opinion of its counsel dated the date hereof, in
substantially the form attached hereto as EXHIBIT D.
6.4 Compliance with Agreements. Parent and Acquisition Sub shall
--------------------------
have performed and complied with all agreements, covenants and conditions
contained herein, in any other document contemplated hereby and all other
Related Documents which are required to be performed or complied with by Parent
and Acquisition Sub on or before the Closing Date.
6.5 All Proceedings Satisfactory. All corporate and other
----------------------------
proceedings taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the Company
and Company shall receive such copies thereof and other materials (certified, if
requested) as they may reasonably request in connection therewith.
6.6 Settlement Agreement and General Release Agreements. The
---------------------------------------------------
Settlement Agreement and General Release Agreements between the Surviving
Corporation and Messrs. Roderick Nixon and Mark Nixon, substantially in the form
attached hereto (subject to any changes as may be required by law) as EXHIBITS E
and F respectively, shall have been executed and delivered by the Surviving
Corporation.
6.7 Regulatory Matters.
------------------
(a) All required waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or been
terminated and Parent shall have paid 50% of (i) any filing fee imposed under
such Act in connection with the transactions contemplated by this Agreement and
the Related Documents, and (ii) any fees and expenses incurred in connection
with obtaining PSC approval of the transactions contemplated by this Agreement
and the Related Documents.
(b) The PSC and the FCC shall each have approved, to the
extent any approval is necessary, the
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<PAGE>
consummation of the transactions contemplated hereby and such approvals shall:
(i) be free of any terms, conditions or restrictions that are reasonably
unacceptable to the Company and (ii) have become Final Orders.
6.8 Litigation. There shall be no investigation, action, suit or
----------
proceeding at law or in equity or by or before any governmental instrumentality
or other agency pending or threatened against Parent or Acquisition Sub, or, to
the best knowledge of Parent and Acquisition Sub, any director, officer or key
employee of Parent or Acquisition Sub, which would have a reasonable possibility
of calling into question the validity, or hinder the consummation,
enforceability or performance, as the case may be, of the Closing, this
Agreement, any action taken or to be taken pursuant hereto or any of the other
agreements and transactions contemplated hereby.
SECTION 7. COVENANTS
---------
Until the Closing Date, each of the Parent, Acquisition Sub and the
Company agree that they shall act, or refrain from acting where so required, to
comply with the following:
7.1 Regular Course of Business.
--------------------------
(a) Generally. The Company shall operate its business
---------
consistent with past management practices, shall maintain all of its properties
in customary repair, order and condition, shall maintain (except for expiration
due to lapse of time or cancellation by another party pursuant to the terms
thereof) in the ordinary course of business all leases and contracts in effect
without change except as expressly provided herein and shall comply with the
provisions of all laws, regulations and orders of Governmental Authorities and
all Company Franchises applicable to the Company and the conduct of its
business. The Company shall comply, without modification, with all contracts and
commitments relating to capital expenditures as set forth on SCHEDULE 2.10. The
Company shall maintain its financial and accounting records in a manner
consistent with that employed at December 31, 1995.
(b) Compensation. Without the prior written consent of the
------------
Parent and except as may be reasonably necessary to carry out the Projections
and the '97 Budgets, the Company shall not hire or fire any employee
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and shall not grant any increase in the compensation of any board member,
employee, consultant or independent contractor, except as required by prior
agreement.
(c) Insurance. The Company shall maintain in full force and
---------
effect its insurance policies with the coverage and in the amounts set forth on
SCHEDULE 2.13.
(d) Claims. The Company shall promptly notify the Parent of
------
any actions, claims, complaints, lawsuits or investigations that may be
commenced against it.
(e) Supplement. From time to time prior to the Closing Date,
----------
the Company shall promptly notify the Parent of any changes with respect to the
information set forth in this Agreement or the SCHEDULES hereto and of any
matters hereafter arising which, if in existence at the date hereof, would have
been required to be set forth in this Agreement or the SCHEDULES hereto.
(f) Qualification to do Business in Pennsylvania. The Company
--------------------------------------------
shall promptly cause Chautauqua Cable, Inc. and C&E Communications, Ltd. to
qualify to do business in the Commonwealth of Pennsylvania prior to Closing and
shall make all necessary filings and comply with all necessary requirements in
connection therewith.
7.2 '97 Operating Budgets. The Company shall provide to Parent
---------------------
promptly, but in no event later than December 20, 1996, 1997 operating and
capital budgets, which budgets shall be subject to Parent's approval, which
approval may not be unreasonably withheld (the "'97 Budgets").
7.3 Amendments. No change or amendment shall be made to the
----------
charter or by-laws of the Company, and the Company shall not merge into or
consolidate with any other Person or change the character of its business.
7.4 Capital Changes. The Company shall not issue, sell, purchase
---------------
or redeem any shares of its capital stock of any class or issue or sell any
securities convertible into, or options, warrants or other rights to subscribe
for, any shares of its capital stock. The Company shall not pledge or otherwise
encumber any shares of its capital stock.
7.5 Dividends. The Company shall not declare, pay or set aside for
---------
payment any dividend or other
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distribution in respect of its capital stock, other than dividends declared on
the last day of a fiscal quarter, which dividends may not exceed an aggregate
amount of $150,000 for any fiscal quarter.
7.6 Capital Expenditures. Except to the extent provided for in the
--------------------
Projections or the '97 Budgets, without the prior written consent of Parent, the
Company shall not make any capital expenditures in excess of $25,000 in the
aggregate, or commitments with respect thereto, except as provided in SCHEDULE
2.10. The Company shall not make or accept any loan or advance to or from any
of its Affiliates.
7.7 Borrowing. Except to the extent provided for in the
---------
Projections or the '97 Budgets, without the prior written consent of the Parent,
the Company shall not incur, assume or guarantee any indebtedness or obligation
not reflected on the Base Balance Sheet, except for amounts not to exceed
twenty-five thousand dollars ($25,000) in the ordinary course of business.
7.8 Property. The Company shall not sell, transfer, or dispose of
--------
any of its assets and properties, or allow any of its assets and properties to
become subject to a Lien, except in the ordinary course of business.
7.9 Other Commitments. Except as set forth in this Agreement or
-----------------
permitted in writing by the Parent, the Company shall not enter into any
transaction, make any commitment or incur any obligation other than in the
ordinary course of business.
7.10 Interim Financial Information. The Company shall supply the
-----------------------------
Parent with a copy of its internal unaudited monthly financial statements within
thirty (30) days after the end of each month.
7.11 Consents and Authorizations. The Parent and the Company shall,
---------------------------
promptly after the date hereof, cooperatively commence efforts to obtain PSC
approval of the transactions contemplated hereby (including the transfer of any
cable franchises) and the consents, waivers and authorizations listed in
SCHEDULES 2.2 and 2.7, including the approval of the Company's Shareholders,
which approval the Company agrees to use reasonable efforts to obtain within 60
working days of the date hereof. The Parent and the Company shall diligently
pursue and use their best efforts to obtain such consents, waivers and
authorizations as promptly as practicable prior to the Closing Date.
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7.12 Access. The Company shall afford to the Parent and its
------
counsel, accountants, agents and other authorized representatives and to
financial institutions specified by the Parent reasonable access during business
hours to the Company's plants, properties, books and records in order that the
Parent may have full opportunity to make such reasonable investigations as it
shall desire to make of the affairs of the Company. The Company shall cause its
officers, employees and auditors to furnish such additional financial and
operating data and other information as the Parent shall from time to time
reasonably request.
7.13 Notice of Transfer. Each of the Parent and the Company shall
------------------
cooperate in providing any required notices to the appropriate Governmental
Authority regarding any issues of ownership or control or change thereof
(including, without limitation, any such issues relating to the Company
Franchises).
7.14 Payment of Tax. All transfer (including any real estate
--------------
transfer or gains tax), documentary (other than stock transfer), sales, use,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be borne by the
Company when due, and it will file on a timely basis all necessary Tax Returns
and other documentation with respect to all such transfer, documentary, sales,
use, registration and other Taxes and fees, and, if required by applicable
Regulation, will, and will cause its Affiliates to, join in the execution of any
such Tax returns and other documentation.
7.15 Agreement to Defend. In the event any claim of the nature
-------------------
specified in Section 5.10 hereof is commenced, whether before or after the
Closing Date, the parties hereto agree to cooperate and use all reasonable
efforts to defend against and respond thereto.
7.16 Projections and '97 Budgets. The Company shall promptly advise
---------------------------
Parent of any event or circumstance which would render the Projections or the
'97 Budgets or the assumptions underlying the same no longer reasonable.
7.17 Pre-Closing Balance Sheet. The Company shall deliver to the
-------------------------
Company, at least ten (10) days prior to the Closing, a balance sheet of the
Company and its Subsidiaries as of the last day of the month preceding the month
in which Closing occurs, prepared in accordance with the Company's normal method
of preparation of internal
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<PAGE>
financial statements (the "Pre-Closing Balance Sheet"). The Pre-Closing Balance
Sheet shall set forth the stockholders equity of the Company and its
Subsidiaries as of the date of the Pre-Closing Balance Sheet (the "Pre-Closing
Net Worth") and the total current assets minus the total current liabilities as
of the date of the Pre-Closing Balance Sheet, as determined in accordance with
GAAP, but excluding (i) the then outstanding 5 3/4% demand notes in the current
aggregate amount of $1,213,000 and (ii) legal fees, brokerage fees, PSC fees and
expenses, Hart-Scott-Rodino fees (if any), the expenses incurred in connection
with the transactions contemplated hereby or any tollpool adjustments (the "Pre-
Closing Working Capital"). The Company shall promptly notify Parent of any
event or circumstance which would materially change the Pre-Closing Net Worth or
Pre-Closing Working Capital.
7.18 Further Assurances. On the terms and subject to the conditions
------------------
of this Agreement, the parties hereto shall use all reasonable efforts at their
own expense to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or advisable under applicable regulations
to consummate and make effective as promptly as possible the transactions
contemplated by this Agreement, and to cooperate with each other in connection
with the foregoing, including, without limitation, using all reasonable efforts
(a) to obtain all necessary waivers, consents and approvals from other parties
to loan agreements, leases, mortgages and other contracts, (b) to obtain all
necessary consents, approvals and authorizations as are required to be obtained
under any Regulations or in connection with any Company Franchises, (c) to lift
or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby and (d) to fulfill all conditions to the obligations of the parties under
this Agreement. Each of the parties hereto further covenants and agrees that it
shall use all reasonable efforts to prevent a threatened or pending preliminary
or permanent injunction or other Order.
7.19 Consents. Without limiting the generality of Section 7.18,
--------
each of the parties hereto shall use reasonable efforts to obtain all waivers,
Company Franchises, authorizations, consents and approvals of all Persons and
Governmental Authorities necessary, proper or advisable in connection with the
consummation of the transactions contemplated by this Agreement prior to the
Closing Date.
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<PAGE>
7.20 No Solicitation or Negotiation. Unless and until this
------------------------------
Agreement is terminated, the Company shall not, and shall use its best efforts
to cause its Affiliates, and the directors, officers, employees,
representatives, agents, advisors, accountants, shareholders and attorneys of
each of them, not to initiate or solicit, directly or indirectly, any inquiries
or the making of any proposal with respect to, or engage in negotiations
concerning, or provide any confidential information or data to any Person with
respect to, or have any discussions with any Person relating to, any
acquisition, business combination or purchase of all or any significant asset
of, or any equity interest in, directly or indirectly, the Company, or otherwise
facilitate any effort or attempt to do or seek any of the foregoing and shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing; provided that no director of the Company shall be
required to comply with this Section 7.17 to the extent such compliance would
cause such director to breach his or her fiduciary duty to the Company or its
shareholders.
7.21 Public Announcements. Prior to the Closing Date, no party
--------------------
hereto nor any Affiliate, representative or shareholder of such party, shall
disclose any of the terms of this Agreement to any third party, except as
required to obtain the consents, waivers and authorizations listed in SCHEDULES
2.2, 2.7, 3.2 and 4.2 and in connection with the Parent's financing of the
transactions contemplated hereby, without the other parties' prior written
consent. Prior to the Closing Date, the form, content and timing of all press
releases, public announcements or publicity statements with respect to this
Agreement and the transactions contemplated hereby shall be subject to the prior
approval of both the Company and the Parent, which approval shall not be
unreasonably withheld; provided, however, that either party may withhold such
-------- -------
approval in its sole discretion with respect to any of the foregoing which
discloses any of the financial terms of this transaction. Prior to the Closing
Date, no press releases, public announcements or publicity statements shall be
released by either party without such prior mutual agreement. Notwithstanding
the foregoing, no party hereto will disclose the Merger Consideration or the
manner in which the Merger Consideration is calculated, without the prior
written consent of the other parties hereto, other than in connection with
seeking consents required by Section 7.10.
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<PAGE>
7.22 Environment Inspections. The Company agrees to cooperate with
-----------------------
any reasonable request of Parent for a site assessment or review concerning any
environmental matter, including the making available of such personnel,
documents, records or other information of the Company as Parent may reasonable
request. The Company has arranged, at the Company's expense, for one or more
qualified independent contractors to conduct the Phase I Audit. In the event
the Closing does not occur for any reason, the Parent shall reimburse to the
Company the costs incurred by the Company in conducting such Phase I Audit.
Copies of all draft reports, reports, analytic results, or other communications
from the consultant have been provided to Parent and Parent's environmental
counsel at the same time as provided to the Company. The Company and Parent
shall consult on any notifications or reporting required to any Governmental
Authority concerning any information developed during the environmental reviews.
7.23 Employee Programs. Parent will maintain each of the Employee
-----------------
Programs (as such term is defined in Section 2.22) listed on SCHEDULE 2.22 or
Employee Programs which are at least comparable, in the aggregate, to those
listed on SCHEDULE 2.22 until at least the fifth anniversary of the Closing Date
unless Parent institutes for the benefit of the employees covered by such
Employee Programs, new or different programs which are, in the aggregate,
comparable to or better than, in terms of level of benefits, such Employee
Programs; provided however, that the parties hereto agree that neither Parent
-------- -------
nor any of its affiliates shall be required to adopt or maintain a defined
benefit plan.
7.24 Regulatory Matters. The Company will not change local rates
------------------
charged to telephone customers and will not apply for any change in the intra-
state pooling mechanism, without the written consent of the Parent.
7.25 Indemnification and Insurance. The Surviving Corporation
-----------------------------
agrees to indemnify and hold harmless the Company's officers and directors
against any costs or expenses (including reasonable attorney's fees), judgments,
fines, losses, claims, damages or liabilities incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative arising out of or pertaining to matters existing
or occurring at or prior to the Effective Date, to the fullest extent permitted
under the NYBCL. The Surviving Corporation will maintain director and officer
liability insurance for acts and omissions occurring prior to the
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Closing Date with coverage in amount and scope at least as favorable as Parent's
existing director and officer liability insurance for a period of six years
after the Closing Date so long as the annual premium therefor is not in excess
of the premium paid by the Parent as of the Closing Date; provided, however, if
-------- -------
the existing director and officer liability insurance expires, is terminated or
cancelled during such six year period, the Surviving Corporation will use its
best efforts to obtain director and officer liability insurance in an amount and
scope as great as can be obtained for the remainder of such period for a premium
not in excess of 125% of the premium paid by the Parent as of the Closing Date.
7.26 Payment of Regulatory Fees. Each of the Company and Parent
--------------------------
shall pay 50% of (i) any filing fee imposed under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, in connection with the
transactions contemplated by this Agreement and the Related Documents and (ii)
any fees and expenses incurred in connection with obtaining PSC approval of the
transactions contemplated by this Agreement and the Related Documents.
SECTION 8. CLOSING
-------
8.1 Time and Place.
--------------
(a) Subject to the provisions of Sections 5 and 6 hereof and
the Company's compliance with the covenants contained in Section 7 the closing
(the "CLOSING") of the transactions contemplated hereby shall take place at the
offices of Nixon, Hargrave, Devans & Doyle LLP, 1300 Clinton Square, Rochester,
New York 14604, or such other place as agreed to by the parties, at 9:30 a.m.,
local time, on the last business day of the month of the receipt of all federal,
state and local regulatory approvals; provided however, that if the receipt of
-------- -------
all of such approvals occurs within ten (10) days of the end of the month in
which all of such approvals are obtained, the Closing shall occur on the last
business day of the month following the month in which the receipt of all
federal, state and local regulatory approvals occurs; provided however, that in
-------- -------
no event shall the Closing occur later than December 31, 1997 (the "CLOSING
DATE").
(b) On the Closing Date, Parent, Acquisition Sub and the
Company shall cause the Articles of Merger and the Certificate of Merger to be
filed in accordance with the provisions of the NYBCL and shall take
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any and all other lawful actions and do any and all other lawful things
necessary to effect the Merger and to cause the Merger to become effective.
SECTION 9. INDEMNIFICATION OF PARENT AND ACQUISITION SUB
---------------------------------------------
9.1 Survival. The covenants, agreements, representations and
--------
warranties of the Company contained herein or in any certificate or other
document delivered pursuant hereto shall survive any examination made by or on
behalf of Parent and Acquisition Sub, the execution and delivery of this
Agreement, the Effective Date and the consummation of the transactions called
for by this Agreement until one hundred twenty days after the date of the first
year end balance sheet prepared for the Company after the Effective Date (the
"RELEASE DATE") except that (i) all covenants and agreements set forth in this
Section 9 shall continue until all obligations hereunder have been performed and
satisfied and (ii) any covenants and agreements which are to be performed after
the Effective Date shall continue until all such obligations have been fully
performed and satisfied. No claim under this Section 9 may be brought with
respect thereto after the Release Date; provided that if, prior to such date,
--------
Parent or Acquisition Sub has notified the Escrow Agent of a claim for indemnity
under this Section 9 (whether or not formal legal action shall have been
commenced based upon such claim), such claim shall continue to be subject to
indemnification until finally resolved.
9.2 Indemnification. The Company shall indemnify and hold harmless
---------------
Parent and Acquisition Sub, and each of their respective officers, directors,
affiliates, shareholders and representatives (each, an "INDEMNITEE") in the
manner set forth in and subject to Section 9.4, at all times from and after the
Effective Date against and in respect of any and all damages, claims, losses,
deficiencies, liabilities and expenses, including, without limitation,
reasonable legal, accounting, and other expenses (collectively, "DAMAGES"),
incurred or suffered by any such Indemnitee as a result, or that may arise out
of, any breach by the Company of any of the representations and warranties made
by the Company in this Agreement or pursuant hereto, or for any other breach or
violation of any covenant, agreement, term or condition of this Agreement by the
Company; provided, however, that the Company shall not have an obligation to
-------- -------
indemnify any Indemnitee pursuant to this
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Section 9 unless a claim shall have been asserted on or prior to the Release
Date.
9.3 Notice of Claims. Upon obtaining knowledge thereof, the
----------------
Indemnitee shall promptly notify the Escrow Agent and the Shareholder
Representative in writing of any Damages (including any Damages arising from
Third-Party Claims (as defined in Section 9.5 hereof)) which the Indemnitee has
determined has given or could give rise to a claim under Section 9.2 (such
written notice being referred to as a "NOTICE OF CLAIM"); provided, however,
-------- -------
that no such notice shall be required with respect to actions or claims
identified in any of the SCHEDULES hereto. A Notice of Claim shall specify in
reasonable detail the nature and estimated amount of any such claim giving rise
to a right of indemnification. Any payment of Damages set forth in such Notice
of Claim shall be governed by the terms of the Escrow Agreement.
9.4 Method of Indemnification. In the event that an Indemnitee
-------------------------
shall seek indemnification pursuant to Section 9.2, such Indemnitee may seek
recovery in an amount equal to the aggregate Damages incurred or suffered by
such Indemnitee with respect to which such Indemnitee is entitled to
indemnification pursuant to Section 9.2. Any obligation to indemnify an
Indemnitee shall be satisfied solely from the Escrow Fund, to the extent
sufficient funds are available therein, in accordance with the terms of
withdrawal specified in the Escrow Agreement. Notwithstanding anything in this
Agreement to the contrary, no indemnification payment for Damages suffered or
incurred by an Indemnitee shall be made to such Indemnitee, until the amount
which all Indemnitees under this Agreement would otherwise be entitled to
receive as indemnification under this Agreement aggregates in excess of the sum
of $220,000 (such sum, hereinafter, the "THRESHOLD"), at which time each
Indemnitee shall be entitled to recover from the Escrow Fund any and all amounts
for which a claim for indemnity has theretofore been made, without regard to the
Threshold. The maximum liability for indemnification hereunder shall not exceed
$500,000 less any reduction in the Merger Consideration in accordance with
Section 1.13.
9.5 Defense of Third-Party Claims.
-----------------------------
(a) If any claim or liability is asserted by a third party
after the Closing for which Parent believes indemnification may be sought under
the terms of this Section 9 (a "THIRD-PARTY CLAIM"), then Parent shall
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promptly notify the Shareholder Representative in writing of such Third-Party
Claim (said notification being referred to as a "THIRD-PARTY CLAIM NOTICE").
Any Third-Party Claim Notice shall state with reasonable specificity, in light
of the then current circumstances, the basis of the Third-Party Claim.
(b) Parent shall have fifteen (15) days after receipt by the
Shareholder Representative of such Third-Party Claim Notice to elect to
undertake, conduct and control, through counsel of its own choosing, the
settlement or defense thereof, and the Shareholder Representative shall
cooperate with Parent in connection therewith. Parent shall have the right to
contest, settle or compromise the Third-Party Claim in the exercise of its
reasonable discretion; provided, that Parent shall notify the Shareholder
--------
Representative of any proposed compromise or settlement of any such Third-Party
Claim and shall not effect such compromise or settlement without the prior
written consent (not to be unreasonably withheld or delayed) of the Shareholder
Representative; provided, further, that Parent shall not, in the defense of such
-------- -------
claim, consent to entry of any judgment unless the judgment provides only for
the payment of monetary damages or unless Parent obtains the written consent of
the Shareholder Representative, or (if the Company is a party to such
proceeding) consent to entry of any judgment or enter into any settlement
(except with the written consent of the Shareholder Representative) which does
not include as an unconditional term thereof the giving by the claimant to the
Company of a release from all liability in respect of such claim.
(c) If Parent elects not to undertake the defense of the Third-
Party Claim, then the Shareholder Representative may undertake, conduct and
control, through counsel approved by Parent (such approval not to be
unreasonably withheld or delayed), and at its own expense, the settlement or
defense thereof; provided, that the Shareholder Representative shall not
--------
compromise or settle any Third-Party Claim without Parent's prior written
consent (not to be unreasonably withheld or delayed); provided, further, that
-------- -------
the Shareholder Representative shall not, in the defense of such claim, consent
to entry of any judgment unless the judgment provides only for the payment of
monetary damages or unless the Shareholder Representative obtains the written
consent of Parent, or consent to entry of any judgment or enter into any
settlement (except with the written consent of Parent) which does not include as
an unconditional term thereof the giving by the claimant to the
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Indemnitees of a release from all liability in respect of such claim.
SECTION 10. DEFINITIONS
-----------
Unless the context specifically requires otherwise, capitalized terms
used in this Agreement shall have the meaning specified below:
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504(a), or similar group defined under a similar provision of
state, local or foreign law.
"DEFINED INTERCOMPANY TRANSACTION" shall have the meaning set forth in
Treasury Regulation Section 1.1502-13.
"ESCROW AGENT" shall have the meaning ascribed to it in Section
1.11(a).
"FCC" means the Federal Communications Commission (or any successor
agency, commission, bureau, department or other political subdivision of the
United States of America).
"FCC LICENSE" means any license, permit, approval or authorization
granted or issued by the FCC.
"FINAL ORDER" means an action by the FCC or the PSC as to which: (a)
no request for stay of the action by the FCC or the PSC, as the case may be, is
pending, no such stay is in effect, and if any time period is permitted by
statute or regulation for filing any request for such a stay, such time period
has passed; (b) no petition for rehearing or reconsideration, or application for
review, of the action is pending before the FCC or the PSC, as the case may be,
and the time permitted for filing any such petition or application has passed;
(c) the FCC or the PSC, as the case may be, does not have the action under
reconsideration on its own motion and the time in which such reconsideration is
permitted has passed; and (d) no appeal to a court, or request for stay by a
court, of the FCC's or PSC's action, as the case may be, is pending or in
effect, and the deadline for filing any such appeal or request has passed.
"GAAP" means generally accepted accounting principles in effect from
time to time.
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<PAGE>
"GOVERNMENTAL AUTHORITY" means any governmental agency, body or
instrumentality (whether federal, state, local or foreign).
"INVESTMENT COMPANY" shall have the meaning ascribed to such term in
the Investment Company Act of 1940, as amended.
"LIEN" means any interest in property securing an obligation owed to,
or claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholders agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this Agreement
the Company or a Subsidiary shall be deemed to be the owner of any property
which it has acquired or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes and such
retention or vesting shall be deemed to be a "Lien".
"OSHA" means the Occupational Safety and Health Act of 1978, as
amended from time to time.
"PERSON" means any individual, corporation, partnership, joint
venture, trust or unincorporated organization or any government or any agency or
political subdivision thereof.
"PHASE I AUDIT" means that certain Phase I Environmental Audit of the
Company conducted by Nixon, Hargrave, Devans & Doyle, dated June 13, 1996.
"PSC" means the New York Public Service Commission.
"RELATED DOCUMENTS" means this Agreement and the Articles of Merger,
together with all related instruments and documents as the same may be amended
from time to time.
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"SELLING SHAREHOLDERS" shall have the meaning ascribed to it in the
Escrow Agreement.
"SHAREHOLDER REPRESENTATIVE" means Roderick A. Nixon.
"SHAREHOLDER REPRESENTATIVE APPOINTMENT AGREEMENT" means an agreement
to be entered into by the shareholders of the Company and Roderick A. Nixon,
appointing Mr. Nixon as the Shareholder Representative.
"SUBSIDIARY" of any Person means any corporation or other entity of
which more than 50% of the outstanding voting securities are at the time owned,
directly or indirectly, by such Person.
"TAX" means any federal, state, local, or foreign income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative minimum, estimated or
other tax, including any interest, penalty or addition thereto, whether disputed
or not.
"TAXING AUTHORITY" means any domestic, foreign, federal, national,
state, provincial, county or municipal or other local government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
body exercising any taxing authority or any other authority exercising any Tax
regulatory authority.
The following terms shall have the meanings assigned to them in the
provisions of this Agreement referred to below:
'97 Budgets - Section 7.2
Acquisition Sub - Preamble
Base Balance Sheet - Section 2.4
Closing - Section 8.1
Closing Date - Section 8.1
Code - Section 2.15
Company - Preamble
Company Franchises - Section 2.6
Employee Program - Section 2.22(g)(i)
ERISA - Section 2.22(c)
IRS - Section 2.22(b)
Margin Security - Section 2.21
Margin Stock - Section 2.21
Merger - Recitals
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NYBCL - Section 1.1
Parent - Preamble
Pre-Closing Balance Sheet - Section 7.17
Pre-Closing Net Worth - Section 7.17
Pre-Closing Working Capital - Section 7.17
Projections - Section 2.5
Properties - Section 2.19
Release Date - Section 9.1
SECTION 11. GENERAL
-------
11.1 Termination.
-----------
(a) This Agreement may be terminated at any time prior to the
Closing:
(i) by mutual written consent of the parties hereto;
(ii) by written notice by either the Company, on the one
hand, or the Parent and Acquisition Sub, on the other hand, if there has been a
material misrepresentation or breach of warranty or breach of covenant on the
part of the other parties in the representations and warranties or covenants set
forth in this Agreement;
(iii) by written notice by either the Company or Parent
if the Closing has not occurred by December 31, 1997, provided that neither the
Company nor Parent will be entitled to terminate this Agreement pursuant to this
subsection if its willful breach of this Agreement has prevented the
consummation of the transactions contemplated hereby;
(iv) by written notice by Parent if, on the Closing
Date, either (i) the Pre-Closing Net Worth is less than $975,000 or (ii) the
Pre-Closing Working Capital is less than -$200,000; or
(v) by written notice by either the Company or the
Parent if the Company and Parent do not mutually agree within thirty (30) days
of the date hereof that the employee benefit programs of the Parent, in the
aggregate, are comparable to or better than, in terms of level of benefits, the
Employee Programs.
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(b) In the event this Agreement is terminated pursuant to
paragraph (a) of this Section 11.1 and the transactions contemplated hereby are
not consummated, this Agreement shall be of no further force and effect, except
for the reimbursement obligation of Parent set forth in Section 7.22 and the
obligations of the parties hereto set forth in Section 7.26, which shall survive
in accordance with those Sections' respective terms.
11.2 AMENDMENTS, WAIVERS AND CONSENTS. FOR THE PURPOSES OF THE
--------------------------------
AGREEMENT AND ALL AGREEMENTS, DOCUMENTS, AND INSTRUMENTS EXECUTED PURSUANT
HERETO, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH HEREIN OR THEREIN, NO COURSE
OF DEALING BETWEEN THE COMPANY, THE PARENT AND ACQUISITION SUB AND NO DELAY ON
THE PART OF ANY PARTY HERETO IN EXERCISING ANY RIGHTS HEREUNDER OR THEREUNDER
SHALL OPERATE AS A WAIVER OF THE RIGHTS HEREOF AND THEREOF. NO COVENANT OR
OTHER PROVISION HEREOF OR THEREOF MAY BE WAIVED OTHERWISE THAN BY A WRITTEN
INSTRUMENT SIGNED BY THE PARTY SO WAIVING SUCH COVENANT OR OTHER PROVISION.
11.3 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
--------------------------------------
DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
11.4 Section Headings. The descriptive headings in this Agreement
----------------
have been inserted for convenience only and shall not be deemed to limit or
otherwise affect the construction of any provision thereof or hereof.
11.5 Notices and Demands. Any notice or demand which, by any
-------------------
provision of this Agreement or any agreement, document or instrument executed
pursuant hereto or thereto, except as otherwise provided therein, is required or
provided to be given shall be deemed to have been sufficiently given or served
and received for all purposes three days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested, or by
express delivery providing receipt of delivery, to the following addresses:
If to Parent to:
MJD Communications, Inc.
5821 Fairview Road
Suite 409
Charlotte, NC 28209
Attention: Eugene B. Johnson
-51-
<PAGE>
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022
Attention: Neil A. Torpey, Esq.
If to the Company to:
Chautauqua & Erie Telephone Corporation
P. O. Box B
30 Main Street
Westfield, NY 14787
Attention: Roderick A. Nixon
With a copy to:
Chautauqua & Erie Telephone Corporation
P. O. Box B
30 Main Street
Westfield, NY 14787
Attention: Peter G. Nixon
Nixon, Hargrave, Devans & Doyle LLP
Clinton Square
Post Office Box 1051
Rochester, NY 14603-1051
Attention: Justin P. Doyle, Esq.
or at any other address designated by any party to this Agreement to each of the
other parties in writing.
11.6 Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which when so executed and delivered shall
be taken to be an original; but such counterparts shall together constitute but
one and the same document.
11.7 Severability; Complete Agreement. Whenever possible, each
--------------------------------
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be deemed prohibited if or invalid under such applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
and such prohibition or invalidity shall not invalidate the remainder of such
provision or the other provisions or this Agreement.
-52-
<PAGE>
THIS AGREEMENT AND THE RELATED DOCUMENTS ARE INTENDED BY THE PARTIES
HERETO TO BE A COMPLETE AND FINAL EXPRESSION OF THEIR AGREEMENT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL AGREEMENT. BY
INITIALING IN THE MARGIN, THE PARTIES ACKNOWLEDGE AND AGREE THAT NO UNWRITTEN
ORAL AGREEMENT EXISTS BETWEEN THEM WITH RESPECT TO THE SUBJECT MATTER OF THIS
AGREEMENT.
11.8 Expenses.
--------
(a) Unless otherwise provided for in this Agreement, each of
the Parent, the Company and Acquisition Sub shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement.
(b) Any expenses payable by the shareholders of the Company
immediately prior to the Effective Date shall be paid from the Escrow Fund upon
demand by Parent.
11.9 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto, either in whole or in part, without the prior written
consent of the other parties hereto; provided that Parent may assign this
Agreement or any of the rights, interests or obligations hereunder to an
affiliate without the prior written consent of the Company.
11.10 Accounting Terms. All accounting terms used herein which are
----------------
not expressly defined in this Agreement shall have the meanings given to them in
accordance with GAAP.
11.11 Parties. Nothing in this Agreement is intended to confer any
-------
rights or remedies under or by reason of this Agreement on any persons or
entities other than the parties hereto and their respective successors and
permitted assigns. Without limiting the foregoing, no third Person shall be a
beneficiary of any provision of this Agreement.
11.12 Liability of the Shareholder Representative. The Shareholder
-------------------------------------------
Representative shall not be personally liable to Parent, Acquisition Sub or the
Company, for or in respect of any loss, claim, damage, liability or
-53-
<PAGE>
expense resulting from or arising out of any act or failure to act by the
Shareholder Representative in connection with this Agreement, other than for any
loss, claim, damage, liability or expense which shall be finally adjudicated to
be the result of gross negligence or willful bad faith on the part of the
Shareholder Representative.
11.13 JURY WAIVER. EACH OF THE PARENT, COMPANY, AND ACQUISITION SUB
-----------
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, SUIT, OR COUNTERCLAIM ON
ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT
AND THE RELATED DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.
11.14 Schedules. The Parties hereto acknowledge and agree that the
---------
restatement or partial restatement in the schedules attached hereto of any
representation, warranty or other portion of this Agreement shall not in any way
be deemed to limit or eliminate the requirement for full disclosure on the
schedule relating to such representation, warranty or other portion of this
Agreement.
11.15 Arbitration. Any controversy or claim arising out of or
-----------
relating to this Agreement not resolved by mutual agreement of Parent and the
Company shall be settled by arbitration in Cleveland, Ohio, or in such other
location as the parties may mutually agree, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"). In the
event of such a dispute, either party may demand arbitration by written notice
to the other and, within fifteen (15) days after receipt of such demand, each
party shall appoint an arbitrator (each, an "Appointed Arbitrator") who shall
together agree on a third Arbitrator, failing which agreement they shall request
the AAA to appoint a third and presiding arbitrator ("Presiding Arbitrator"), in
accordance with the then existing rules of the AAA or any successor organization
thereto. The parties acknowledge and agree that individuals may be designated
as Appointed Arbitrators by each respective party, whether or not such Appointed
Arbitrators are listed on the National Panel of Arbitrators as such list is
maintained by the AAA. Any award therein shall be final and binding on the
parties and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The costs of the arbitration
(including, but not limited to, fees and disbursements of counsel and the
Appointed Arbitrator, and the fees of the Presiding Arbitrator) shall be borne
by the non-prevailing party or as otherwise determined by the Presiding
Arbitrator.
-54-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
By:_________________________________________
Roderick A. Nixon
President
MJD HOLDINGS CORP.
By:_________________________________________
Eugene B. Johnson
Senior Vice-President
C&E ACQUISITION CORP.
By:_________________________________________
Eugene B. Johnson
Senior Vice President
-55-
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
C&E ACQUISITION CORP.
INTO
CHAUTAUQUA & ERIE TELEPHONE CORPORATION
PURSUANT TO SECTION 904 OF THE
BUSINESS CORPORATION LAW OF THE STATE OF NEW YORK
********************************************************************************
THE UNDERSIGNED CORPORATION, organized and existing under and by
virtue of the Business Corporation Law of the State of New York, does hereby
certify that:
1. The name, state of incorporation and date of filing of the
certificate of incorporation of each of the constituent corporations of the
merger are as follows:
<TABLE>
<CAPTION>
Date
Certificate
State of Filed with the
Name Incorporation State
---- ------------- -----
<S> <C> <C>
C&E Acquisition Corp. New York July 15, 1996
Chautauqua & Erie New York August 19, 1897
Telephone Corporation
</TABLE>
2. Chautauqua & Erie Telephone Corporation has 100,000 authorized
shares of common stock, of which 79,498 are outstanding, and 35,000 authorized
shares of preferred stock, none of which are outstanding. All shares of common
stock are entitled to vote as a class on the merger.
3. There are 100 authorized shares of common stock of C&E
Acquisition Corp., all of which are outstanding. All shares of common stock are
entitled to vote as a class on the merger.
4. An Agreement and Certificate of Merger has been approved,
adopted, certified, executed and acknowledged by unanimous written consent of
the respective Board of
<PAGE>
Directors by each of the aforesaid constituent corporations in accordance with
the requirements of Section 902 of the Business Corporation Law of the State of
New York.
5. The name of the surviving corporation of the merger is Chautauqua
& Erie Telephone Corporation, which will continue its existence as said
surviving corporation under its present name upon the effective date of said
merger pursuant to the provisions of the Business Corporation Law of the State
of New York.
6. The Certificate of Incorporation, as amended to read in its
entirety as set forth in ANNEX A hereto, of Chautauqua & Erie Telephone
Corporation, a New York corporation, shall be the Certificate of Incorporation
of the surviving corporation.
7. The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
surviving corporation, the address of which is as follows:
Chautauqua & Erie Telephone Corporation
c/o MJD Communications, Inc.
5821 Fairview Road
Charlotte, North Carolina 28209-3649
8. A copy of the Agreement and Plan of Merger will be furnished by
the surviving corporation, on request and without cost, to any stockholder of
any constituent corporation.
[Order from PSC approving merger to be attached.]
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned has subscribed this certificate on
the date set forth below and hereby affirms that the statements contained herein
are true and correct.
________________, 199_
CHAUTAUQUA & ERIE TELEPHONE C&E ACQUISITION CORP.
CORPORATION
By:__________________________ By:___________________________
Name: ______________________ Name: _______________________
Title: ______________________ Title: _______________________
ATTESTED TO: ATTESTED TO:
By:__________________________ By:___________________________
Name: ______________________ Name: _______________________
Title: ______________________ Title: Secretary
-3-
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
<PAGE>
EXHIBIT C
OPINION OF COMPANY COUNSEL
<PAGE>
EXHIBIT D
OPINION OF PARENT'S COUNSEL
<PAGE>
EXHIBIT E
RODERICK NIXON SETTLEMENT AGREEMENT AND GENERAL RELEASE
<PAGE>
EXHIBIT F
MARK NIXON SETTLEMENT AGREEMENT AND GENERAL RELEASE
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. THE MERGER.................................................... 1
1.1 Surviving Corporation......................................... 1
1.2 Certificate of Incorporation.................................. 1
1.3 By-laws....................................................... 2
1.4 Directors..................................................... 2
1.5 Officers...................................................... 2
1.6 Effective Date................................................ 2
1.7 Additional Actions............................................ 2
1.8 Conversion of Company Common Stock............................ 3
1.9 Conversion of Acquisition Sub Common Stock.................... 3
1.10 Dissenting Shares............................................. 3
1.11 Surrender of Shares........................................... 4
1.12 Escrow Fund................................................... 6
1.13 Adjustments................................................... 6
SECTION 2. REPRESENTATIONS AND WARRANTIES................................ 9
2.1 Organization and Corporate Power.............................. 9
2.2 Authorization and No Contravention............................ 9
2.3 Capitalization; Stockholders; Subsidiaries.................... 10
2.4 Financial Statements.......................................... 11
2.5 Projections................................................... 12
2.6 Business; Franchises and Regulations.......................... 12
2.7 Tariffs: FCC Licenses......................................... 13
2.8 Rate Base..................................................... 14
2.9 Overbillings; Refunds......................................... 14
2.10 Capital Improvements Required by State Authorities............ 14
2.11 Compliance with Law........................................... 14
2.12 Absence of Undisclosed Liabilities............................ 15
2.13 Absence of Certain Developments............................... 15
2.14 Title to Properties........................................... 16
2.15 Tax Matters................................................... 17
2.16 Insurance..................................................... 19
2.17 Contracts and Commitments..................................... 19
2.18 Litigation.................................................... 20
2.19 Environmental Matters......................................... 20
2.20 Investment Company............................................ 22
2.21 Margin Securities............................................. 22
2.22 Employee Benefit Programs..................................... 22
2.23 Solvency...................................................... 25
2.24 Brokers or Finders............................................ 25
2.25 Corporate Records............................................. 25
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
2.26 Books of Account............................................. 26
2.27 Certain Employment Matters................................... 26
2.28 Intercompany Contracts....................................... 27
2.29 No Material Misstatement or Omission......................... 27
2.30 Franchises................................................... 28
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT..................... 28
3.1 Organization and Corporate Power............................. 28
3.2 Authorization and No Contravention........................... 28
3.3 Brokers or Finders........................................... 29
SECTION 4. REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUB............ 29
4.1 Organization and Corporate Power............................. 29
4.2 Authorization and No Contravention........................... 29
4.3 Capitalization............................................... 30
4.4 Brokers or Finders........................................... 30
SECTION 5. PARENT'S AND ACQUISITION SUB'S CONDITIONS OF MERGER.......... 30
5.1 Certificate.................................................. 31
5.2 Delivery of Documents........................................ 31
5.3 Opinion of Company's Counsel................................. 32
5.4 Opinion of Special PSC Counsel............................... 32
5.5 Compliance with Agreements................................... 32
5.6 All Proceedings Satisfactory................................. 32
5.7 Directors and Officers....................................... 32
5.8 Employment Agreements........................................ 33
5.9 Regulatory Matters........................................... 33
5.10 Litigation................................................... 33
5.11 Properties................................................... 34
SECTION 6. COMPANY'S CONDITIONS OF MERGER............................... 34
6.1 Certificate.................................................. 34
6.2 Delivery of Documents........................................ 34
6.3 Opinion of Parent's Counsel.................................. 35
6.4 Compliance with Agreements................................... 35
6.5 All Proceedings Satisfactory................................. 35
6.6 Settlement Agreement and General Release Agreements.......... 35
6.7 Regulatory Matters........................................... 35
6.8 Litigation................................................... 36
SECTION 7. COVENANTS.................................................... 36
7.1 Regular Course of Business................................... 36
7.2 '97 Operating Budgets........................................ 37
7.3 Amendments................................................... 37
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.4 Capital Changes.............................................. 37
7.5 Dividends.................................................... 37
7.6 Capital Expenditures......................................... 38
7.7 Borrowing.................................................... 38
7.8 Property..................................................... 38
7.9 Other Commitments............................................ 38
7.10 Interim Financial Information................................ 38
7.11 Consents and Authorizations.................................. 38
7.12 Access....................................................... 39
7.13 Notice of Transfer........................................... 39
7.14 Payment of Tax............................................... 39
7.15 Agreement to Defend.......................................... 39
7.16 Projections and '97 Budgets.................................. 39
7.17 Pre-Closing Balance Sheet.................................... 39
7.18 Further Assurances........................................... 40
7.19 Consents..................................................... 40
7.20 No Solicitation or Negotiation............................... 41
7.21 Public Announcements......................................... 41
7.22 Environment Inspections...................................... 42
7.23 Employee Programs............................................ 42
7.24 Regulatory Matters........................................... 42
7.25 Indemnification and Insurance................................ 42
7.26 Payment of Regulatory Fees................................... 43
SECTION 8. CLOSING...................................................... 43
8.1 Time and Place............................................... 43
SECTION 9. INDEMNIFICATION OF PARENT AND ACQUISITION SUB................ 44
9.1 Survival..................................................... 44
9.2 Indemnification.............................................. 44
9.3 Notice of Claims............................................. 45
9.4 Method of Indemnification.................................... 45
9.5 Defense of Third-Party Claims................................ 45
SECTION 10. DEFINITIONS.................................................. 47
SECTION 11. GENERAL...................................................... 50
11.1 Termination.................................................. 50
11.2 AMENDMENTS, WAIVERS AND CONSENTS............................. 51
11.3 GOVERNING LAW; CONSENT TO JURISDICTION....................... 51
11.4 Section Headings............................................. 51
11.5 Notices and Demands.......................................... 51
11.6 Counterparts................................................. 52
11.7 Severability; Complete Agreement............................. 52
11.8 Expenses..................................................... 53
11.9 Assignment................................................... 53
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.10 Accounting Terms............................................. 53
11.11 Parties...................................................... 53
11.12 Liability of the Shareholder Representative.................. 53
11.13 JURY WAIVER.................................................. 54
11.14 Schedules.................................................... 54
</TABLE>
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<PAGE>
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-70854.11 Type: AGR
<PAGE>
EXHIBIT 10.22
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
EXHIBITS
Exhibit A ............. List of Shareholders
Exhibit B ............. Form of Deposit Escrow Agreement
Exhibit C ............. Form of Indemnity Escrow Agreement
Exhibit D ............. Form of Opinion of Counsel to Buyer
Exhibit E ............. Form of Opinion of Counsel to Kadoka
<PAGE>
SCHEDULES
Schedule 4.6 ........ Kadoka Financial Statements
Schedule 4.7 ........ Material Changes
Schedule 4.9 ........ Litigation
Schedule 4.11 ....... Employee Benefit Plans
Schedule 4.14 ....... Subsidiaries and Investments
Schedule 4.15 ....... Insurance Policies
Schedule 4.16 ....... Employees and Employment Agreements
Schedule 4.17 ....... Material Contracts
Schedule 4.19 ....... Description of Real and Personal Property Owned; Excluded
Assets
Schedule 4.22 ....... Environmental Matters
Schedule 4.23 ....... Affiliate Transactions
Schedule 4.25 ....... Permits and Reports
Schedule 4.26 ....... Liabilities
<PAGE>
Schedule 5.0 ........ Exceptions to Covenants
<PAGE>
This Stock Purchase Agreement (the "Agreement") is made as of September 24,
1996, among MJD Holdings Corp., a Delaware corporation (the "Buyer"); Kadoka
Telephone Co., a South Dakota corporation ("Kadoka"); and Bruce G. Conlee and
Virginia L. Conlee, individuals and the holders of all of the outstanding stock
of Kadoka (collectively, the "Shareholders").
WHEREAS, the Shareholders own 100 percent of the issued and outstanding
shares of the sole class of common stock of Kadoka (the "Kadoka Stock"); and
WHEREAS, Buyer desires to purchase the Kadoka Stock from the Shareholders,
and the Shareholders desire to sell the Kadoka Stock to Buyer upon terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
Article 1
AGREEMENT TO PURCHASE AND SELL
1.1 PURCHASE AND SALE. At Closing (as defined below), Buyer shall purchase
the Kadoka Stock from the Shareholders, and the Shareholders shall sell the
Kadoka Stock to Buyer. The conveyance of the Kadoka Stock shall be made by the
Shareholders to Buyer free and clear of all options, liens, claims, restrictions
and encumbrances of any nature whatsoever.
1.2 CLOSING. The consummation of the transactions contemplated herein (the
"Closing") shall take place at the offices of Baird, Holm, McEachen, Pedersen,
Hamann & Strasheim, 1500 Woodmen Tower, Omaha, Nebraska, at 10:00 a.m. local
time, on the first business day of the calendar month, immediately following the
calendar month in which all required regulatory approvals, notices and consents
have been given and obtained, so long as such day is at least ten (10) calendar
days after receipt of such regulatory approvals, or at such other time and place
as Buyer and the Shareholders may mutually agree (the "Closing Date").
Article 2
PURCHASE PRICE
2.1 PURCHASE PRICE. Buyer shall purchase the Kadoka Stock from the
Shareholders for an aggregate purchase price of $2,925,000 (the "Purchase
<PAGE>
Price") as adjusted pursuant to Section 2.3 below, which amount shall be payable
in accordance with this Article 2.
2.2 PAYMENT. The Purchase Price shall be payable as follows:
(a) Deposit. Upon execution of this Agreement, Buyer shall deposit
-------
in an escrow account at BankWest, Pierre, South Dakota (the "Escrow Agent")
an earnest money deposit equal to $146,250 (the "Deposit") to be held
pursuant to the Deposit Escrow Agreement in substantially the form attached
hereto as Exhibit B. Upon termination of this Agreement for any reason
other than pursuant to Section 11.1(d), the Shareholders shall be entitled
to retain the Deposit and all earnings thereon as damages. If Buyer
terminates the Agreement pursuant to Section 11.1(d), the Escrow Agent
shall refund to Buyer in accordance with the Deposit Escrow Agreement the
full amount of the Deposit with interest earned thereon, if any.
(b) Closing Date Payment and Receipt of Shares. On the Closing Date,
------------------------------------------
(i) the Shareholders will assign and transfer to Buyer good and valid title
in and to the Kadoka Stock, free and clear of all liens, by delivering to
Buyer a stock certificate or certificates representing the Kadoka Stock,
duly endorsed for transfer or accompanied by duly executed stock powers
endorsed in blank with requisite stock transfer tax stamps, if any,
attached; (ii) Buyer shall, by wire transfer of same-day funds, pay to the
Shareholders in accordance with the percentage interests shown on Exhibit A
attached hereto (the "Percentage Interests") the amount of $2,628,750,
subject to adjustment as hereafter provided in Section 2.3(a) (the "Closing
Payment"); (iii) Escrow Agent shall pay the Deposit plus earnings thereon
to the Shareholders in accordance with their respective Percentage
Interests; (iv) Buyer shall, by wire transfer of same-day funds, deposit in
an escrow account at BankWest, Pierre, South Dakota the amount of One
Hundred Fifty Thousand Dollars ($150,000), all as provided in the Escrow
Agreement referred to in Section 6.3 hereof; and (v) the parties shall
deliver to each other the documents required under this Agreement to be
delivered at or prior to the Closing.
2.3 ADJUSTMENTS TO THE PURCHASE PRICE. The Closing Payment payable by
Buyer to the Shareholders on the Closing Date pursuant to Section 2.2(b)(ii)
hereof shall be adjusted as follows:
(a) CommNet Cellular Stock Adjustment. The Closing Payment shall be
---------------------------------
increased or decreased, as the case may be, by an amount equal
2
<PAGE>
to the difference between $375,000 and the aggregate fair market value of
Kadoka's 11,354 shares of common stock of CommNet Cellular, Inc. (the
"CommNet Stock"). For purposes of this adjustment the aggregate fair
market value of the CommNet Stock shall be determined by multiplying 11,354
by the average closing price per share of the CommNet Stock for the ten
(10) trading days immediately preceding the fifth business day prior to the
Closing Date as quoted in the Wall Street Journal.
-------------------
(b) Post Closing. Buyer and the Shareholders acknowledge that as of
------------
December 31, 1995, Kadoka's balance sheet, (the "December Balance Sheet"),
reflected "Retained Earnings" of $1,002,831 (the "Retained Earnings").
Within sixty (60) days after the Closing Date, Buyer and the Shareholders
shall prepare a balance sheet for Kadoka as of the close of business on the
Closing Date (the "Closing Balance Sheet"), which shall be mutually
acceptable to the Shareholders and Buyer and their respective independent
public accountants. The Closing Balance Sheet shall be prepared in
accordance with GAAP and consistent with Kadoka's past practices. The
amount of the Purchase Price shall be increased or decreased, as the case
may be, by the difference, if any, in the amount of Kadoka's Retained
Earnings on the December Balance Sheet and the amount of Kadoka's Retained
Earnings on the Closing Balance Sheet. If, as a result of the foregoing
adjustment, the Purchase Price is increased, Buyer shall pay the
Shareholders the amount of such increase by wire transfer of same-day funds
within ten (10) business days of the date on which the parties agree on the
Closing Balance Sheet. If, as a result of the post-closing adjustment, the
Purchase Price is decreased, the Shareholders shall refund to Buyer the
amount of such decrease by wire transfer of same-day funds within ten (10)
business days of the date on which the parties agree on the Closing Balance
Sheet.
Article 3
REPRESENTATIONS AND WARRANTIES OF BUYER
For the purpose of inducing Kadoka and the Shareholders to enter into this
Agreement, Buyer hereby makes the following representations and warranties:
3.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to carry on the business in which it is
3
<PAGE>
engaged, to own, lease and operate its properties and to enter into and perform
its obligations under this Agreement.
3.2 AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement has been duly authorized and approved by the board of directors of
Buyer. This Agreement is a valid and binding obligation of Buyer enforceable in
accordance with its terms. All persons who have executed this Agreement on
behalf of Buyer have been duly authorized to do so by all necessary corporate
action.
3.3 REGULATORY APPROVALS. At Closing, Buyer shall have given all notices to
and have obtained from all state and federal regulatory authorities any
approvals, consents, permits and authorizations required in order to consummate
the transactions contemplated in accordance with this Agreement.
3.4 ACCESS TO BOOKS AND RECORDS. Buyer has carefully reviewed this
Agreement and in deciding to purchase the Kadoka Stock has reviewed information
set forth in the books and records of Kadoka. Buyer acknowledges and agrees
that, to the best of its knowledge, all documents, records and books pertaining
to this transaction have been made available for inspection by Buyer and its
representatives. Buyer has had a reasonable opportunity to ask questions of and
receive answers from the Shareholders and Kadoka concerning all aspects of the
business of Kadoka, including, without limitation, its assets and liabilities,
and, to the best of its knowledge, all such questions have been answered to the
full satisfaction of Buyer and its representatives. Buyer further represents
that its management has such knowledge and experience in financial and business
matters that management is capable of evaluating the merits and risks of
purchasing the Kadoka Stock and to make an informed investment decision with
respect thereto.
3.5 INVESTMENT INTENT. Buyer is acquiring the Kadoka Stock for investment
and not with a view to distribution thereof, and Buyer will not make any
distribution or transfer thereof except in accordance with the Securities Act of
1933, as amended, and the rules and regulations thereunder and applicable
exemptions therefrom.
Article 4
REPRESENTATIONS AND WARRANTIES OF KADOKA
AND THE SHAREHOLDERS
For the purpose of inducing Buyer to enter into this Agreement, Kadoka and
the Shareholders, jointly and severally, hereby make the following
representations and warranties:
4
<PAGE>
4.1 ORGANIZATION AND QUALIFICATION OF KADOKA. Kadoka is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of South Dakota with full corporate power and authority to carry on the business
in which it is presently engaged and to own, lease and operate its properties
and to perform its obligations hereunder. The Shareholders are residents of the
State of South Dakota.
4.2 ORGANIZATIONAL DOCUMENTS. Kadoka has delivered to Buyer a true and
correct copy of the Articles of Incorporation of Kadoka, together with all
amendments thereto, as certified by the Secretary of State of South Dakota, and
a true and correct copy of the Bylaws of Kadoka as currently in effect, as
certified by the Secretary of Kadoka.
4.3 REGULATORY APPROVALS. At Closing, Kadoka shall have given all notices
to and have obtained from all state and federal regulatory authorities any
approvals, consents, permits and authorizations required in order to consummate
the transactions contemplated in accordance with this Agreement.
4.4 AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement has been duly authorized and approved by Kadoka's board of directors
and the Shareholders. This Agreement is a valid and binding obligation of Kadoka
and the Shareholders, enforceable in accordance with its terms, subject to
limitations imposed by laws and judicial decisions relating to or affecting the
rights of creditors or secured creditors generally or general principles of
equity (regardless of whether enforcement is considered in proceedings at law or
in equity), upon the enforceability of any of the remedies, covenants or other
provisions of this Agreement and the availability of injunctive relief or other
equitable remedies. All persons who have executed this Agreement on behalf of
Kadoka and/or the Shareholders have been duly authorized to do so by all
necessary action of Kadoka and its Shareholders.
4.5 CAPITAL STOCK OF KADOKA. The authorized capital stock of Kadoka
consists of 5,000 shares of $100.00 par value common stock. The Shareholders are
the lawful owners of 1,212 shares of the common stock, the only shares
outstanding. Kadoka has no other class of stock authorized or issued and
outstanding. All of the issued and outstanding shares of the Kadoka Stock are
duly and validly issued and outstanding, are fully paid and nonassessable, were
issued in compliance with all state and federal laws and are held by the
Shareholders. The delivery by the Shareholders to Buyer of a certificate or
certificates representing the Kadoka Stock, as provided in Section 10.5 of this
Agreement, will pass good and marketable title to the Kadoka Stock to Buyer free
and clear of all liens, encumbrances, claims, restrictions and equities of any
kind. There are no outstanding warrants,
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options, rights, calls or other commitments of any nature relating to the Kadoka
Stock, and there are no outstanding securities or debt obligations of Kadoka
convertible into shares of capital stock of Kadoka. None of the issued and
outstanding shares of capital stock of Kadoka was issued in violation of
preemptive rights. No shares of the capital stock of Kadoka are held in the
treasury of Kadoka.
4.6 FINANCIAL STATEMENTS OF KADOKA. Kadoka has delivered to Buyer copies of
the unaudited financial statements of Kadoka for the years ended December 31,
1995 and 1994 (the "Kadoka Financial Statements"), which are true and correct in
all material respects and set forth all known liabilities, whether contingent or
otherwise, accurately and fully as of the dates thereof. Copies of the Kadoka
Financial Statements are contained in Schedule 4.6. The Kadoka Financial
Statements were prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the financial
condition of Kadoka as of their respective dates and the results of operations
of Kadoka for the periods ended
December 31, 1995, and December 31, 1994, respectively. Kadoka will supply to
Buyer any and all interim financial statements of Kadoka as shall be available,
including, without limitation, those for the six-month period ending June 30,
1996.
4.7 ABSENCE OF MATERIAL CHANGES. Since December 31, 1995, except as
disclosed on Schedule 4.7, Kadoka has operated its business in the ordinary
course and there has not been:
(a) Any change in the financial condition, assets, liabilities or
operations of Kadoka other than changes in the ordinary course of business,
none of which has individually or in the aggregate been materially adverse to
the financial condition, properties, assets, liabilities or operations of
Kadoka;
(b) Any damage, destruction or loss, whether or not covered by
insurance, resulting in a material adverse effect on the properties,
operations or financial condition of Kadoka;
(c) Any issuance or sale or agreement to issue or sell any stock,
bonds, notes or other corporate securities or long-term debt of Kadoka;
(d) Any granting of options, warrants or other rights calling for the
issuance of stock or other corporate securities of Kadoka;
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(e) Any merger or consolidation involving Kadoka or any agreement to
merge or consolidate with any other corporation; or any acquisition of or
agreement to acquire any stock or substantially all of the assets of any
business of any person, firm, association, partnership, corporation or
other business entity or organization;
(f) Any material change in the manner of conducting the business of
Kadoka, except for those changes affecting the telephone industry in South
Dakota or generally;
(g) Any dispute or any event or condition of any character that
materially and adversely affects, or could be reasonably expected to
materially and adversely affect, the business or property of Kadoka;
(h) Any material transaction entered into by Kadoka other than in the
ordinary course of business or any transaction in the ordinary course of
business (including a capital expenditure) in excess of $10,000;
(i) Any material change in the accounting methods or practices of
Kadoka or any material change in depreciation or amortization or rates
theretofore adopted by Kadoka, except for those changes affecting the
telephone industry generally;
(j) Any payment of a dividend or payment in the form of a distribution
to the Shareholders or any member of their family; or
(k) Any agreement or commitment by Kadoka (or any understanding
between Kadoka and any third party) to do or to take any of the actions
referred to in paragraphs (a) through (j) of this Section 4.7.
4.8 INDEBTEDNESS. All of the indebtedness of Kadoka is accurately
reflected on the Kadoka Financial Statements, except for accounts payable
incurred in the ordinary course of business since December 31, 1995. Kadoka is
not in default with respect to any material indebtedness or in the performance,
observance or fulfillment of any material covenant or condition relating
thereto, and no event has occurred and is continuing that would constitute such
a default or event of default with the giving of notice or lapse of time or
both.
4.9 LITIGATION AND CLAIMS. Except as disclosed on Schedule 4.9, there are
no judgments unsatisfied against Kadoka or against the Kadoka Stock or the
Shareholders or consent decrees or injunctions to which Kadoka or the Kadoka
Stock or the Shareholders are subject, and there is no litigation, claim or
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proceeding pending, or to the knowledge of Kadoka threatened, against or
relating to Kadoka or against the Kadoka Stock or the Shareholders or the
properties or businesses of Kadoka, nor does Kadoka know or have reasonable
grounds to know of any basis for any such action or of any governmental
investigation relating to Kadoka or the properties or operations of Kadoka.
4.10 COMPLIANCE WITH LAWS. To the best knowledge of Kadoka and the
Shareholders, Kadoka has complied in all material respects with all laws,
regulations and orders applicable to it or its businesses and has obtained all
governmental permits, licenses, franchises or the like required in order to
conduct its business, and the present uses of its properties and the conduct of
its businesses do not violate in any material respect any law, regulation,
ordinance or order. Neither Kadoka nor the Shareholders have received any
notice or warning from any governmental authority with respect to any failure or
alleged failure of Kadoka or its Shareholders to comply with any applicable law,
regulation or order and, to the best knowledge of Kadoka and the Shareholders,
no such notice or warning has been proposed or threatened.
4.11 BENEFIT PLANS. All employee benefit plans to which Kadoka pays
benefits or premiums on behalf of its employees are listed on Schedule 4.11 (the
"Plans"). Except as disclosed on Schedule 4.11, Kadoka does not have in effect
and has not agreed to institute any bonus, deferred compensation, pension,
profit sharing, retirement, stock options, employee stock ownership, group
insurance, death benefit, welfare or other fringe benefit plan, trust agreement
or arrangement, nor is Kadoka paying or obligated to pay any bonus, deferred
compensation, pension, profit sharing, severance, retirement allowance or other
fringe benefit to any party whatsoever. To the best knowledge of Kadoka and the
Shareholders, all Plans comply in all material respects with all applicable
laws, regulations or orders, are fully funded and no circumstances exist with
respect to the Plans which could reasonably be expected to have a material
adverse effect on the properties or operations of Kadoka.
4.12 NO BREACH OF AGREEMENT. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated by this
Agreement will not (i) violate or result in a breach of or default or
acceleration under the Articles of Incorporation or Bylaws of Kadoka or any
instrument or agreement to which Kadoka or the Shareholders are a party or are
bound which would have a material adverse effect on Kadoka's properties or
operations; (ii) violate any judgment, order, injunction, decree or award
against or binding upon Kadoka or upon the Kadoka Stock or other securities,
property or business of Kadoka which would have a material adverse effect on
Kadoka's properties or operations; (iii) result in the creation of any material
lien, charge or encumbrance upon the properties or assets of Kadoka or the
Kadoka Stock;
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or (iv) violate any law or regulation of any jurisdiction relating to Kadoka or
the Kadoka Stock or other securities, property or business of Kadoka, assuming
all required regulatory approvals have been obtained in connection with the
transactions contemplated hereby.
4.13 BOOKS AND RECORDS. The books, stock record books, minute books and
other corporate records of Kadoka are true and correct in all material respects
and have been maintained in accordance with ordinary business practices and
applicable law. The minute books of Kadoka as made available to Buyer and its
representatives contain accurate and complete records of all meetings of and
corporate actions or written consents by the shareholders and the board of
directors of Kadoka. True and correct copies of the foregoing have been made
available to Buyer.
4.14 SUBSIDIARIES. Kadoka has no subsidiaries or any investments in any
other corporation, association, partnership or other business entity and does
not own any shares of capital stock or other securities of any other entity or
any general or limited partnership interest, except as disclosed on Schedule
4.14.
4.15 INSURANCE. Attached hereto as Schedule 4.15 is a complete list of all
insurance policies currently maintained by Kadoka, and, with respect to each of
such policies, a general description of the risks covered and claims insured;
copies of all such policies have been furnished or will be made available to
Buyer prior to Closing. All such policies are in full force and effect, and
consummation of the transactions contemplated herein shall not prevent Kadoka
from continuing such policies on substantially similar terms in the future.
4.16 EMPLOYEES.
(a) List of Employees. Schedule 4.16 sets forth a list of all of the
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Kadoka employees, officers, directors, consultants and independent
contractors, together with a description of any contract regarding the terms
of service and the rate and basis for total compensation of such persons.
(b) Accruals and Taxes. Kadoka has paid or made provision for the
------------------
payment of all salaries and accrued wages, accrued vacation and sick leave,
and any other form of accrued, but unpaid, compensation, and has complied in
all material respects with all applicable laws, rules and regulations relating
to the employment of labor, including those relating to wages, hours,
collective bargaining and the payment and withholding of Taxes, and has
withheld and paid to the appropriate governmental authority, or is holding for
payment not yet due to such authority, all
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amounts required by law or agreement to be withheld from the wages or
salaries of its employees.
(c) Employment Agreement. Except as set forth on Schedule 4.16 hereto,
--------------------
Kadoka is not a party to any (i) outstanding employment agreements or
contracts with officers or employees that are not terminable at will, or
that provide for payment of any bonus or commission, (ii) agreement, policy
or practice that requires it to pay termination or severance pay to
salaried, non-exempt or hourly employees, (iii) collective bargaining
agreement or other labor union contract applicable to persons employed by
Kadoka, nor do Shareholders or Kadoka know of any activities or proceedings
of any labor union to organize any such employees. Kadoka has furnished to
Buyer complete and correct copies of all such agreements, if any
("Employment and Labor Agreements"). Kadoka has not breached or otherwise
failed to comply with any provisions of any Employment or Labor Agreement.
(d) Employment Claims. There are no charges with respect to or
-----------------
relating to Kadoka pending before the Equal Employment Opportunity
Commission or any state, or local agency responsible for the prevention of
unlawful employment practices, and Kadoka has not received notice from any
federal, state or local agency responsible for the enforcement of labor or
employment laws of an intention to conduct an investigation of Kadoka and,
to the knowledge of Shareholders and Kadoka, no such investigation is in
progress.
4.17 CONTRACTS.
(a) Generally. Except as listed in Schedule 4.17, Kadoka is not a
---------
party to any written contract relating to:
(i) Bonus, pension, profit sharing, retirement, stock option,
employee stock purchase or other plans providing for deferred
compensation;
(ii) Collective bargaining agreements or any other contract with
any labor union;
(iii) Hospitalization insurance or other welfare benefit plans or
practices;
(iv) Loans to its employees, officers, directors or Affiliates;
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(v) The borrowing or loaning of money to or from any Person
or the mortgaging, pledging or otherwise placing a lien on any asset
of Kadoka;
(vi) A guarantee of any obligation;
(vii) The ownership, lease (whether as lessee or lessor) or
operation of any property, real or personal requiring total annual
payments in excess of $10,000;
(viii) Intangible property (including proprietary rights),
requiring total annual payments in excess of $10,000;
(ix) Express warranties given by Kadoka with respect to its
services rendered or its products sold or leased;
(x) Registration or preemptive rights with respect to any
securities;
(xi) Prohibitions (other than applicable laws or regulations)
preventing it from freely engaging in any business;
(xii) The purchase, acquisition, disposition or supply of
inventory and other property and assets, requiring total annual
payments in excess of $10,000;
(xiii) Employees, independent contractors, consultants, or other
agents;
(xiv) Sales, commissions, advertising or marketing;
(xv) Any investment by Kadoka; or
(xvi) Any other written contract not of the type covered by any
of the foregoing items of this Section 4.17 requiring total annual
payments by Kadoka in excess of $10,000.
(b) Compliance. Kadoka has performed all material obligations
----------
required to be performed by it, and is not in receipt of any claim of
default or breach or notice of audit, under any contract required to be
disclosed on Schedule 4.17. Except as disclosed in Schedule 4.17, to the
best of the Shareholders' knowledge, no event has occurred which with the
passage of time or the giving of notice or both would result in
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a material default, breach or event of non-compliance by Kadoka under any
contract required to be disclosed on Schedule 4.17. Except as disclosed in
Schedule 4.17, Kadoka has no present expectation or intention of not fully
performing all of its obligations under any contract required to be
disclosed on Schedule 4.17 and has no knowledge of any breach or
anticipated breach by any other party to any contract required to be
disclosed on Schedule 4.17.
4.18 TRUE AND COMPLETE COPIES. The Shareholders have delivered or made
available to Buyer true and complete copies of all contracts and documents
listed in the Schedules to this Agreement.
4.19 TITLE AND RELATED MATTERS.
(a) Owned Property. Set forth in Schedule 4.19 is a description of
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all real property and a list of personal property owned and used by Kadoka
in the operation of its business and a list of real and personal property
to be excluded from the transactions contemplated by this Agreement. Kadoka
has valid and marketable title to all real and personal property used in
the operation of its business, free and clear of all liens, except
Permitted Liens. For purposes of this Agreement, "Permitted Liens" shall
mean (i) statutory liens for Taxes not yet due and payable, (ii) such
imperfections or irregularities of title, liens, easements, charges or
encumbrances as do not materially interfere with the present use of the
properties or assets subject thereto or affected thereby, do not otherwise
impair present business operations at such properties, or do not have a
material adverse effect on the value of such properties and assets and
(iii) liens reflected in the Kadoka Financial Statements. All properties
used in Kadoka's business operations as of December 31, 1995 are reflected
in the Kadoka Financial Statements in accordance with and to the extent
required by GAAP. Seller has delivered, with respect to any real property
owned by the Company, true and complete copies of all deeds and other title
documents relating to such real property. Shareholders will cooperate in
furnishing materials and/or allowing such surveys and/or inspections as may
be necessary in connection with Buyer's financing. Further, Kadoka has
valid, good and marketable title to 11,354 shares of common stock in
CommNet Cellular, Inc., free and clear of all liens, which shares are
unrestricted and have been registered pursuant to the Securities Act of
1933, as amended.
(b) Leases. Kadoka is not the lessee under any lease for personal or
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real property.
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(c) Liens. The real property owned by Kadoka and the buildings,
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structures and improvements included within such real property
(collectively, the "Improvements") comply in all material respects with all
applicable restrictions, building ordinances and zoning ordinances and all
regulations of the applicable health and fire departments. No alteration,
repair, improvement or other work which could reasonably be expected to
give rise to a lien has been performed with respect to such Improvements
within the past one hundred twenty (120) days. Kadoka's owned real property
and its use, occupancy and operation as currently used, occupied and
operated does not constitute a nonconforming use under any regulation or
order affecting such real property, and the continued existence, use,
occupancy and operation of such Improvements is not currently dependent on
any special permit, exception, approval or variance. There is no pending
or, to the Shareholder's or Kadoka's knowledge, threatened or proposed
action or proceeding by any authority to modify the zoning classification
of, to condemn or take by the power of eminent domain (or to purchase in
lieu thereof), to classify as a landmark, to impose special assessments on
or otherwise to take or restrict in any way the right to use, develop or
alter all or any part of Kadoka's owned real property.
(d) Utilities. The real property owned by Kadoka has access,
---------
sufficient for the conduct of Kadoka's business as presently conducted, to
public roads and to all utilities, including electricity, sanitary and
storm sewer, potable water, natural gas and other utilities used in the
operation of Kadoka's business as presently conducted.
(e) Condition. Since December 31, 1995, Kadoka has not sold,
---------
transferred, leased, distributed or disposed of any of its assets or
properties, except for (i) transactions in the ordinary and regular course
of business, (ii) as otherwise consented to in writing by Buyer, or (iii)
as disclosed on Schedule 4.19. Kadoka owns, or has all rights necessary to
use, all properties and assets necessary for the conduct of its business as
presently conducted. The assets and properties owned, leased or used by
Kadoka in the conduct of its business are in good condition (reasonable
wear and tear excepted), are suitable for their respective uses, and
comply, in all material respects, with all applicable regulations.
4.20 TAX MATTERS.
(a) Generally. Kadoka has timely filed all federal, state and local
---------
tax reports, returns, information returns and any other documents required
to be filed by it (collectively, "Tax Returns") and has duly paid
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all Taxes shown to be due and payable on such Tax Returns and all estimated
or advance payments required by law. For purposes of this Agreement, "Tax"
or "Taxes" means any income, gross receipt, net proceeds, alternative or
add-on minimum, ad valorem, value added, estimated turnover, sales, use,
property, personal property (tangible and intangible), stamp, leasing,
lease, user, excise, duty, franchise, transfer, license, withholding,
payroll, employment, foreign, fuel, excess profits, occupational and
interest equalization, windfall profits, severance and other Taxes,
charges, fees, levies or other assessments of any kind whatsoever
(including interest, penalties, fines and additions thereto) imposed by any
taxing authority, federal, state or local. All Taxes for periods ending on
or prior to the Closing Date have been fully paid or reserved against on
the Kadoka Financial Statements and on the Closing Balance Sheet and on the
books and records of Kadoka in accordance with GAAP. All Taxes which are
required to be withheld or collected by Kadoka have been duly withheld or
collected and, to the extent required, have been paid to the proper
federal, state or local authorities or properly segregated or deposited as
required by applicable regulations. There are no liens for Taxes upon any
property or assets of Kadoka, except for liens for Taxes not yet due and
payable. Kadoka has not requested an extension of time within which to file
any Tax Return and has not waived the statute of limitations on the right
of the IRS or any other taxing authority to assess or collect additional
Taxes or to contest the information reported on any Tax Return. Any and all
tax refunds owed to Kadoka, including those set forth on the Kadoka
Financial Statements, have been properly received by Kadoka and/or credited
toward the payment of future Tax obligations.
(b) Good Faith. All Tax Returns described in Section 4.20(a) have
----------
been prepared in good faith and to the best of the Shareholders' knowledge
are correct and complete in all material respects, and to the best of the
Shareholders' knowledge, there is no basis for assessment of any addition
to the Taxes shown thereon.
(c) Claims. There are no proceedings, examination or, to the best of
------
the Shareholders' knowledge, claims currently pending by any taxing
authority in connection with any Tax Returns described in Section 4.20(a)
nor with respect to the periods to which such Tax Returns relate, and there
are no unresolved issues or unpaid deficiencies or outstanding or proposed
assessments relating to any such proceedings, examinations, claims or Tax
Returns. None of the Tax Returns described in Section 4.20(a) currently is
under audit or has been audited in the past five years.
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(d) True and Complete Copies. The Shareholders and Kadoka have
------------------------
delivered to Buyer true and complete copies of all Tax Returns filed by
Kadoka with respect to its 1992, 1993, 1994 and 1995 fiscal years.
4.21 INTELLECTUAL PROPERTY. Kadoka does not own and has not applied for any
registered patents, copyrights, trademarks or service marks. If necessary Kadoka
holds valid licenses to use all proprietary rights used in the operation of its
business as presently conducted.
4.22 ENVIRONMENTAL MATTERS. Kadoka has obtained all environmental permits
required in connection with the operation of its business. Kadoka is and has
been, in compliance in all material respects with (i) the terms and conditions
of all such environmental permits and (ii) all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables of any applicable environmental law or regulation, order, code, plan,
decree, judgment, injunction or demand letter issued, entered, promulgated or
approved thereunder. Kadoka currently possesses and maintains such
environmental permits in its name, and no amendments or modifications to such
environmental permits or filings with any permitting authority are required to
permit the acquisition of the Kadoka Stock as contemplated hereby. In addition,
except as set forth in Schedule 4.22:
(a) Generally. No notice, notification, demand, request for
---------
information, citation, summons or order has been issued, no complaint has
been filed, no penalty has been assessed and no investigation or review is
pending or, to the Shareholders' and Kadoka's knowledge, threatened by any
authority or other entity with respect to Kadoka relating to any
environmental permit, license or authorization required in connection with
the conduct of business of Kadoka or with respect to the generation,
treatment, storage, recycling, transportation, disposal or release of any
substance regulated under environmental laws ("Hazardous Materials").
(b) Property. To best of Shareholders' knowledge, in connection with
--------
the real property owned or leased by Kadoka:
(i) Kadoka has not handled any material amounts of Hazardous Material
on any property now or previously owned or leased by Kadoka.
(ii) No material amounts of PCB or asbestos is or has been present at
any property now or previously owned or leased by Kadoka.
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(iii) There are no underground storage tanks for Hazardous Materials,
active or abandoned, at any property now or previously owned and
leased by Kadoka.
(iv) There has been no material release of Hazardous Materials at, or
under any property now or previously owned or leased by Kadoka.
(c) Transportation. Kadoka has not (i) transported or arranged for
--------------
the transportation of any Hazardous Material to any location which is
listed on the National Priorities List under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), listed for possible inclusion on the National Priorities List
by the Environmental Protection Agency in the Comprehensive Environmental
Response and Liability Information System ("CERCLIS") or on any similar
state list or which is the subject of federal, state or local enforcement
actions or other investigations or (ii) stored, treated, transported or
disposed, or arranged for storage, treatment, transport or disposal of any
Hazardous Materials, other than in compliance with environmental law.
(d) Notification of Release. No oral or written notification of a
-----------------------
Release of a Hazardous Material has been filed by or on behalf of Kadoka,
and no property now or previously owned or leased by Kadoka is listed or
proposed for listing on the National Priorities List under CERCLA, on
CERCLIS or on any similar state list of sites requiring investigation or
clean-up.
(e) Liens. There are no liens arising under or pursuant to any
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environmental laws on any of the real property owned or leased by Kadoka,
and no government actions have been taken or are threatened which could
subject any of such properties to such liens. Kadoka is not required to
place any notice or restriction relating to the presence of Hazardous
Materials at any property owned by it in any deed to such property.
(f) Site Assessments. There have been no Phase I or Phase II
----------------
environmental site assessments conducted by or which are in the possession
of the Shareholders or Kadoka in relation to any property or facility now
or previously owned or leased by Kadoka.
4.23 DEALINGS WITH AFFILIATES. Schedule 4.23 sets forth a complete and
accurate list of all written contracts between Kadoka and any one or more of
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its Affiliates. For purposes of this Agreement, "Affiliate" shall mean, with
regard to any person, any person which, directly or indirectly, controls, is
controlled by, or is under common control with, such Person and, with respect to
any Person who is an individual, the spouse, ancestors and descendants (lineal
or by marriage) thereof. "Control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise. Except as
set forth in Schedule 4.23, since December 31, 1995, Kadoka has not made any
payments, loaned any funds or property or made any credit arrangement with any
Affiliate or employee except for the payment of employee salaries in the
ordinary course of business.
4.24 COMMISSIONS. There are and will be no claims for brokerage
commissions, finder's fees, fees for fairness opinions or financial advisory
services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Shareholders, Kadoka, or any of their Affiliates.
4.25 PERMITS AND REPORTS. Schedule 4.25 hereto sets forth a list of all
permits, licenses, registrations, certificates, orders, approvals or other
authorizations from any authority or other person including, without limitation,
the FCC and the SDPUC ("Permits") issued to or held by Kadoka in connection with
its operations. Such Permits are the only Permits that are required for Kadoka
to conduct its business as presently conducted. Each such Permit is in full
force and effect, and Kadoka has not received notice that any suspension,
cancellation or modification of the terms of any such Permit is threatened.
Kadoka is in full compliance in all material respects with the terms of each
such Permit, and the Shareholders are not aware of any reason not set forth in
said Permit why any such Permit would not be renewed, upon substantially the
same terms as currently exist, upon expiration of such Permit. Except as set
forth on Schedule 4.25, to the best of Shareholders' knowledge, (i) all returns,
reports, applications, statements and other documents required to be filed by
Kadoka with the FCC, the SDPUC and any other regulatory or governmental
authority or municipality (including taxing authorities) with respect to the
business on or before the date hereof have been duly filed or properly extended
as permitted by law and are true and complete in all material respects, and (ii)
all reporting requirements of the FCC, the SDPUC and other regulatory or
governmental authorities or municipalities (including taxing authorities) having
jurisdiction thereof have been complied with in all material respects.
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4.26 ABSENCE OF UNDISCLOSED LIABILITIES. Kadoka does not have any liability
of any nature whatsoever (whether known or unknown, due or to become due,
accrued, absolute, contingent or otherwise), including, without limitation, any
unfunded obligation under employee benefit plans or compensation arrangements or
liabilities for Taxes or liabilities for under-reporting, under-billing or
under-collection of revenues or underpayment of revenues to a third party,
except for (i) liabilities stated or reserved against in full in the Kadoka
Financial Statements, (ii) current liabilities incurred in the ordinary course
of business and consistent with past practice after the date of the Kadoka
Financial Statements which, individually and in the aggregate, do not have, and
cannot reasonably be expected to have, a material adverse effect, and (iii)
liabilities disclosed on Schedule 4.26 hereto.
4.27 DISCLOSURE. Neither this Agreement nor any of the attachments, written
statements, documents, certificates or other items prepared for or supplied to
Buyer pursuant hereto by or on behalf of the Shareholders or Kadoka with respect
to the transactions contemplated hereby contains any untrue statement of a
material fact or omits any material fact necessary to make each statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
Article 5
COVENANTS AND AGREEMENTS OF KADOKA
Kadoka and the Shareholders, jointly and severally, covenant and agree with
Buyer as follows, that from and after December 31, 1995, except as disclosed on
Schedule 5.0 hereto:
5.1 CHANGES IN ARTICLES OF INCORPORATION OR BYLAWS. There shall be no
change in the Articles of Incorporation or Bylaws of Kadoka or in the authorized
or issued capital stock of Kadoka, and Kadoka shall maintain its corporate
existence and powers and shall use its reasonable best efforts to maintain the
goodwill and employees of its business.
5.2 ISSUANCE OR PURCHASE OF SECURITIES. Kadoka shall not (i) issue any
additional capital stock or other security, (ii) directly or indirectly redeem,
exchange, purchase or otherwise acquire any shares of its capital stock; or
(iii) issue to any person or entity any options, warrants or other rights to
acquire any security of Kadoka.
5.3 CONDUCT OF BUSINESS. Except with the prior written approval of Buyer
or as shown on Schedule 5.0 hereto:
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(a) The business of Kadoka shall be conducted in the same manner as
presently being conducted and Kadoka shall refrain from entering into any
transaction or contract other than in the ordinary course of business and
shall not make any change in its methods of management, marketing,
accounting or operation, except to the extent required by federal or state
regulatory authorities;
(b) No written employment agreement or commitment to employees
(including any commitment to pay retirement, severance or other benefits)
shall be entered into by Kadoka;
(c) No increase shall be made in the compensation or compensation
plans (including bonuses, commissions and fringe benefits) payable or to
become payable to any officer, director or employee of Kadoka, except for
those routine salary increases granted to employees in the ordinary course
of business and consistent with the prior practices of Kadoka;
(d) Kadoka shall not (i) create or incur any indebtedness for
borrowed money or create or incur any other indebtedness except in the
normal and ordinary course of business; (ii) enter into or terminate any
lease of real estate; (iii) create any subsidiary; (iv) release or create
any liens or other security interest except for purchase money security
interests granted in the normal and ordinary course of business; (v)
declare or pay a dividend, whether in cash or in-kind, except for such cash
distributions mutually agreed to by the parties hereto and made on or
before the Closing Date, or (vi) authorize or make any change in the
capital structure of Kadoka;
(e) Kadoka shall not make any capital expenditure or capital
expenditure commitment, or enter into any lease, as lessee, of capital
equipment, except in the normal and ordinary course of business or as may
be required by the SDPUC; and
(f) Kadoka shall not sell any asset or make any commitment relating
to its assets other than in the normal and ordinary course of business, and
in an amount not exceeding $10,000.
5.4 ACCESS TO PROPERTIES. At all times prior to the Closing Date, Kadoka
shall allow Buyer's employees, attorneys, accountants, agents and other
authorized and designated representatives free and full access during reasonable
business hours and after reasonable notice to Kadoka's properties, books and
records, including, without limitation, deeds, title commitments, leases,
19
<PAGE>
insurance policies, minute books, share certificate books, share registers,
accounts, financial records and all other data that are reasonably required for
Buyer to make such investigation as it may desire of the properties and
financial condition and businesses of Kadoka.
5.5 DIRECTORS, OFFICERS, OPERATIONS. Kadoka shall deliver to Buyer prior
to Closing a list showing:
(a) The names of the Kadoka directors and officers, registered agent
and registered office;
(b) The banks and financial institution in which Kadoka has an
account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto; and
(c) The names of all persons holding powers of attorney from Kadoka
with copies thereof attached thereto.
5.6 PRIVILEGES. As of the Closing Date, Kadoka and the Shareholders shall
terminate any "calling card" or other special privileges, benefits or rights
provided by Kadoka to the Shareholders.
5.7 COMPLIMENTARY LOCAL SERVICE. From and after the Closing Date, Buyer
agrees to cause Kadoka to provide residential local exchange telephone service
without charge to Sadie Williams, Bruce Conlee and Virginia Conlee so long as
such person maintains a residence within Kadoka's exchange boundaries.
Article 6
INDEMNIFICATION OBLIGATIONS
6.1 MATTERS COVERED BY INDEMNIFICATION. The Shareholders, jointly and
severally, hereby covenant and agree that they shall defend and indemnify Buyer
and hold harmless Buyer at all times after the Closing Date from and against and
in respect to any and all losses, liabilities, claims, costs (including, without
limitation, court costs and reasonable attorneys' fees), damages, expenses or
deficiencies arising out of or due to:
(a) Any breach of any representation, warranty or any agreement,
covenant or obligation on the part of Kadoka or the Shareholders made in
this Agreement;
20
<PAGE>
(b) All Taxes of the Shareholders or of Kadoka attributable to any
period which ends prior to or on the Closing Date to the extent such
liability was not fully accrued for in the Kadoka Financial Statements or
Closing Balance Sheet or is attributable to the exchange of shares of C&P
Cellular, Inc. for shares of CommNet Cellular, Inc.;
(c) Any undisclosed liability of Kadoka;
(d) Any actions, suits, proceedings, costs, expenses and legal fees
incident to any of the foregoing items listed under this Section 6.1.
Liability shall arise pursuant to the foregoing indemnity obligations only if
the losses, liabilities, claims, costs, damages, expenses or deficiencies
arising therefrom exceed in the aggregate $30,000 (the "Minimum Amount"). If
such claims exceed the Minimum Amount, the Shareholders shall indemnify Buyer
for the full amount of the claims pursuant to this section.
6.2 PROCEDURE FOR INDEMNIFICATION. Buyer shall assert any claim or claims
for indemnification under the provisions of Section 6.1 above by giving written
notice of such claim or claims to the Shareholders within the later of (i)
twelve (12) months after the Closing Date, or (ii) five (5) months after the
close of Buyer's first audit period following the Closing Date (the
"Indemnification Period"). Each such notice shall set forth in reasonable
detail the factual basis giving rise to the claim or claims and the amount of
the damages and expenses incurred by Buyer as a result of such claim or claims.
Such notice shall be given within a reasonable time after receipt of actual
notice of such claim by Buyer. The Shareholders agree that they shall promptly
reimburse and pay Buyer for such damages and expenses to which Buyer is entitled
under this Article 6. If any claim for indemnification hereunder is based upon
an action or claim filed or made against Buyer or Kadoka by a third party, then
the Shareholders shall have the right to negotiate a settlement or compromise of
any such action or claim or to defend any such action or claim at the sole cost
and expense of, and with counsel selected by, the Shareholders. Buyer may
participate with counsel of its choosing at its cost.
6.3 ESCROW OF FUNDS. From and after the date of this Agreement through the
longer of (a) the Indemnification Period or (b) so long as any claim made during
the Indemnification Period is still outstanding and unresolved as set forth in
this Article 6, One Hundred Fifty Thousand Dollars ($150,000) of the Purchase
Price otherwise payable to the Shareholders for the Kadoka Stock shall be
maintained in an escrow account (the "Indemnity Escrow Account"), with the
Escrow Agent pursuant to the terms and provisions of an Indemnity Escrow
Agreement to be executed at Closing substantially in the form attached hereto
21
<PAGE>
as Exhibit C. Buyer may make a claim for payment of any indemnity payment due
under Section 6.1 in the manner provided in the Indemnity Escrow Agreement.
6.4 PAYMENT FROM INDEMNITY ESCROW ACCOUNT. Buyer may make a claim for
payment of any indemnity payment due under Section 6.1 in the manner provided in
the Indemnity Escrow Agreement during the Escrow Period (as defined therein).
To the extent Buyer shall have a further claim for payment of any indemnity
payment in excess of the funds in the Indemnity Escrow Account prior to
expiration of the Indemnification Period, such claim may be brought directly
against the Shareholders as provided in Section 6.2 hereof.
Article 7
REGULATORY APPROVALS
7.1 REGULATORY APPROVALS. Buyer shall manage, at its expense, the process
of obtaining and shall obtain, with the Shareholders' assistance, all
governmental consents and approvals required to carry out the transactions
contemplated by this Agreement, including, without limitation, any necessary
consents and approvals from the Federal Communications Commission and the South
Dakota Public Utilities Commission. Buyer shall use its best efforts to prepare
and file all necessary regulatory notices, applications, requests and petitions
within thirty (30) days after the date of this Agreement. Kadoka and the
Shareholders agree to cooperate with Buyer in obtaining such consents and
approvals.
Article 8
OTHER OBLIGATIONS
8.1 TAX RETURN PREPARATION AND AUDIT. The parties acknowledge that Kadoka
will be required to prepare and file a tax return for a shortened year ending as
of the Closing Date. Subject to the Shareholders' obligation to indemnify Buyer
pursuant to Section 6.1(b) hereof, Buyer shall be responsible for accurately and
timely preparing and filing such return and for the timely payment of all taxes
stated therein as due. Buyer shall not make, or fail to make, any elections in
connection with the preparation or filing of such tax returns that would have a
material adverse effect on Kadoka's tax liability on such return. The parties
agree that the tax return shall be prepared on the same basis as tax returns for
prior years without regard to the fact that Kadoka will be a member of a
consolidated group for tax purposes. The Shareholders agree to cooperate with
the Buyer in the preparation of such tax return.
8.2 NO SHOPPING. Kadoka and the Shareholders agree that, subject to
compliance with any fiduciary duty, neither they nor any of their agents or
22
<PAGE>
affiliates will, during the period beginning on the date hereof and ending on
the first to occur of (a) the Closing or (b) the termination of this Agreement,
either (i) sell or arrange for the sale of the Kadoka Stock; (ii) negotiate,
solicit, encourage or authorize any person to solicit from any third party any
proposals relating to the disposition of the business or assets of Kadoka or the
acquisition of the Kadoka Stock; or (iii) make any information concerning Kadoka
or the Kadoka Stock available to any person for the purpose of affecting or
causing a disposition of Kadoka assets or the Kadoka Stock.
Article 9
CONDITIONS PRECEDENT TO OBLIGATIONS
OF KADOKA AND THE SHAREHOLDERS
The obligations of Kadoka and the Shareholders under this Agreement are
subject to the fulfillment prior to or on the Closing Date of the following
conditions:
9.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Buyer contained in this Agreement shall be accurate in all
material respects as of the date hereof and as of the Closing Date, and Buyer
shall have performed all covenants and agreements required to be performed by it
and shall not be in default under any of the provisions of this Agreement at or
prior to the Closing Date.
9.2 CERTIFICATE. A certificate, dated the Closing Date, signed by an
officer of Buyer covering the provisions of Section 9.1 hereof shall have been
provided.
9.3 CERTIFIED COPY OF RESOLUTIONS. Buyer shall have delivered a copy,
certified by the duly qualified and acting secretary or assistant secretary of
Buyer, of resolutions adopted by the board of directors of Buyer approving this
Agreement and the consummation of the transactions contemplated by this
Agreement.
9.4 CONSENTS AND APPROVALS. All consents, approvals, authorizations,
permits, certificates and orders with respect to the transactions contemplated
by this Agreement required from any person, entity, court or governmental agency
or instrumentality (federal, state or local) shall have been obtained and shall
be valid and in full force and effect, and no conditions, requirements or
qualifications shall have been imposed by such consents, approvals,
authorizations, permits, certificates or orders that, in the reasonable opinion
of Kadoka and the Shareholders, are unduly burdensome to Kadoka or the
Shareholders.
23
<PAGE>
9.5 PAYMENT. Buyer shall pay the Purchase Price in accordance with Article
2.
9.6 OPINION OF BUYER'S COUNSEL. Buyer shall deliver at Closing an opinion
of counsel to Buyer in substantially the form attached hereto as Exhibit C.
Article 10
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
fulfillment prior to or on the Closing Date of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Kadoka and the Shareholders contained in this Agreement shall be
accurate in all material respects as of the date hereof and as of the Closing
Date (except to the extent that such representations and warranties shall be
incorrect as of the Closing Date because of events or changes occurring after
the date hereof in the ordinary course of business of Kadoka as contemplated in
this Agreement); Kadoka and Shareholders shall advise Buyer in writing of any
such resulting inaccuracies, and Kadoka and the Shareholders shall have
performed all covenants and agreements required to be performed by them and
shall not be in default under any of the provisions of this Agreement at or
prior to the Closing Date.
10.2 CERTIFICATE. Buyer shall have received a certificate, dated the
Closing Date, signed by Kadoka and the Shareholders covering the provisions of
Section 10.1 hereof.
10.3 CERTIFIED COPY OF RESOLUTIONS. Kadoka shall have delivered to Buyer a
copy, certified by the duly qualified and acting secretary or assistant
secretary of Kadoka, of resolutions adopted by the board of directors of Kadoka
approving this Agreement and the consummation of the transactions contemplated
by this Agreement.
10.4 CONSENTS AND APPROVALS. All consents, approvals, authorizations,
permits, certificates and orders with respect to the transactions contemplated
by this Agreement required from any person, entity, court or governmental agency
or instrumentality (federal, state or local) shall have been obtained and shall
be valid and in full force and effect, and no conditions, requirements or
qualifications shall have
24
<PAGE>
been imposed by such consents, approvals, authorizations, permits, certificates
or orders that, in the reasonable opinion of Buyer, are unduly burdensome to
Buyer or Kadoka.
10.5 SURRENDER OF CERTIFICATES REPRESENTING KADOKA STOCK. The Shareholders
shall have surrendered to Buyer the certificates representing all of the issued
and outstanding shares of Kadoka Stock, and such certificates shall be duly
endorsed in blank or shall have duly executed blank stock powers attached
thereto.
10.6 RESIGNATIONS. Buyer shall have received from each director and officer
of Kadoka a written resignation from all Kadoka offices and directorships held,
effective as of the Closing Date, and shall have received from each of the
Shareholders their resignation as an employee of Kadoka.
10.7 OPINION OF KADOKA'S COUNSEL. Kadoka shall deliver at Closing an
opinion of counsel to Kadoka in substantially the form attached hereto as
Exhibit D.
10.8 NO MATERIAL ADVERSE CHANGE. Since December 31, 1995 and through the
Closing Date, there shall not have occurred any material adverse change in the
business, operations, assets, liabilities or condition (financial or otherwise)
of Kadoka.
10.9 DELIVERY OF CORPORATE RECORDS. At Closing the Shareholders shall
deliver to Buyer the Kadoka minute books and stock register.
Article 11
TERMINATION
11.1 RIGHT OF TERMINATION. This Agreement and the transactions contemplated
herein may be terminated at any time prior to Closing:
(a) By mutual written consent of Buyer and each of the Shareholders;
or
(b) By either of the Shareholders if Buyer breaches its obligations
under Article 7 of this Agreement and the Shareholders shall have
cooperated fully with Buyer in preparation of all required applications for
approval; or
(c) By either of the Shareholders in the event that any of the
conditions set forth in Article 9 of this Agreement shall not have been
25
<PAGE>
satisfied or waived and Closing shall not have occurred on or before June
30, 1997, or such later date as shall be agreed upon pursuant to Section
1.2 of this Agreement; or
(d) By Buyer in the event that any of the conditions set forth in
Article 10 of this Agreement shall not have been satisfied or waived and
Closing shall not have occurred on or before June 30, 1997, or such later
date as shall be agreed upon pursuant to Section 1.2 of this Agreement.
11.2 NOTICE OF TERMINATION. Notice of termination of this Agreement as
provided for in this Article 11 shall be given by the party or parties so
terminating to the other parties hereto in accordance with the provisions of
Section 12.4 of this Agreement.
Article 12
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
attachments hereto, constitutes the entire agreement among the parties and
supersedes all prior agreements, oral or written. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Buyer may assign its rights and obligations
hereunder to a direct or indirect wholly-owned subsidiary of Buyer; provided
that Buyer shall remain liable for all its obligations hereunder if Buyer's
assignee fails to perform such obligations.
12.2 SEVERABILITY. If any severable provision of this Agreement is held to
be invalid or unenforceable by any judgment of a court of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and the Agreement shall be carried out as nearly as possible according
to its original terms and intent.
12.3 EXPENSES. Whether or not the Closing occurs, each party shall pay its
own expenses incident to the preparation and performance of this Agreement and
the transactions contemplated hereby.
12.4 NOTICE. Any notice, demand or other communication required or
permitted by any provision of this Agreement shall be deemed to have been
sufficiently given or served for all purposes when delivered in person or sent
by facsimile transmission with telephone confirmation of receipt, overnight
courier or registered or certified mail, return receipt requested, all postage
and other charges prepaid, as follows:
26
<PAGE>
If to Buyer: If to Kadoka or Shareholders:
MJD Holdings Corp. Mr. Bruce Conlee
5821 Fairview Road, Suite 409 P.O. Box 188
Charlotte, North Carolina 28209 Kadoka, South Dakota 57543
Fax #: (704) 554-9713 Fax #: (605) 837-1010
Attention: Eugene Johnson
with a copy to: with a copy to:
Underwood, Kinsey, Warren & Tucker, P.A. Steven M. Maun, Esq.
201 South College Street Baird, Holm Law Office
2020 Charlotte Plaza Building 1500 Woodmen Tower
Charlotte, North Carolina 28244 Omaha, Nebraska 68102
Fax #: (704) 377-9630 Fax #: (402) 344-0588
Attention: Shirley J. Linn, Esq.
or at such other address as may be designated by notice pursuant to this Section
12.4 from such party to the other party. Notice sent by overnight courier shall
be deemed delivered on the business day immediately following deposit with such
courier. Notice sent by facsimile transmission shall be deemed delivered on the
day of transmission if a business day or if not a business day the first
business day following the day of transmission. Notice sent by certified or
registered mail shall be deemed delivered on the fifth day after deposit with
the United States postal service.
12.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Dakota.
12.6 CAPTIONS. The captions appearing herein are for the convenience of
the parties only and shall not be construed to affect the meaning of the
provisions of this Agreement.
12.7 AMENDMENT. This Agreement may be amended, modified, superseded or
cancelled, and any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by the parties hereto or, in the case of a waiver, by the party waiving
compliance.
12.8 WAIVER. The failure to enforce or to require the performance at any
time of any of the provisions of this Agreement shall in no way be construed to
be a waiver of such provisions and shall not affect either the validity of this
27
<PAGE>
Agreement or any part hereof or the right of any party thereafter to enforce
each and every provision in accordance with the terms of this Agreement.
12.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement. This
Agreement shall become effective when one or more counterparts shall have been
signed by each of the parties and delivered to the other parties.
12.10 INCORPORATION BY REFERENCE. The exhibits and schedules referred to in
this Agreement are hereby incorporated in this Agreement as a part hereof as if
set forth in full herein.
12.11 DAMAGES; SPECIFIC PERFORMANCE. No party hereto shall be liable to the
other for any indirect, consequential, special, punitive or any other similar
damages of any kind or nature arising in any manner from this Agreement and the
performance or nonperformance of obligations hereunder. In the event of a breach
of this Agreement, the parties acknowledge and agree that each of them shall, in
addition to any other remedies available at law or in equity, have the right to
seek specific performance by the other parties of their respective obligations
hereunder.
12.12 FURTHER ACTIONS. Following the Closing Date, at the request of Buyer,
the Shareholders shall deliver such further instruments of transfer and take all
reasonable action as may be necessary or appropriate to effectuate this
Agreement and the transactions contemplated hereby. Each party will promptly
notify the other party of any information delivered to or obtained by such party
which would prevent the consummation of the transactions contemplated by this
Agreement, or would indicate a breach of the representations, warranties or
covenants of any of the parties to this Agreement.
12.13 JOINT PUBLICITY. No party to this Agreement shall issue any press
release or make a public announcement prior to or on the Closing Date concerning
this Agreement or the transactions contemplated hereby without the prior
approval of Buyer and each of the Shareholders, which approval shall not be
unreasonably withheld.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
MJD HOLDINGS CORP.,
a Delaware corporation
By:__________________________________________
28
<PAGE>
Title:________________________________________
KADOKA TELEPHONE CO.,
a South Dakota corporation
By:__________________________________________
Title:________________________________________
_____________________________________________
BRUCE G. CONLEE
_____________________________________________
VIRGINIA L. CONLEE
29
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Percentage of
-------------
Outstanding Common
------------------
Shareholder Number of Shares Owned Stock
- ----------- ---------------------- ------------------
<S> <C> <C>
Bruce G. Conlee 781 64.44%
Virginia L. Conlee 431 35.56%
====== =====
TOTAL: 1,212 100%
</TABLE>
<PAGE>
EXHIBIT 10.23
STOCK PURCHASE AGREEMENT
among
MJD VENTURES, INC.,
GARY L. PORTER,
VIRGINIA M. PORTER,
RENEE PORTER,
THOSE STOCKHOLDERS SHOWN ON EXHIBIT A,
and
C-R COMMUNICATIONS, INC.
and
C-R TELEPHONE COMPANY
dated as of June 24, 1997
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of this Agreement but is attached for
convenience only.
<TABLE>
<S> <C>
ARTICLE I
PURCHASE OF STOCK........................................................ 2
Section 1.1 Purchase and Sale.................................... 2
-----------------
Section 1.2 Purchase Price....................................... 2
--------------
Section 1.3 Excluded Assets and Liabilities...................... 2
--------------------------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PORTERS............................ 2
Section 2.1 Corporate Organization............................... 3
----------------------
Section 2.2 Authorization........................................ 3
-------------
Section 2.3 No Violation......................................... 3
------------
Section 2.4 Subsidiaries and Investments......................... 4
----------------------------
Section 2.5 Stock Record Book.................................... 4
-----------------
Section 2.6 Corporate Books...................................... 5
---------------
Section 2.7 Title to Stock....................................... 5
--------------
Section 2.8 Options and Rights................................... 5
------------------
Section 2.9 Financial Statements................................. 5
--------------------
(a) Generally............................................ 5
---------
(b) Absence of Change.................................... 6
-----------------
Section 2.10 Employees............................................ 6
---------
Section 2.11 Absence of Certain Changes........................... 8
--------------------------
Section 2.12 Contracts............................................ 8
---------
(a) Generally............................................ 8
---------
(b) Compliance........................................... 9
----------
Section 2.13 True and Complete Copies............................. 10
------------------------
Section 2.14 Title and Related Matters............................ 10
-------------------------
(a) Owned Property....................................... 10
--------------
(b) Leased Property...................................... 10
---------------
(c) Liens................................................ 10
-----
(d) Utilities............................................ 11
---------
(e) Condition............................................ 11
---------
Section 2.15 Litigation........................................... 11
----------
Section 2.16 Tax Matters.......................................... 12
-----------
(a) Generally............................................ 12
---------
(b) Good Faith........................................... 12
----------
(c) Claims............................................... 12
------
(d) Course of Business................................... 13
------------------
(e) Withholdings......................................... 13
------------
(f) Partnerships......................................... 13
------------
(g) Accounting Method Adjustments........................ 13
-----------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
(h) Tax Exemptions....................................... 13
--------------
(i) Tax Return Reviews................................... 13
------------------
(j) Power of Attorney.................................... 13
-----------------
(k) True and Complete Copies............................. 14
------------------------
Section 2.17 Bank and Brokerage Accounts.......................... 14
---------------------------
Section 2.18 Compliance with Applicable
--------------------------
Laws, Regulations and Orders......................... 14
----------------------------
Section 2.19 Employee Benefit Plans............................... 14
----------------------
Section 2.20 Intellectual Property................................ 18
---------------------
Section 2.21 Environmental Matters................................ 18
---------------------
(a) Generally............................................ 18
---------
(b) Property............................................. 18
--------
(c) Transportation....................................... 19
--------------
(d) Notification of Release.............................. 19
-----------------------
(e) Liens................................................ 19
-----
(f) Site Assessments..................................... 19
----------------
Section 2.22 Capital Expenditures and Investments................. 19
------------------------------------
Section 2.23 Dealings with Affiliates............................. 20
------------------------
Section 2.24 Insurance............................................ 20
---------
Section 2.25 Commissions.......................................... 20
-----------
Section 2.26 Permits and Reports.................................. 20
-------------------
Section 2.27 Absence of Undisclosed Liabilities................... 21
-----------------------------------
Section 2.28 Sale of Interest in Central Illinois
------------------------------------
Data Services........................................ 22
-------------
Section 2.29 Disclosure........................................... 22
----------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................... 22
Section 3.1 Corporate Organization............................... 22
----------------------
Section 3.2 Authorization........................................ 22
-------------
Section 3.3 No Violation......................................... 23
------------
Section 3.4 Investment Intent.................................... 23
-----------------
ARTICLE IV
COVENANTS OF THE SELLER AND THE COMPANY............................. 23
Section 4.1 Regular Course of Business........................... 24
--------------------------
(a) Generally............................................ 24
---------
(b) Compensation......................................... 24
------------
(c) Insurance............................................ 24
---------
(d) Claims............................................... 24
------
(e) Supplement........................................... 24
----------
Section 4.2 Amendments........................................... 24
----------
Section 4.3 Capital Changes...................................... 24
---------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 4.4 Dividends............................................ 25
---------
Section 4.5 Capital Expenditures................................. 25
--------------------
Section 4.6 Borrowing............................................ 25
---------
Section 4.7 Property............................................. 25
--------
Section 4.8 Other Commitments.................................... 25
-----------------
Section 4.9 Interim Financial Information........................ 25
-----------------------------
Section 4.10 Consents and Authorizations.......................... 25
---------------------------
Section 4.11 Access............................................... 25
------
Section 4.12 Notice of Transfer................................... 26
------------------
Section 4.13 Payment of Stamp Tax................................. 26
--------------------
Section 4.14 Disclosure........................................... 26
----------
Section 4.15 Cooperation with Purchaser........................... 26
--------------------------
Section 4.16 Best Efforts to Assemble Shares...................... 26
-------------------------------
ARTICLE V
COVENANTS OF THE PURCHASER............................................... 27
Section 5.1 Consents and Authorizations.......................... 27
---------------------------
Section 5.2 Employees............................................ 27
---------
Section 5.3 Porters' Health Insurance............................ 27
-------------------------
Section 5.4 Complimentary Local Service.......................... 27
---------------------------
ARTICLE VI
OTHER AGREEMENTS......................................................... 28
Section 6.1 Agreement to Defend.................................. 28
-------------------
Section 6.2 Further Assurances................................... 28
------------------
Section 6.3 Consents............................................. 28
--------
Section 6.4 No Solicitation or Negotiation....................... 28
------------------------------
Section 6.5 No Termination of the Obligations
---------------------------------
by Subsequent Dissolution............................ 29
-------------------------
Section 6.6 Public Announcements................................. 29
--------------------
Section 6.7 Records and Information.............................. 29
-----------------------
(a) Retention of Records................................. 29
--------------------
(b) Access to Information................................ 29
---------------------
(c) Provisions of Corporate Records...................... 30
-------------------------------
(d) Witnesses............................................ 30
---------
Section 6.8 Insurance Policies and
----------------------
Claims Administration................................ 30
---------------------
(a) Insurance Coverage Prior to the
-------------------------------
Closing Date......................................... 30
------------
(b) Insurance Coverage After the
----------------------------
Closing Date......................................... 31
------------
Section 6.9 Other Tax Matters.................................... 31
-----------------
(a) Tax Returns.......................................... 31
-----------
(b) Information.......................................... 31
-----------
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER........................... 32
Section 7.1 Representations and Warranties....................... 32
------------------------------
Section 7.2 Consents and Approvals............................... 32
----------------------
Section 7.3 No Material Adverse Change........................... 32
--------------------------
Section 7.4 No Proceeding or Litigation.......................... 33
---------------------------
Section 7.5 Secretary's Certificate.............................. 33
-----------------------
Section 7.6 Certificates of Good Standing........................ 33
-----------------------------
Section 7.7 Opinion of Seller's Counsel.......................... 33
---------------------------
Section 7.8 Noncompetition Agreement............................. 33
------------------------
Section 7.9 Consulting Agreement................................. 33
--------------------
Section 7.10 Resignations......................................... 33
------------
Section 7.11 Other Documents...................................... 33
---------------
Section 7.12 Liens................................................ 34
-----
Section 7.13 Sale of Billing Services Company..................... 34
--------------------------------
Section 7.14 Delivery of Minute Books............................. 34
------------------------
Section 7.15 Delivery of Financial Statements..................... 34
--------------------------------
Section 7.16 Distribution of Odyssey Capital
-------------------------------
Stock................................................ 34
-----
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLER.............................. 34
Section 8.1 Representations and Warranties....................... 34
------------------------------
Section 8.2 Consents and Approvals............................... 35
----------------------
Section 8.3 No Proceeding or Litigation.......................... 35
---------------------------
Section 8.4 Secretary's Certificate.............................. 35
-----------------------
Section 8.5 Opinion of Purchaser's Counsel....................... 35
------------------------------
ARTICLE IX
CLOSING.................................................................. 35
Section 9.1 Closing.............................................. 35
-------
Section 9.2 Closing Date Payment and Receipt
--------------------------------
of Shares............................................ 36
---------
Section 9.3 Purchase of Certain Shares........................... 36
--------------------------
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
ARTICLE X
TERMINATION AND ABANDONMENT.............................................. 36
Section 10.1 Methods of Termination............................... 36
----------------------
(a) Mutual Consent....................................... 36
--------------
(b) Seller's Failure to Perform.......................... 36
---------------------------
(c) Purchaser's Failure to Perform....................... 37
------------------------------
(d) Remedies............................................. 37
--------
Section 10.2 Procedure Upon Termination........................... 37
--------------------------
(a) Return of Records.................................... 37
-----------------
(b) Confidentiality...................................... 37
---------------
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION....................................... 37
Section 11.1 Survival............................................. 37
--------
Section 11.2 Indemnification by Gary L. Porter.................... 38
---------------------------------
(a) Misrepresentation or Breach.......................... 38
---------------------------
(b) Taxes................................................ 38
-----
(c) Third Party Claims................................... 38
------------------
(d) Related Expenses..................................... 38
----------------
Section 11.3 Indemnification by the Purchaser..................... 39
--------------------------------
(a) Misrepresentation or Breach.......................... 39
---------------------------
(b) Taxes................................................ 39
-----
(c) Third Party Claims................................... 39
------------------
(d) Related Expenses..................................... 39
----------------
Section 11.4 Third Party Claims................................... 39
------------------
(a) Generally............................................ 39
---------
(b) Counsel.............................................. 40
-------
Section 11.5 Right of Offset...................................... 41
---------------
ARTICLE XII
GENERAL PROVISIONS....................................................... 41
Section 12.1 Amendment and Modification........................... 41
--------------------------
Section 12.2 Waiver............................................... 41
------
Section 12.3 Certain Definitions.................................. 41
-------------------
Section 12.4 Notices.............................................. 45
-------
Section 12.5 Assignment........................................... 46
----------
Section 12.6 Governing Law........................................ 46
-------------
Section 12.7 Counterparts......................................... 46
------------
Section 12.8 Headings............................................. 46
--------
Section 12.9 Entire Agreement..................................... 47
----------------
Section 12.10 No Benefit........................................... 47
----------
Section 12.11 Delays or Omissions.................................. 47
-------------------
Section 12.12 Severability......................................... 47
------------
Section 12.13 Expenses............................................. 47
--------
</TABLE>
-v-
<PAGE>
SCHEDULES
- ---------
1.3 Excluded Assets and Liabilities
2.3 No Violations
2.4 Subsidiaries and Investments
2.6 Corporate Books
2.7 List of Shareholders/No Liens on Shares
2.9 Changes Since December 31, 1995
2.10 Employees
2.11 Certain Changes
2.12 Contracts
2.14(a) Owned Property/Liens
2.14(b) Leased Property
2.14(e) Condition
2.15 Litigation
2.16 Tax Matters
2.17 Bank and Brokerage Accounts
2.19 Employee Benefit Plans
2.20 Intellectual Property
2.21 Environmental Matters
2.22 Capital Expenditures and Investments
2.23 Dealings with Affiliates
2.24 Insurance
2.26 Permits
2.27 Absence of Undisclosed Liabilities/Corporate Debt
3.3 Consents and Authorizations of Purchaser
4.14 Article IV Disclosure Statement
EXHIBITS
- --------
A Other Stockholders
7.7 Opinion of Seller's Counsel
7.8 Noncompetition Agreement
7.9 Consulting Agreement
8.5 Opinion of Purchaser's Counsel
-vi-
<PAGE>
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of the
24th day of June, 1997, among MJD Ventures, Inc., a Delaware corporation (the
"PURCHASER"), Gary L. Porter, an Illinois resident ("PORTER"), VIRGINIA M.
PORTER, an Illinois resident ("VIRGINIA PORTER"), RENEE PORTER, an Illinois
resident ("RENEE PORTER"), those stockholders shown on Exhibit A hereto (the
"OTHER STOCKHOLDERS") (Porter, Virginia Porter, Renee Porter and the Other
Stockholders collectively referred to hereinafter as "SELLER" or "SELLERS"), and
C-R Communications, Inc., an Illinois corporation ("C-R" or the "COMPANY"), and
C-R Telephone Company, an Illinois corporation ("TELEPHONE").
RECITALS
WHEREAS, Porter owns 689 shares of common stock, $10.00 par value of the
Company, Virginia Porter owns 44 shares of common stock of the Company, Renee
Porter owns 2 shares of common stock of the Company and the Other Stockholders
own 15 hares of common stock of the Company, the 750 shares constituting all of
the authorized, issued and outstanding shares of capital stock of the Company
(the "SHARES");
WHEREAS, the Company owns 100 shares of common stock, no par value, of
Telephone, constituting all of the authorized, issued and outstanding shares of
capital stock of Telephone (the "TELEPHONE CAPITAL STOCK");
WHEREAS, the Company is a newly formed holding company, the only assets of
which as of the date hereof are the capital stock of Telephone and of C-R Long
Distance, Inc., an Illinois corporation ("LONG DISTANCE") and of Odyssey
Communications, Inc., an Illinois corporation ("ODYSSEY");
WHEREAS, Telephone is an operating telephone company that provides wireline
telecommunications services in the exchanges of Ransom and Cornell, Illinois
with at least 911 access lines (collectively the businesses of the Company and
Telephone are hereinafter referred to as the "BUSINESS" or the "BUSINESS");
WHEREAS, the Seller desires to sell, and the Purchaser desires to purchase,
on the terms and subject to the conditions set forth in this Agreement, the
Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
<PAGE>
AGREEMENT
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale. At the Closing Date, on the terms and
-----------------
subject to the conditions set forth in this Agreement, the Seller agrees to sell
to the Purchaser, and the Purchaser agrees to purchase from the Seller, the
Shares.
Section 1.2 Purchase Price. In consideration for the conveyance of the
--------------
Shares, the Purchaser shall pay to the Seller on the Closing Date, as provided
in Section 9.2 hereof, an amount per share of $5,333.33 for each of the
Company's 750 shares (the "PURCHASE PRICE").
Section 1.3 Excluded Assets and Liabilities. Notwithstanding that this
-------------------------------
Agreement relates to the purchase of capital stock from Seller by Purchaser,
which results in the Company retaining any and all of its assets and
liabilities, it is understood and agreed that Porter shall remove from the
Company's premises prior to Closing and/or, as appropriate, remove from the
Company's books and records, only those particular assets set forth on Schedule
1.3 hereto (the "EXCLUDED ASSETS"). Further, Porter shall assume any and all
liabilities set forth on Schedule 1.3 hereto (the "EXCLUDED LIABILITIES").
Purchaser agrees that it shall cause Porter and the Company to execute any and
all such bills of sale, deeds, assignments and/or agreements as may be necessary
to transfer title to the Excluded Assets to Porter and to assign and/or transfer
the Excluded Liabilities to Porter. The parties hereto further agree that no
other assets of the Company, whether tangible or intangible, shall have been or
shall be removed from the Company's premises or from the Company's books and
records except in the ordinary course of the Company's Business as provided
herein from and after December 31, 1995 through the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PORTERS
Porter, Virginia Porter and Renee Porter (herein collectively the
"PORTERS") hereby represent and warrant to the Purchaser as follows (to the
extent a representation is modified by a knowledge requirement, it shall speak
to the knowledge of Porter, Virginia Porter, Renee Porter, and the Company),
with respect to each of the Company, Telephone and all subsidiaries and
affiliates thereof even though such representation and/or warranty shall use
only the word Company (in other words, if any representation or warranty or
covenant or agreement would be untrue as to any of the Company,
-2-
<PAGE>
Telephone or any of their subsidiaries or affiliates then the Porters must so
disclose any such untruth):
Section 2.1 Corporate Organization. The Company is a corporation duly
----------------------
organized, validly existing and in good standing with perpetual duration under
the laws of its jurisdiction of incorporation, with full corporate power and
authority to own, operate and lease its properties and to conduct its business
as presently conducted. Each Seller is a resident of Illinois, Florida or Idaho,
as set forth in this Agreement or as shown on Exhibit A to this Agreement. There
are no Shareholder Agreements in place among any of the Sellers. The Company is
qualified to do business and is in good standing in every jurisdiction in which
the conduct of its business, the ownership or lease of its properties, or the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby requires it to be so qualified. True, complete
and correct copies of the Company's charter and by-laws as presently in effect
have been delivered to the Purchaser. The reverse triangular merger effected by
the Company as of December 15, 1995 was duly authorized by the shareholders and
directors of each affected entity, and has been fully consummated and concluded
of record, all in accordance with Illinois law so as to establish the Company as
a holding company owning all of the capital stock of Telephone in a transaction
qualifying as a tax-free reorganization pursuant to Internal Revenue Code
Section 368(a)(2)(E). True, complete and correct copies of the merger documents
and the replacement Share certificates as presently in effect have been
delivered to the Purchaser. All filings required to be made with the Internal
Revenue Service in connection with the merger/reorganization have been fully and
timely made.
Section 2.2 Authorization. Each of the Seller and the Company has full
-------------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Board of Directors (and as appropriate,
the stockholders) of the Company has duly authorized the execution, delivery and
performance of this Agreement, and no other corporate proceedings on its part
are necessary to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement constitutes a legal, valid and binding obligation of each of the
Seller and the Company enforceable against each such party in accordance with
its terms, subject to equitable considerations and the effect of bankruptcy and
other laws affecting the rights of creditors generally. The Seller will, at the
Closing, have full power and authority to deliver the Shares and the
certificates evidencing the Shares to the Purchaser as provided for herein.
Section 2.3 No Violation. Except as set forth on Schedule 2.3, the
------------
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated
-3-
<PAGE>
hereby by each of the Seller and the Company do not and will not (a) conflict
with or result in a breach of the terms, conditions or provisions of, (b)
constitute a default or event of default under (with due notice, lapse of time
or both), (c) result in the creation of any Lien upon the Company or its capital
stock or assets pursuant to, (d) give any third party the right to accelerate
any obligation under, (e) result in a violation of, or (f) require any
authorization, consent, approval, exemption or other action by, or notice to,
any Person pursuant to (i) the charter or by-laws of either the Seller or the
Company, (ii) any applicable Regulation (including, without limitation, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), (iii) any Order to which
either the Seller or the Company is subject, or (iv) any Contract to which the
Seller or the Company or any of their properties are subject. The Seller and the
Company have complied with all applicable Regulations and Orders in connection
with the execution, delivery and performance of this Agreement and the
transactions contemplated hereby, subject to the requirements which are
conditions to the Closing.
Section 2.4 Subsidiaries and Investments. Except as set forth in
----------------------------
Schedule 2.4, the Company has no subsidiaries or investments in any Person.
Attached as set forth on Schedule 2.4 is a true and complete corporate
organizational chart for the Company. Except as set forth on Schedule 2.4, the
transactions contemplated by this Agreement will not conflict with or result in
a breach of the terms, conditions or provisions of any agreement to which the
Company is a party with respect to any such subsidiaries or investments, nor
shall the transactions contemplated by this Agreement trigger any purchase, put,
call or right of first refusal rights in any Person. Any such investments
constitute an asset of the Company and the Company is the only Person with any
rights thereto. Except as set forth on Schedule 2.4, the Company does not owe
any indebtedness to or on account of any of such subsidiaries or investments,
nor has the Company guaranteed any indebtedness on behalf of, or have any other
contingent obligations with respect to, any such subsidiaries or investments,
and the Company has not pledged any such investments or subsidiaries or any
other of its assets in connection with any obligations relating to any such
investment or subsidiary. The Company is not a general partner in any of its
investments, nor is any employee of the Company an officer of any such
investment entity. The Company is not a party to any Shareholders' or
Stockholders' Agreements with respect to any of the entities discussed on
Schedule 2.4 hereto. Also set forth on Schedule 2.4 hereto is a listing of all
dividends and/or distributions made with respect to any such subsidiaries and/or
investments since December 31, 1991.
Section 2.5 Stock Record Book. The stock record book of the Company is
-----------------
complete and correct in all material respects. No shares of capital stock of the
Company are currently reserved for issuance for any purpose or upon the
occurrence of any event or
-4-
<PAGE>
condition. The Shares constitute all of the outstanding capital stock of the
Company and Seller owns all outstanding capital stock of the Company. The
Company is the true and lawful owner of all of the outstanding capital stock of
Telephone.
Section 2.6 Corporate Books. The corporate minute books of the Company
---------------
and of each of its subsidiaries are complete and correct in all material
respects and contain signed minutes of all of the proceedings of the
shareholders and directors of the Company and subsidiaries since incorporation.
A true and complete list of the directors and executive officers of the Company
and of each of its subsidiaries as of the date hereof is set forth in Schedule
2.6.
Section 2.7 Title to Stock. The Shares are owned of record by those
--------------
shareholders and only such shareholders in such amounts as are set forth on
Schedule 2.7 hereto. No shares of preferred stock or other class of capital
stock are authorized, issued or outstanding. The Shares have been duly
authorized and validly issued and are fully paid and nonassessable. The Shares
were issued pursuant to applicable exemptions from registration under Federal
securities laws and the securities laws of the State of Illinois, are owned by
the Seller and will be sold pursuant hereto free and clear of all Liens. Upon
payment of the Purchase Price to the Seller in accordance with this Agreement,
the Seller will convey to the Purchaser good and marketable title to the Shares,
free and clear of all Liens whatsoever. The assignments, endorsements, stock
powers and other instruments of transfer delivered by the Seller to the
Purchaser at the Closing will be sufficient to transfer the Seller's entire
interest, legal and beneficial, in the Shares and thereby in the Telephone
Capital Stock and in the capital stock of each other subsidiary of the Company.
No dividends or other distributions are owed by the Company in connection with
any of the Shares and none have been made to any stockholder of the Company or
to any Seller since at least December 31, 1987.
Section 2.8 Options and Rights. There are no outstanding subscriptions,
------------------
options, warrants, rights, puts, calls or other Contracts by which the Company
is bound to issue or to repurchase or otherwise acquire shares of its capital
stock, or pursuant to which any Person has a right to purchase or to acquire,
through conversion or otherwise, shares of the Company's capital stock.
Section 2.9 Financial Statements.
--------------------
(a) Generally. The Seller has delivered to the Purchaser correct and
---------
complete copies of (i) the audited balance sheets of the Company as of December
31, 1995 and December 31, 1996 and the related statements of income, cash flow
and retained earnings for the fiscal year reporting periods then ended, together
with all notes and schedules thereto (the "FINANCIAL STATEMENTS")
-5-
<PAGE>
and (ii) the unaudited monthly balance sheets of the Company as of November 30,
1996 and March 31, 1997 and the related monthly statements of income, cash flow
and retained earnings for the period then ended, together with all notes and
schedules thereto (the November 30, 1996 and March 31, 1997 statements, with all
unaudited statements delivered hereafter, the "UNAUDITED FINANCIAL STATEMENTS").
The Financial Statements have been audited without qualification by Kiesling
Associates, independent auditors for the Company. The Financial Statements and
the Unaudited Financial Statements (a) have been prepared in accordance with the
books and records of the Company and (b) fairly present the financial condition
and results of operations and cash flows of the Company as of, and for the
respective periods ended on, such dates, all in conformity with GAAP
consistently applied, except, with respect to the Unaudited Financial
Statements, for adjustments and notes that would result from an audit. Since
December 31, 1995 and except as fully set forth in the Financial Statements and
the Unaudited Financial Statements, the Company has no liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise, whether due or to
become due, whether known or unknown, and regardless of when asserted) arising
out of transactions or events heretofore entered into or any action or inaction
or state of facts existing, with respect to, or based upon transactions or
events heretofore occurring.
(b) Absence of Change. Except as set forth on Schedule 2.9 hereto,
-----------------
since December 31, 1995, (i) the Company's business has been operated only in
the ordinary course; (ii) there has been no Material Adverse Change in, and no
event has occurred which is likely, individually or in the aggregate, to result
in any Material Adverse Change in, the business, properties, business prospects,
condition (financial or otherwise), or results of operations of the Company;
(iii) there has been no sale, assignment or transfer of any assets or properties
of the Company except in the ordinary course of business, or any theft, damage,
removal or destruction of such assets or properties or any casualty loss
affecting the Company or its business; (iv) there has been no amendment or
termination of any of the Company's Permits or material Contracts; (v) there has
been no waiver or release of any material right or claim of the Company; (vi)
there has been no labor dispute or union activity which affects the operation of
the Company; and (vii) there has been no agreement by either the Seller or the
Company to take any of the actions described in the preceding clauses (i)
through (vi), except as contemplated by this Agreement.
Section 2.10 Employees.
---------
(a) Schedule 2.10 sets forth a list of all of the Company's
employees, officers, directors, consultants and independent contractors,
together with a description of any
-6-
<PAGE>
Contract regarding the terms of service and the rate and basis for total
compensation of such persons.
(b) The Company has paid or made provision for the payment of all
salaries and accrued wages, accrued vacation and sick leave, and any other form
of accrued, but unpaid, compensation, and has complied in all material respects
with all applicable laws, rules and regulations relating to the employment of
labor, including those relating to wages, hours, collective bargaining and the
payment and withholding of taxes, and has withheld and paid to the appropriate
governmental authority, or is holding for payment not yet due to such authority,
all amounts required by law or agreement to be withheld from the wages or
salaries of its employees. No amounts have been accrued on the Company's books
for vacation or sick leave in excess of the current year's obligations and no
such obligations exist. No contracts or provisions exist that would obligate
the Company to pay any severance compensation to any employee should his or her
employment with the Company be terminated for any reason from and after the date
hereof.
(c) Except as set forth on Schedule 2.10 hereto, the Company is not a
party to any (i) outstanding employment agreements or contracts with officers or
employees that are not terminable at will, or that provide for payment of any
bonus or commission or severance compensation, (ii) agreement, policy or
practice that requires it to pay termination or severance pay to salaried,
exempt, non-exempt or hourly employees, (iii) collective bargaining agreement or
other labor union contract applicable to persons employed by the Company, nor do
the Porters or the Company know of any activities or proceedings of any labor
union to organize any such employees. The Company has furnished to Purchaser
complete and correct copies of all such agreements, if any ("EMPLOYMENT AND
LABOR AGREEMENTS"). The Company has not breached or otherwise failed to comply
with any provisions of any Employment or Labor Agreement.
(d) Except as set forth in Schedule 2.10 hereto, (i) there is no
unfair labor practice charge or complaint pending before the National Labor
Relations Board ("NLRB"), (ii) there is no labor strike, material slowdown or
material work stoppage or lockout actually pending or, to the Porters' or
Company's knowledge, threatened, against or affecting the Company, and the
Company has not experienced any strike, material slow down or material work
stoppage, lockout or other collective labor action by or with respect to
employees of the Company, (iii) there are no charges with respect to or relating
to the Company pending before the Equal Employment Opportunity Commission or any
state, local or foreign agency responsible for the prevention of unlawful
employment practices, and (iv) the Company has not received formal notice from
any federal, state, local or foreign agency responsible for the enforcement of
labor or employment laws of an intention to conduct
-7-
<PAGE>
an investigation of the Company and, to the knowledge of the Porters and
Company, no such investigation is in progress.
Section 2.11 Absence of Certain Changes. Except as set forth in Schedule
--------------------------
2.11, since December 31, 1995, there has been no (a) Material Adverse Change in
the business, properties, financial statements, business prospects, condition
(financial or otherwise) or results of operations of the Company, (b) damage,
destruction or loss, whether covered by insurance or not, having a Material
Adverse Effect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company, (c)
declaration, setting aside or payment of any dividend or distribution (whether
in cash, stock or property) in respect of the Shares or the Telephone Capital
Stock or any redemption of the Shares or the Telephone Capital Stock by the
Company, (d) increase in the compensation payable to or to become payable by the
Company to its employees, officers, consultants or independent contractors, (e)
entry by the Company into any Contract not in the ordinary course of business,
including, without limitation, any borrowing or capital expenditure or (f)
change in accounting methods or principles used by the Company, except for any
such change which is necessitated by a change in GAAP (which such changes shall
be set forth on Schedule 2.11 hereto).
Section 2.12 Contracts.
---------
(a) Generally. Except as listed in Schedule 2.12, the Company is not
---------
a party to any Contract relating to:
(i) Bonus, pension, profit sharing, retirement, stock option,
employee stock purchase or other plans providing for deferred compensation.
(ii) Collective bargaining agreements or any other Contract with
any labor union.
(iii) Hospitalization insurance or other welfare benefit plans or
practices.
(iv) Loans to its employees, officers, directors or Affiliates.
(v) The borrowing or loaning of money to or from any Person or
the mortgaging, pledging or otherwise placing a Lien on any asset of the
Company, including, but not limited to, any Contract with respect to the
Company's indebtedness to the Rural Utilities Service (RUS) and to Rural
Telephone Bank (RTB).
(vi) A guarantee of any obligation.
-8-
<PAGE>
(vii) The ownership, lease (whether as lessee or lessor) or
operation of any property, real or personal.
(viii) Intangible property (including Proprietary Rights).
(ix) Warranties with respect to its services rendered or its
products sold or leased.
(x) Registration or preemptive rights with respect to any
securities.
(xi) Prohibitions preventing it from freely engaging in any
business.
(xii) The purchase, acquisition, disposition or supply of
inventory and other property and assets, including those relating to the
sale of the Company's interest in Central Illinois Data Services and any
agreements that would obligate the Company in any manner to continue its
use of such billing service company after such sale.
(xiii) Employees, independent contractors, consultants, or
other agents.
(xiv) Sales, commissions, advertising or marketing.
(xv) Unconditional purchase or payment obligations.
(xvi) Any investment or subsidiary of the Company, including,
but not limited to, those shown on Schedule 2.4 hereto.
(xvii) Any other Contract not of the type covered by any of
the foregoing items of this Section 2.12(a) requiring total payments by the
Company in excess of ten thousand dollars ($10,000).
(b) Compliance. The Company has performed all obligations required to
----------
be performed by it, and is not in receipt of any claim of default or breach or
notice of audit, under any Contract to which it is subject (including, without
limitation, those required to be disclosed on Schedule 2.12). Except as
disclosed in Schedule 2.12, no event has occurred which with the passage of time
or the giving of notice or both would result in a material default, breach or
event of non-compliance by the Company under any Contract to which it is
subject. Except as disclosed in Schedule 2.12, the Company has no present
expectation or intention of not fully performing all of its obligations under
any Contract to which it is subject and has no knowledge of any breach or
-9-
<PAGE>
anticipated breach by any other party to any Contract to which it is subject.
Section 2.13 True and Complete Copies. The Porters and the Company have
------------------------
delivered to the Purchaser true and complete copies of all Contracts and
documents listed in the Schedules to this Agreement, as well as of all minute
books and stock books of the Company and of each of its subsidiaries. Such
minute books and stock books are current and contain the complete records kept
of such companies.
Section 2.14 Title and Related Matters.
-------------------------
(a) Owned Property. Set forth in Schedule 2.14(a) is a description of
--------------
all real and personal property owned by the Company. The Company has valid and
marketable title to all such property, free and clear of all Liens, except
Permitted Liens and those liens shown on Schedule 2.14(a) hereto. All properties
used in the Company's business operations as of December 31, 1995 are reflected
in the Financial Statements in accordance with and to the extent required by
GAAP and, as of the date hereof, are fully set forth on Schedule 2.14(a) hereto.
The Porters have delivered, with respect to any real property owned by the
Company, true and complete copies of all deeds, title policies, environmental
assessments, surveys and other title documents relating to such real property.
Further, the Company has valid, good and marketable title to each of its
investments set forth on Schedule 2.4 hereto, free and clear of all Liens,
except as set forth on Schedule 2.14(a) hereto.
(b) Leased Property. Set forth in Schedule 2.14(b) is a description
---------------
of all real and personal property leased or used by the Company. Except as
otherwise set forth in Schedule 2.14(b), the Company's leases are in full force
and effect and are valid and enforceable in accordance with their respective
terms. There exists no event of default or event which constitutes or would
constitute (with notice or lapse of time or both) a default by the Company or
any other Person under any such lease, and neither the Porters nor the Company
have received notice of such default or event. All rent and other amounts due
and payable with respect to each of the Company's leases have been paid through
the date of this Agreement. Except as set forth in Schedule 2.14(b), neither
the Porters nor the Company have received notice that the landlord with respect
to any real property or personal property lease would refuse to renew such lease
upon expiration of the period thereof upon substantially the same terms, except
for rent increases consistent with past experience or market rentals. The
Porters have delivered, with respect to any leased real or personal property,
true and complete copies of all such leases.
(c) Liens. The real property owned or leased by the Company and the
-----
buildings, structures and improvements included within such real property
(collectively, the "IMPROVEMENTS") comply
-10-
<PAGE>
with all applicable restrictions, building ordinances and zoning ordinances and
all Regulations of the applicable health and fire departments. No alteration,
repair, improvement or other work which could give rise to a Lien has been
performed with respect to such Improvements within the last one hundred twenty
(120) days. The Company's owned or leased real property and its continued use,
occupancy and operation as currently used, occupied and operated does not
constitute a nonconforming use under any Regulation or Order affecting such real
property, and the continued existence, use, occupancy and operation of such
Improvements is not dependent on any special permit, exception, approval or
variance. There is no pending or, to the Porters' or Company's knowledge,
threatened or proposed action or proceeding by any Authority to modify the
zoning classification of, to condemn or take by the power of eminent domain (or
to purchase in lieu thereof), to classify as a landmark, to impose special
assessments on or otherwise to take or restrict in any way the right to use,
develop or alter all or any part of the Company's owned or leased real property.
(d) Utilities. The real property owned or leased by the Company has
---------
access, sufficient for the conduct of the Company's business as presently
conducted and proposed to be conducted, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water, natural gas and
other utilities used in the operation of the Company's business as presently
conducted. Access to all such public roads and utilities will be available
after the Closing Date.
(e) Condition. Except as set forth on Schedule 2.14(e), since
---------
December 31, 1995, the Company has not sold, transferred, leased, distributed or
disposed of any of its assets or properties, except for (i) transactions in the
ordinary and regular course of business, or (ii) as otherwise consented to in
writing by the Purchaser. The Company owns, or has all rights necessary to use,
all properties and assets necessary for the conduct of its business as presently
conducted. The assets and properties owned, leased or used by the Company in
the conduct of the Business are in good condition (reasonable wear and tear
excepted), are suitable for their respective uses, and comply with all
applicable Regulations. Further such assets and properties constitute all of the
assets and properties necessary for the Company to conduct its Business as now
conducted.
Section 2.15 Litigation. Except as set forth in Schedule 2.15, there is
----------
(a) no Claim pending or, to the Porters' knowledge, threatened against the
Company, (b) no Claim by the Company pending or threatened against any Person,
(c) no outstanding Order relating to the Company and (d) no Claim by any Person
relating to the Shares. No Stockholder of the Company dissented to the Company's
recent merger/reorganization and the time to do so under Illinois law has
expired.
-11-
<PAGE>
Section 2.16 Tax Matters.
-----------
(a) Generally. Except as set forth in Schedule 2.16, the Company,
---------
Telephone and all their subsidiaries have timely filed all federal, state, local
and foreign tax reports, returns, information returns and any other documents
required to be filed by each (collectively, "TAX RETURNS") and have duly paid
all Taxes shown to be due and payable on such Tax Returns and all estimated or
advance payments required by law. All Taxes for periods ending on or prior to
or including the Closing Date have been fully paid or reserved against on the
Unaudited Financial Statements and on the books of the Company, Telephone and
all their subsidiaries in accordance with GAAP. All Taxes which are required to
be withheld or collected by the Company, Telephone and all their subsidiaries
have been duly withheld or collected and, to the extent required, have been paid
to the proper federal, state, local or foreign authorities or properly
segregated or deposited as required by applicable Regulations. There are no
Liens for Taxes upon any property or assets of the Company, Telephone nor any of
their subsidiaries except for Liens for Taxes not yet due and payable or for
Taxes being contested in a manner permitted by applicable law (all as disclosed
on Schedule 2.16 hereto). Except as disclosed in Schedule 2.16, neither the
Company, Telephone nor any of their subsidiaries have requested an extension of
time within which to file any Tax Return and none have waived the statute of
limitations on the right of the IRS or any other taxing authority to assess or
collect additional Taxes or to contest the information reported on any Tax
Return. All Taxes owed by any affiliated group of which the Company, Telephone
or any of their subsidiaries has at any time been a member (whether or not shown
on any Tax Return) have been paid for each taxable period during which the
Company, Telephone or any of their subsidiaries was a member of the affiliated
group. Neither the Company, Telephone nor any of their subsidiaries has any
liability for the unpaid Taxes of any Person under Treasury Regulation (S)
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise. The merger of the Company
and Telephone referred to in Section 2.1 hereof qualified as a tax-free
reorganization pursuant to Internal Revenue Code Section 368(a)(2)(E). All
filings required to be made with the Internal Revenue Service as a result of
such merger/reorganization have been fully and timely made.
(b) Good Faith. All Tax Returns described in Section 2.16(a) have
----------
been prepared in good faith and are correct and complete in all respects, and
there is no basis for assessment of any addition to the Taxes shown thereon.
(c) Claims. Except as disclosed in Schedule 2.16, (i) there are no
------
proceedings, examinations or claims currently pending by any taxing Authority in
connection with any Tax Returns described in Section 2.16(a) nor with respect to
the periods to which such Tax Returns relate and (ii) there are no unresolved
-12-
<PAGE>
issues or unpaid deficiencies or outstanding or proposed assessments relating to
any such proceedings, examinations, claims or Tax Returns. None of the Tax
Returns described in Section 2.16(a) currently is under audit or has been
audited. The items relating to the Business, properties and operations of the
Company on the Tax Returns filed by the Company (including the supporting
schedules filed therewith), copies of which have been supplied to the Purchaser,
state accurately, in all respects, the information requested with respect to the
Company, Telephone and their subsidiaries, which information was derived from
the books and records of the Company.
(d) Course of Business. The Company has not taken any action in
------------------
anticipation of the Closing that would have the effect of deferring any
liability for Taxes of the Company, Telephone or any of their subsidiaries to
any period (or portion thereof) ending after the Closing Date.
(e) Withholdings. All payments for withholding Taxes, unemployment
------------
insurance and other amounts required to be withheld and deposited or paid to any
relevant taxing Authorities have been so withheld, deposited or paid by or on
behalf of the Company, Telephone and all of their subsidiaries, as appropriate.
(f) Partnerships. The Company is not subject to any joint venture,
------------
partnership or other arrangement or Contract which is treated as a partnership
for federal income tax purposes. Any tax-sharing agreement between the Company
and any other Person shall terminate as of the Closing Date and any such tax-
sharing agreement is fully disclosed on Schedule 2.16 hereto.
(g) Accounting Method Adjustments. Except as disclosed in Schedule
-----------------------------
2.16, the Company will not be required to recognize after the Closing Date any
taxable income in respect of accounting method adjustments required to be made
under any Regulation relating to Taxes, including without limitation, the Tax
Reform Act of 1986 and the Revenue Act of 1987.
(h) Tax Exemptions. None of the assets of the Company constitutes
--------------
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the IRC, and the Company is not subject to a lease, safe
harbor lease or other arrangement as a result of which the Company is not
treated as the owner of leased property for federal income tax purposes.
(i) Tax Return Reviews. An accurate and complete description of the
------------------
most recent review, if any, of the Tax Returns of the Company by the IRS or any
other taxing Authority is set forth in Schedule 2.16.
(j) Power of Attorney. Except as set forth in Schedule 2.16 hereto,
-----------------
no power of attorney has been granted by the
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<PAGE>
Company with respect to any matter, including, without limitation, the payment
of Taxes, which is currently in force.
(k) True and Complete Copies. The Porters and the Company have
------------------------
delivered to the Purchaser true and complete copies of all Tax Returns filed by
the Company with respect to its 1992, 1993, 1994, 1995 and 1996 fiscal years.
Section 2.17 Bank and Brokerage Accounts. Set forth in Schedule 2.17
---------------------------
hereto is a list of all of the bank and brokerage accounts maintained by the
Company and the authorized signatories for each such account.
Section 2.18 Compliance with Applicable Laws, Regulations and Orders.
-------------------------------------------------------
The Company has been and is presently in material compliance with all laws,
ordinances, codes, rules, Regulations and Orders applicable to the conduct of
its Business, including, without limitation, all Regulations relating to health,
sanitation, fire, zoning, building and occupational safety.
Section 2.19 Employee Benefit Plans.
----------------------
(a) Set forth on Schedule 2.19 hereto is a true and complete list of:
(i) each employee pension benefit plan, as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
maintained by the Company or to which the Company or the Seller is required
to make contributions ("PENSION BENEFIT PLAN"); and
(ii) each employee welfare benefit plan, as defined in Section
3(1) of ERISA, maintained by the Company or to which the Company or the
Seller is required to make contributions ("WELFARE BENEFIT PLAN").
True and complete copies of all Pension Benefit Plans and Welfare
Benefit Plans (collectively, "ERISA PLANS") have been delivered to or made
available to Purchaser together with, as applicable with respect to each such
ERISA Plan, trust agreements, summary plan descriptions, all IRS determination
letters or applications therefor with respect to any Pension Benefit Plan
intended to be qualified pursuant to Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and valuation or actuarial reports,
accountant's opinions, financial statements, IRS Form 5500s (or 5500-C or 5500-
R) and summary annual reports for the last three years.
(b) With respect to the ERISA Plans, except as set forth on Schedule
2.19:
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<PAGE>
(i) there is no ERISA Plan which is a "multiemployer" plan as
that term is defined in Section 3(37) of ERISA ("MULTIEMPLOYER PLAN");
(ii) no event has occurred or (to the knowledge of the Porters
or Company) is threatened or about to occur which would constitute a
prohibited transaction under Section 406 of ERISA or under Section 4975 of
the Code;
(iii) each ERISA Plan has operated since its inception in
accordance with the reporting and disclosure requirements imposed under
ERISA and the Code and has timely filed Form 5500 (or 5500-C or 5500-R) and
predecessors thereof; and
(iv) no ERISA Plan is liable for any federal, state, local or
foreign Taxes.
(c) Each Pension Benefit Plan intended to be qualified under Section
401(a) of the Code:
(i) has been qualified, from its inception, under Section
401(a) of the Code, and the trust established thereunder has been exempt
from taxation under Section 501(a) of the Code and is currently in
compliance with applicable federal laws;
(ii) has been operated, since its inception, in accordance with
its terms and there exists no fact which would adversely affect its
qualified status; and
(iii) is not currently under investigation, audit or review by
the IRS or (to the knowledge of the Porters or Company) no such action is
contemplated or under consideration and the IRS has not asserted that any
Pension Benefit Plan is not qualified under Section 401(a) of the Code or
that any trust established under a Pension Benefit Plan is not exempt under
Section 501(a) of the Code.
(d) With respect to each Pension Benefit Plan which is a defined
benefit plan under Section 414(j) and each defined contribution plan under
Section 414(i) of the Code:
(i) no liability to the Pension Benefit Guaranty Corporation
("PBGC") under Sections 4062-4064 of ERISA has been incurred by the
Company since the effective date of ERISA and all premiums due and owing to
the PBGC have been timely paid;
(ii) the PBGC has not notified the Company or any Pension
Benefit Plan of the commencement of proceedings under Section 4042 of ERISA
to terminate any such plan;
-15-
<PAGE>
(iii) no event has occurred since the inception of any Pension
Benefit Plan or (to the knowledge of the Porters or Company) is threatened
or about to occur which would constitute a reportable event within the
meaning of Section 4043(b) of ERISA;
(iv) No Pension Benefit Plan ever has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and Section 412 of
the Code); and
(v) if any of such Pension Benefit Plans were to be terminated
on the Closing Date (A) no liability under Title IV of ERISA would be
incurred by the Company and (B) all benefits accrued to the day prior to
the Closing Date (whether or not vested) would be fully funded in
accordance with the actuarial assumptions and method utilized by such plan
for valuation purposes.
(e) With respect to each Pension Benefit Plan, Schedule 2.19 contains
a list of all Pension Benefit Plans to which ERISA has applied which have been
or are being terminated, or for which a termination is contemplated, and a
description of the actions taken by the PBGC and the IRS with respect thereto.
(f) The aggregate of the amounts of contributions by the Company to
be paid or accrued under ERISA Plans is not expected to exceed approximately
$56,000 for the current fiscal year, all of which has been properly accrued or
reserved for on the Financial Statements and Unaudited Financial Statements. To
the extent required in accordance with GAAP, the Company's Financial Statements
reflect in the aggregate an accrual of all amounts of employer contributions
accrued but unpaid by the Company under the ERISA Plans as of the date of the
Financial Statements.
(g) With respect to any Multiemployer Plan (1) the Company has not,
since its formation, made or suffered a "complete withdrawal" or "partial
withdrawal" as such terms are respectively defined in Sections 4203 and 4205 of
ERISA; (2) there is no withdrawal liability of the Company under any
Multiemployer Plan, computed as if a "complete withdrawal" by the Company had
occurred under each such Plan as of December 31, 1996; and (3) the Company has
not received notice to the effect that any Multiemployer Plan is either in
reorganization (as defined in Section 4241 of ERISA) or insolvent (as defined in
Section 4245 of ERISA).
(h) With respect to the Welfare Benefit Plans:
(i) There are no liabilities of the Company under Welfare
Benefit Plans with respect to any condition which relates to a claim filed
on or before the Closing Date.
-16-
<PAGE>
(ii) No claims for benefits are in dispute or in litigation.
(i) Set forth on Schedule 2.19 hereto is a true and complete list of:
(i) each employee stock purchase, employee stock option,
employee stock ownership, deferred compensation, performance, bonus,
incentive, vacation pay, holiday pay, insurance, severance, retirement,
excess benefit or other plan, trust or arrangement which is not an ERISA
Plan whether written or oral, which the Company maintains or is required to
make contributions to; and
(ii) each other agreement, arrangement, commitment and
understanding of any kind, whether written or oral, with any current or
former employee, officer, director or consultant of the Company pursuant to
which payments may be required to be made at any time following the date
hereof (including, without limitation, any employment, deferred
compensation, severance, supplemental pension, termination or consulting
agreement or arrangement).
(j) True and complete copies of all of the written plans,
arrangements and agreements referred to on Schedule 2.19 ("COMPENSATION
COMMITMENTS") have been provided to Purchaser together with, where prepared by
or for the Company, any valuation, actuarial or accountant's opinion or other
financial reports with respect to each Compensation Commitment for the last
three years. An accurate and complete written summary has been provided to
Purchaser with respect to any Compensation Commitment which is unwritten.
(k) Each Compensation Commitment:
(i) since its inception, has been implemented in all material
respects in accordance with its terms;
(ii) is not currently under investigation, audit or review by
the IRS or any other federal or state agency and (to the knowledge of the
Porters and Company) no such action is contemplated or under consideration;
(iii) has no liability for any federal, state, local or foreign
Taxes;
(iv) has no claims subject to dispute or litigation;
(v) has met all applicable requirements, if any, of the Code;
and
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<PAGE>
(vi) has been implemented since its inception in material
compliance with the reporting and disclosure requirements imposed under
ERISA and the Code.
Section 2.20 Intellectual Property. Schedule 2.20 sets forth a
---------------------
complete and accurate list of the Proprietary Rights owned or used by the
Company. The Company has no written documents relating to the Company's
ownership or use of the Proprietary Rights listed in Schedule 2.20. No other
Person has any rights to such Proprietary Rights, except pursuant to agreements
or licenses specified in Schedule 2.20. To the Porters' and Company's knowledge,
no other Person is infringing, violating or misappropriating any such
Proprietary Right. If necessary, the Company owns or holds valid licenses to use
all Proprietary Rights used in the operation of its business as presently
conducted and proposed to be conducted.
Section 2.21 Environmental Matters. The Company has obtained all
---------------------
Environmental Permits required in connection with the operation of its business.
The Company is and has been, and is capable of continuing to be in compliance in
all respects with (i) the terms and conditions of all such Environmental Permits
and (ii) all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables of any
applicable Environmental Law or Regulation, Order, code, plan, decree, judgment,
injunction or demand letter issued, entered, promulgated or approved thereunder.
The Company currently possesses and maintains such Environmental Permits in its
name, and no amendments or modifications to such Environmental Permits or
filings with any permitting Authority are required to permit the acquisition of
the Shares as contemplated hereby. In addition, except as set forth in Schedule
2.21:
(a) Generally. No notice, notification, demand, request for
---------
information, citation, summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no investigation or review is pending
or, to the Porters' and Company's knowledge, threatened by any Authority or
other entity with respect to the Company relating to any Environmental Permit,
license or authorization required in connection with the conduct of the business
of the Company or with respect to the generation, treatment, storage, recycling,
transportation, disposal or Release of any substance regulated under
Environmental Laws ("HAZARDOUS MATERIALS").
(b) Property.
--------
(i) The Company has not handled any Hazardous Material on any
property now or previously owned or leased by the Company.
-18-
<PAGE>
(ii) No PCB or asbestos is or has been present at any property
now or previously owned or leased by the Company.
(iii) There are no underground storage tanks for Hazardous
Materials, active or abandoned, at any property now or previously owned or
leased by the Company.
(iv) There has been no Release of Hazardous Materials at, on or
under any property now or previously owned or leased by the Company.
(c) Transportation. The Company has not (i) transported or arranged
--------------
for the transportation of any Hazardous Material to any location which is listed
on the National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for
possible inclusion on the National Priorities List by the Environmental
Protection Agency in the Comprehensive Environmental Response and Liability
Information System ("CERCLIS") or on any similar state list or which is the
subject of federal, state or local enforcement actions or other investigations
or (ii) stored, treated, transported or disposed, or arranged for storage,
treatment, transport or disposal of any Hazardous Materials, other than in
compliance with Environmental Law.
(d) Notification of Release. No oral or written notification of a
-----------------------
Release of a Hazardous Material has been filed by or on behalf of the Company,
and no property now or previously owned or leased by the Company is listed or
proposed for listing on the National Priorities List under CERCLA, on CERCLIS or
on any similar state list of sites requiring investigation or clean-up.
(e) Liens. There are no Liens arising under or pursuant to any
-----
Environmental Laws on any of the real property owned or leased by the Company,
and no government actions have been taken or are threatened which could subject
any of such properties to such Liens. The Company is not required to place any
notice or restriction relating to the presence of Hazardous Materials at any
property owned by it in any deed to such property.
(f) Site Assessments. Except as set forth in Schedule 2.21, there
----------------
have been no Phase I or Phase II environmental site assessments conducted by or
which are in the possession of the Porters or the Company in relation to any
property or facility now or previously owned or leased by the Company.
Section 2.22 Capital Expenditures and Investments. The Company has no
------------------------------------
outstanding Contracts or commitments for capital expenditures and investments,
except as set forth in Schedule 2.22 attached hereto, which schedule includes a
list of all disbursements on account of capital expenditures and investments by
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<PAGE>
the Company since December 31, 1996. There has been no order or ruling from the
ICC or any other regulatory body and none is threatened or expected by the
Company requiring or recommending that the Company undertake any capital
expenditures or investments.
Section 2.23 Dealings with Affiliates. Schedule 2.23 sets forth a
------------------------
complete and accurate list of all oral or written Contracts between the Company
and any one or more of its Affiliates. Except as set forth in Schedule 2.23,
since December 31, 1995, the Company has not made any payments, loaned any funds
or property or made any credit arrangement with any Affiliate or employee except
for the payment of employee salaries in the ordinary course of business.
Section 2.24 Insurance. The Company currently is covered by insurance
---------
policies which provide for coverages that are usual and customary as to amount
and scope in the business of the Company, descriptions of which policies,
including the names of the insurer and the insured, the amount of premiums, and
the types and amounts of coverage, are set forth on Schedule 2.24. All of such
policies are in full force and effect, all premiums with respect thereto have
been paid or accrued therefor, and no notice of cancellation or termination has
been received with respect to any such policy. Such policies are sufficient for
compliance with (i) all applicable Regulations and (ii) all Contracts to which
the Company is a party. The Company has not breached or otherwise failed to
perform its obligations under any of such policies, nor has the Company received
any adverse notice from any of the insurers party to such policies with respect
to any alleged breach or failure in connection with any of such policies. Such
policies will not terminate or lapse by reason of the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
Except as set forth on Schedule 2.24, there are no pending or, to the Porters'
and Company's knowledge, threatened claims under any policy relating to the
Company. Also set forth on Schedule 2.24 is a true and complete listing of any
and all claims made by the Company under any policy since December 31, 1991.
Section 2.25 Commissions. There are and will be no claims for
-----------
brokerage commissions, finder's fees, fees for fairness opinions or financial
advisory services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Seller, the Company, or any of their Affiliates.
Section 2.26 Permits and Reports. Schedule 2.26 hereto sets forth a list
-------------------
of all permits, licenses, registrations, certificates, orders, approvals or
other authorizations from any Authority or other Person including, without
limitation, the FCC and the ICC and the municipalities of Cornell and/or Ransom
("PERMITS") issued to or held by the Company in connection with its operations.
Such Permits are the only Permits that are required for the Company to conduct
its business as presently conducted and proposed to be
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<PAGE>
conducted. Each such Permit is in full force and effect, and the Company has not
received notice that any suspension, cancellation or modification of the terms
of any such Permit is threatened. The Company is in full compliance with the
terms of each such Permit, and the Porters are not aware of any reason not set
forth in said Permit why any such Permit would not be renewed, upon
substantially the same terms as currently exist, upon expiration of such Permit.
Except as set forth in Schedule 2.26, no authorization, consent or notification
of or filing with any Authority is necessary in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, and each Permit issued to or held by the Company will
continue in full force and effect following the Closing Date. Except as set
forth on Schedule 2.26, (i) all returns, reports, applications, statements and
other documents required to be filed by the Company with the FCC, the ICC and
any other regulatory or governmental authority or municipality (including taxing
authorities) with respect to the Business on or before the date hereof have been
duly filed or properly extended as permitted by law (details of such extensions,
if any, are set forth on Schedule 2.26 hereto) and are true and complete in all
material respects, and (ii) all reporting requirements of the FCC, the ICC and
other regulatory or governmental authorities or municipalities (including taxing
authorities) having jurisdiction thereof have been complied with in all material
respects. A listing of all returns, reports, applications, statements and other
documents filed by the Company within the past five (5) years with the FCC, the
ICC and any other regulatory or governmental authority (including taxing
authorities) or municipality is attached hereto as Schedule 2.26; true and
complete copies of all such returns, reports, applications, statements and other
documents set forth on Schedule 2.26 have been previously provided to Purchaser
by Seller.
Section 2.27 Absence of Undisclosed Liabilities. The Company does not
----------------------------------
have any liability of any nature whatsoever (whether known or unknown, due or to
become due, accrued, absolute, contingent or otherwise), including, without
limitation, any unfunded obligation under employee benefit plans or arrangements
as described in Section 2.19 hereof or liabilities for Taxes (as defined in
Section 2.16 hereof) or liabilities for under-reporting, under-billing or under-
collection of revenues or underpayment of revenues to a third party or
liabilities relating to investments or subsidiaries, except for (i) liabilities
stated or reserved against in the Financial Statements, (ii) current liabilities
incurred in the ordinary course of business and consistent with past practice
after the date of the Financial Statements which, individually and in the
aggregate, do not have, and cannot reasonably be expected to have, a Material
Adverse Effect, and (iii) liabilities disclosed on Schedule 2.27 hereto. All
obligations and liabilities relating in any way to the Company's investments and
subsidiaries are set forth on Schedule 2.4 hereto, setting forth the maximum
amount of the Company's potential obligations and the expected payment schedule
-21-
<PAGE>
therefor. The Company is not a party to any Contract, or subject to any articles
of incorporation or bylaw provision, any other corporate limitation or any legal
requirement which has, or can reasonably be expected to have, a Material Adverse
Effect. Any and all long term obligations and liabilities of the Company as of
the date hereof are set forth on Schedule 2.27 hereto.
Section 2.28 Sale of Interest in Central Illinois Data Services. The
--------------------------------------------------
Company sold its fifty percent (50%) ownership interest in Central Illinois Data
Services, a billing services company, prior to December 31, 1996, with the
Company as of the date hereof still retaining the proceeds thereof. Nothing
shall obligate the Purchaser to use this or any other billing services company
from and after the date of Closing. Further, the Company has no continuing
obligations in any way, other than on a month-to-month usage basis, with respect
to such billing services company.
Section 2.29 Disclosure. Neither this Agreement nor any of the
----------
attachments, written statements, documents, certificates or other items prepared
for or supplied to the Purchaser by or on behalf of the Seller or the Company
with respect to the transactions contemplated hereby contains any untrue
statement of a material fact or omits any material fact necessary to make each
statement contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller as
follows:
Section 3.1 Corporate Organization. The Purchaser is a corporation
----------------------
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to own,
operate and lease its properties and to conduct its business as presently
conducted and proposed to be conducted. The Purchaser is qualified to do
business and is in good standing in every jurisdiction in which the conduct of
its business, the ownership or lease of its properties, or the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby requires it to be so qualified. True, complete and correct copies of the
Purchaser's charter and by-laws as presently in effect have been delivered to
the Seller.
Section 3.2 Authorization. The Purchaser has full corporate power and
-------------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. It is anticipated that the Board of Directors
of the Purchaser will have
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<PAGE>
duly authorized the execution, delivery and performance of this Agreement no
later than August 31, 1997, and no other corporate proceedings on its part are
necessary to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby. This Agreement
constitutes a legal, valid and binding obligation of the Purchaser enforceable
against the Purchaser in accordance with its terms, subject to equitable
considerations and the effect of bankruptcy and other laws affecting the rights
of creditors generally.
Section 3.3 No Violation. Except as set forth on Schedule 3.3 hereto,
------------
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby by the Purchaser do not and will not (a)
conflict with or result in a breach of the terms, conditions or provisions of,
(b) constitute a default or event of default under (with due notice, lapse of
time or both), (c) result in the creation of any Lien upon the Purchaser or its
capital stock or assets pursuant to, (d) give any third party the right to
accelerate any obligation under, (e) result in a violation of or (f) require any
authorization, consent, approval, exemption or other action by, or notice to,
any Person pursuant to the charter or by-laws of the Purchaser, any applicable
Regulation (including, without limitation, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976), any Order to which the Purchaser is subject or any
Contract to which the Purchaser or any of its properties are subject. The
Purchaser has complied with all applicable Regulations and Orders in connection
with the execution, delivery and performance of this Agreement and the
transactions contemplated hereby, subject to the requirements which are
conditions to the Closing.
Section 3.4 Investment Intent. The Purchaser represents and warrants
-----------------
to the Seller that it is purchasing the Shares for investment purposes and not
with a view to distribution thereof and agrees that it shall not make any sale,
transfer, or other disposition of the Shares in violation of the Securities Act
of 1933, as amended, or the Regulations thereunder or under any other applicable
securities laws.
ARTICLE IV
COVENANTS OF THE SELLER AND THE COMPANY
Subject to the provisions of Section 4.14 hereof, from and after December
31, 1995 until the Closing Date, each of the Porters and the Company agree that
they shall have acted and shall act, or refrain from acting where so required,
to comply (and in the case of the Porters, to cause the Company to comply) with
the following:
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<PAGE>
Section 4.1 Regular Course of Business.
--------------------------
(a) Generally. The Company shall operate its business diligently
---------
and in good faith, consistent with past management practices, shall maintain all
of its properties in customary repair, order and condition, shall maintain
(except for expiration due to lapse of time or cancellation by another party
pursuant to the terms thereof) in the ordinary course of business all leases and
Contracts in effect without change except as expressly provided herein and shall
comply with the provisions of all Regulations, Orders and Permits applicable to
the Company and the conduct of its business. The Company shall comply, without
modification, with all Contracts and commitments relating to capital
expenditures as set forth on Schedule 2.22. The Company shall maintain its
financial and accounting records in a manner consistent with that employed at
December 31, 1995.
(b) Compensation. The Company shall not hire any employee and shall
------------
not grant any increase in the compensation of any employee, officer, board
member, consultant or independent contractor.
(c) Insurance. The Company shall maintain current its insurance
---------
policies with the coverage and in the amounts set forth in Schedule 2.24.
(d) Claims. The Company shall promptly notify the Purchaser of any
------
Claims that may be commenced against it, as well as of any threatened, suspected
or expected Claims of which the Company or the Porters may be aware.
(e) Supplement. From time to time prior to the Closing Date, the
----------
Seller shall promptly notify the Purchaser of any changes with respect to the
information set forth in this Agreement or the Schedules hereto and of any
matters hereafter arising which, if in existence at the date hereof, would have
been required to be set forth in this Agreement or the Schedules hereto.
Section 4.2 Amendments. No change or amendment shall be made to the
----------
charter or by-laws of the Company, and the Company shall not merge into or
consolidate with any other Person or change the character of its business.
Section 4.3 Capital Changes. The Company shall not issue, sell,
---------------
purchase or redeem any shares of its capital stock of any class or issue or sell
any securities convertible into, or options, warrants or other rights to
subscribe for, any shares of its capital stock. The Company shall not pledge or
otherwise encumber any shares of its capital stock, nor shall the Company allow
the transfer of any shares of its capital stock on its stock transfer ledger or
other books and records.
-24-
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Section 4.4 Dividends. The Company shall not declare, pay or set aside
---------
for payment any dividend or other distribution in respect of its capital stock.
Section 4.5 Capital Expenditures. The Company shall not make any
--------------------
capital expenditures, or commitments with respect thereto, except as provided in
Schedule 2.22. The Company shall not make or accept any loan or advance to or
from any of its Affiliates or Affiliates of the Seller.
Section 4.6 Borrowing. The Company shall not incur, assume or guarantee
---------
any indebtedness or obligation not reflected on the Financial Statements, except
for amounts not to exceed ten thousand dollars ($10,000) in the ordinary course
of business. Further, the Company shall not incur, assume or guarantee any
indebtedness or obligation of any of its subsidiaries or investments.
Section 4.7 Property. The Company shall not sell, transfer, or dispose
--------
of any of its assets and properties, other than in the ordinary course of
business, or allow any of its assets and properties to become subject to a Lien.
Section 4.8 Other Commitments. Except as set forth in this Agreement
-----------------
or permitted in writing by the Purchaser from and after the date hereof, the
Company shall not enter into any transaction, make any commitment or incur any
obligation other than in the ordinary course of business.
Section 4.9 Interim Financial Information. From and after the date
-----------------------------
hereof, the Company shall supply the Purchaser with a copy of its internal
unaudited monthly financial statements within thirty (30) days after the end of
each month.
Section 4.10 Consents and Authorizations. The Porters and the Company
---------------------------
shall, promptly after the date hereof, commence efforts to obtain the consents,
waivers and authorizations listed in Schedules 2.3 and 2.26. The Seller and the
Company shall diligently pursue and use their best efforts to obtain such
consents, waivers and authorizations as promptly as practicable prior to the
Closing Date.
Section 4.11 Access. Each of the Porters and the Company shall afford
------
to the Purchaser and its counsel, accountants, agents and other authorized
representatives and to financial institutions specified by the Purchaser
reasonable access during business hours to the Company's plants, properties,
books and records in order that the Purchaser may have full opportunity to make
such reasonable investigations as it shall desire to make of the affairs of the
Company. The Company shall cause its officers, employees and auditors to furnish
such additional financial and operating data and other information as the
Purchaser or its lender shall from time to time reasonably request.
-25-
<PAGE>
Section 4.12 Notice of Transfer. Each of the Porters and the Company
------------------
shall cooperate in providing any required notices to the appropriate Authority
regarding any issues of ownership or control or change thereof (including,
without limitation, any such issues relating to the Permits).
Section 4.13 Payment of Stamp Tax. All transfer (including any real
--------------------
estate transfer tax), documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement shall be borne equally by the Porters and the
Purchaser when due, and the parties will file on a timely basis all necessary
Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable Regulation, will, and will cause its Affiliates to, join
in the execution of any such Tax Returns and other documentation.
Section 4.14 Disclosure. To the extent the Company shall have taken
----------
any actions contrary to any of the covenants set forth in this Article IV, from
and after December 31, 1995 and prior to the date hereof, such actions are set
forth on Schedule 4.14 hereto. From and after the date hereof, the Company shall
not take any actions contrary to any of the covenants set forth in this Article
IV without the prior written consent of the Purchaser.
Section 4.15 Cooperation with Purchaser. Each of the Seller and the
--------------------------
Company shall cooperate with Purchaser as shall be necessary for Purchaser to
consummate this transaction and to obtain financing therefor, including giving
access to the Company's properties and business records as shall be necessary
for Purchaser to, among other things, obtain surveys of the real property, a
title commitment with respect to the real property and/or environmental
assessments.
Section 4.16 Best Efforts to Assemble Shares. It is Purchaser's desire
-------------------------------
to purchase 100% of the Shares at the Closing. The Porters shall use their
respective best efforts to fully inform the Other Stockholders of the
transactions contemplated by this Agreement and to deliver all of the Shares at
Closing as required by Section 9.2 hereof. To the extent the 750th share and/or
its owner has not been located, then the Porters shall cooperate with and assist
Purchaser as appropriate in properly complying with Illinois' lost and mislaid
property statutes so as to properly deposit the purchase price for such missing
share certificate with the State of Illinois.
-26-
<PAGE>
ARTICLE V
COVENANTS OF THE PURCHASER
Section 5.1 Consents and Authorizations. The Purchaser shall, promptly
---------------------------
after the date hereof, commence efforts to obtain the consents, waivers and
authorizations listed in Schedule 3.3. The Purchaser shall diligently pursue and
use its best efforts to obtain such consents, waivers and authorizations as
promptly as practicable prior to the Closing Date.
Section 5.2 Employees. Purchaser shall cause the Company to continue
---------
to employ the following employees of the Company after the Closing for at least
three (3) years thereafter absent grounds to terminate such employee(s) for
cause (as determined in the Company's sole discretion): Adam Porter, David
Porter, Jeff Porter, Michael Ahearn and Karen Burkitt. Further, the Purchaser
shall cause the Company to continue those National Telephone Cooperative
Association ("NTCA") benefit plans (other than the NTCA's non-contributory
defined benefit plan and multi-employer retirement program, which shall be
terminated as at Closing or as soon thereafter as is possible) in place as at
the Closing Date for at least three (3) years from the Closing Date. The
Company's employees will be enrolled in Purchaser's 401(k) Plan, which plan will
be amended to give the Company's employees credit for prior service with the
Company for eligibility and vesting purposes back to the later of (i) September
1, 1994 (the inception date of Purchaser's plan) or (ii) the employee's date of
hire by the Company. Further, the Purchaser shall cause the Company's vacation
policy, as described on Schedule 2.10 hereto, to continue unchanged for a period
of at least three (3) years from the Closing Date.
Section 5.3 Porters' Health Insurance. The Purchaser shall cause
-------------------------
Gary L. Porter, Virginia Porter and Renee Porter, as retired directors of the
Company, to remain covered by the Company's NTCA health insurance plan (or a
comparable plan) at the Company's expense after the Closing until such time as
each is eligible for Medicare or a comparable replacement plan. Further, the
Purchaser shall cause the premiums for Virginia Porter's supplemental Medicare
coverage to be paid by the Company during Virginia Porter's lifetime.
Section 5.4 Complimentary Local Service. From and after the Closing
---------------------------
Date, Purchaser agrees to cause the Company to provide one (1) local telephone
line to Gary L. Porter's residence without charge so long as Mr. Porter
maintains a residence within the Company's exchange boundaries.
-27-
<PAGE>
ARTICLE VI
OTHER AGREEMENTS
The parties hereto further agree as follows:
Section 6.1 Agreement to Defend. In the event any claim of the nature
-------------------
specified in Section 7.4 or Section 8.3 hereof is commenced, whether before or
after the Closing Date, the parties hereto agree to cooperate and use all
reasonable efforts to defend against and respond thereto.
Section 6.2 Further Assurances. On the terms and subject to the
------------------
conditions of this Agreement, the parties hereto shall use all reasonable
efforts at their own expense to take, or cause to be taken, all action, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable Regulations to consummate and make effective as promptly as possible
the transactions contemplated by this Agreement, and to cooperate with each
other in connection with the foregoing, including, without limitation, using all
reasonable efforts (a) to obtain all necessary waivers, consents and approvals
from other parties to loan agreements, leases, mortgages and other Contracts,
(b) to obtain all necessary consents, approvals and authorizations as are
required to be obtained under any Regulations or in connection with any Permits,
(c) to lift or rescind any injunction or restraining order or other Order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby and (d) to fulfill all conditions to the obligations of the
parties under this Agreement. Each of the parties hereto further covenants and
agrees that it shall use all reasonable efforts to prevent a threatened or
pending preliminary or permanent injunction or other Order.
Section 6.3 Consents. Without limiting the generality of Section 6.2,
--------
each of the parties hereto shall use all reasonable efforts to obtain all
waivers, Permits, authorizations, consents and approvals of all Persons and
Authorities necessary, proper or advisable in connection with the consummation
of the transactions contemplated by this Agreement prior to the Closing Date.
Section 6.4 No Solicitation or Negotiation. Unless and until this
------------------------------
Agreement is terminated, neither the Porters nor the Company shall, and each
shall each use best efforts to cause its Affiliates, and the directors,
officers, employees, representatives, agents, advisors, accountants,
shareholders and attorneys of each of them, not to initiate or solicit, directly
or indirectly, any inquiries or the making of any proposal with respect to, or
engage in negotiations concerning, or provide any confidential information or
data to any Person with respect to, or have any discussions with any Person
relating to, any acquisition, business combination or purchase of all or any
significant asset of, or any equity interest in, directly or indirectly, the
Company,
-28-
<PAGE>
or otherwise facilitate any effort or attempt to do or seek any of the foregoing
and shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
Section 6.5 No Termination of the Obligations by Subsequent Dissolution.
-----------------------------------------------------------
Each of the parties hereto specifically agrees that its obligations hereunder,
including, without limitation, obligations pursuant to this Article VI, shall
not be terminated by the dissolution of such party, whether by operation of law,
Regulations or otherwise.
Section 6.6 Public Announcements. Prior to the Closing Date, no party
--------------------
hereto nor any Affiliate, representative or shareholder of such party, shall
disclose any of the terms of this Agreement to any third party, except as
required to obtain the consents, waivers and authorizations listed in Schedules
2.3, 2.26 and 3.3 and in connection with the Purchaser's financing of the
transactions contemplated hereby, without the other parties' prior written
consent. Prior to the Closing Date, the form, content and timing of all press
releases, public announcements or publicity statements with respect to this
Agreement and the transactions contemplated hereby shall be subject to the prior
approval of both the Porters and the Purchaser, which approval shall not be
unreasonably withheld; provided, however, that either party may withhold such
-------- -------
approval in its sole discretion with respect to any of the foregoing which
discloses any of the financial terms of this transaction. Prior to the Closing
Date, no press releases, public announcements or publicity statements shall be
released by either party without such prior mutual agreement. Notwithstanding
the foregoing, no party hereto will disclose the Purchase Price or the manner in
which the Purchase Price is calculated, without the prior written consent of the
Purchaser and the Porters.
Section 6.7 Records and Information.
-----------------------
(a) Retention of Records. Except as otherwise required by
--------------------
Regulation or agreed to in writing, each of the Seller and the Purchaser shall
retain, and shall cause its Affiliates to retain, for a period of at least four
(4) years, or the period required by applicable Regulation, following the
Closing Date, all records, books, contracts, instruments, computer data and
other data and information (collectively, "INFORMATION") relating to the
Company.
(b) Access to Information. From and after the Closing Date, the
---------------------
Seller shall afford to the Purchaser and its authorized accountants, counsel and
other designated representatives reasonable access (including using reasonable
efforts to give access to Persons or firms possessing Information) and
duplicating rights during normal business hours to all Information within the
Seller's possession relating to the Company, insofar as such access
-29-
<PAGE>
is reasonably required by the Purchaser. Similarly, the Purchaser shall afford
to the Seller and its authorized accountants, counsel, and other designated
representatives reasonable access (including reasonable efforts to give access
to Persons or firms possessing Information) and duplicating rights during normal
business hours to Information within the Purchaser's possession relating to the
Company or its business as conducted prior to the Closing Date, insofar as such
access is reasonably required by the Seller.
(c) Provisions of Corporate Records. The Seller shall arrange, as
-------------------------------
soon as practicable following the Closing Date, to the extent not previously
delivered in connection with the transactions contemplated herein, for
transportation at the Seller's cost to the Purchaser of the records in the
Seller's possession relating to the Company, the corporate minutes books, stock
ledgers and certificates and corporate seals of the Company, and all Contracts
and litigation files relating to the Company, except to the extent (i) such
items are already in the possession of any of the Purchaser or the Company or
(ii) it is necessary or appropriate for the Seller to retain such records for
use in preparation of Tax Returns under the provisions hereof. The Porters may
make and retain copies of all or any such records or documents at their expense.
(d) Witnesses. At all times from and after the Closing Date, each of
---------
the Seller and the Purchaser shall use reasonable efforts to make available to
the other, upon written request, its and its Affiliates' officers, directors,
employees and agents as witnesses to the extent that such Persons may reasonably
be required in connection with any legal, administrative or other proceedings in
which the requesting party may from time to time be involved, at no cost;
provided, however, that a party producing such witnesses shall be entitled to
- --------
receive from the requesting party, upon presentation therefor, payment for such
out-of-pocket costs and disbursements as may be reasonably incurred in producing
such witnesses.
Section 6.8 Insurance Policies and Claims Administration.
--------------------------------------------
(a) Insurance Coverage Prior to the Closing Date. The Porters shall be
--------------------------------------------
responsible for the administration of all claims under the Company's insurance
policies relating to periods prior to the Closing Date. If any claim is asserted
against the Company relating to periods prior to the Closing Date, the Porters
shall, if requested by the Purchaser, promptly assert and pursue coverage and
payment for such claim with the appropriate insurance carrier, and the Purchaser
shall, and shall cause the Company to, provide reasonable cooperation and
assistance to the Porters in asserting and pursuing such coverage. In
particular, the Purchaser shall, upon request by the Porters, cause the Company
to file all necessary claims and take all such other action as may reasonably be
requested by the Porters to pursue such coverage. As between
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<PAGE>
the Porters, on the one hand, and the Purchaser and the Company, on the other
hand, the Purchaser and the Company shall be entitled to recover all insurance
proceeds with respect to any claim, except to the extent the Porters have
previously provided indemnification therefor to the Purchaser or the Company
under this Agreement. If the Purchaser shall pursue coverage and payment for any
claim relating to periods prior to the Closing Date on behalf of the Company,
then the Porters shall provide reasonable cooperation and assistance to the
Company and the Purchaser.
(b) Insurance Coverage After the Closing Date. Each party shall be
-----------------------------------------
responsible for establishing and maintaining its own property and casualty
insurance (including, without limitation, primary and excess general liability,
automobile, workers' compensation, property, director and officer liability,
fire, crime, surety and other similar insurance policies) for the activities and
claims of such party and its Affiliates on and after the Closing Date; provided,
however, the Purchaser shall, if it so desires, continue the Company's policies
in place as at the Closing Date and the Porters shall be obligated to obtain new
insurance policies on any of the operations and assets distributed to any of
them as Excluded Assets as provided herein.
Section 6.9 Other Tax Matters.
-----------------
(a) Tax Returns. The Purchaser, the Porters, the Company and their
-----------
successors shall cooperate in the preparation of all Tax Returns and reports and
shall make available all necessary records and timely take all action necessary
to allow for the preparation and filing of all Tax Returns and reports. Within
ten (10) days following the Closing, the Porters shall deliver or shall cause to
be delivered to the Purchaser all books, records, returns, schedules, work
papers, and other documents (including without limitation, appraisals and other
background information) which are in the possession of the Porters or the
Company and which relate to any Taxes of the Company for any taxable period.
Prior to the delivery of the materials described in the preceding sentence, the
Porters shall cooperate with the Purchaser in providing access to such materials
as is reasonably required by the Purchaser.
The parties hereto agree that the Porters shall prepare, and pay (or have
fully reserved for) all taxes arising therefrom, all tax returns for the Company
for the periods ending on or before the Closing Date and for all taxes arising
as a result of the transactions contemplated by this Agreement. Upon mutual
agreement between the Porters and the Purchaser, the Company may prepare any
such required tax returns. Purchaser shall prepare, and pay all taxes arising
therefrom, all tax returns for the Company for the periods ending after the
Closing Date.
(b) Information. The Purchaser and the Porters agree to furnish or
-----------
cause to be furnished to each other, as promptly as
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<PAGE>
practicable, such information (including access to books and records) and
assistance relating to the Company as is reasonably requested for the filing of
any Tax Return, in determining a Tax liability or right to refund, for the
preparation of any audit or other proceeding, and for the prosecution of any
claim, suit or proceeding relating to a proposed Tax adjustment. The Purchaser
and the Porters shall cooperate with each other in the conduct of any Tax audit
or other Tax proceedings involving the Company. The parties shall execute and
deliver such powers of attorney and other documents as are reasonably requested
to carry out the administration of the Tax provisions of this Agreement.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser under this Agreement shall be subject to
the satisfaction of each of the following conditions unless waived in writing by
the Purchaser:
Section 7.1 Representations and Warranties. The representations and
------------------------------
warranties of the Porters and the Company contained in Article II hereof and
elsewhere in this Agreement and all information contained in any Exhibit,
Schedule or attachment hereto shall be true and correct in all material respects
when made and on the Closing Date as though then made. The Seller and the
Company shall have performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement to be performed
and complied with by them prior to the Closing Date. Seller shall have delivered
to the Purchaser a certificate, dated the Closing Date, in a form reasonably
satisfactory to the Purchaser, certifying to the foregoing, providing such
supplemental information, agreements and disclosures as shall be necessary to
make such representations and warranties as accurate on the Closing Date as on
the date originally given.
Section 7.2 Consents and Approvals. The Seller, the Company and the
----------------------
Purchaser shall have obtained all consents, approvals, Orders, qualifications,
licenses, Permits or other authorizations specified in Schedules 2.3, 2.26 and
3.3 hereto and, to the extent not listed in Schedules 2.3, 2.26 and 3.3 hereto,
required by all applicable Regulations, Orders and Contracts binding on any of
the Seller, the Company or the Purchaser or any of their respective properties
and assets, with respect to the execution, delivery and performance of this
Agreement, the financing and consummation of the transactions contemplated
herein and the conduct of the business of the Company in the same manner after
the Closing Date as before the Closing Date.
Section 7.3 No Material Adverse Change. There shall have been no
--------------------------
Material Adverse Change in the business, properties,
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<PAGE>
Financial Statements, Schedules to this Agreement, business prospects, condition
(financial or otherwise) or results of operations of the Company since December
31, 1996 through the Closing Date. The Purchaser shall have received a
certificate, dated the Closing Date, from the Seller, in a form reasonably
satisfactory to the Purchaser, certifying to the foregoing.
Section 7.4 No Proceeding or Litigation. No Order or Regulation shall be
---------------------------
in effect which would prevent the consummation of the transactions contemplated
hereby.
Section 7.5 Secretary's Certificate. The Purchaser shall have received a
-----------------------
certificate, signed by the Secretary of the Company, dated the Closing Date, as
to the charter and by-laws of the Company and the resolutions adopted by the
shareholders and directors of the Company in connection with this Agreement in a
form reasonably satisfactory to the Purchaser.
Section 7.6 Certificates of Good Standing. At the Closing, the Company
-----------------------------
shall have delivered to the Purchaser certificates issued by the appropriate
governmental authorities evidencing the good standing of the Company, Telephone
and each of their subsidiaries in their respective jurisdictions of
incorporation and in each jurisdiction in which each is qualified to do business
as of a date not more than fifteen (15) days prior to the Closing Date.
Section 7.7 Opinion of Seller's Counsel. Seller shall deliver at Closing
---------------------------
an opinion of counsel to the Seller addressed to Purchaser and Purchaser's
lender in substantially the form attached hereto as Exhibit 7.7.
Section 7.8 Noncompetition Agreement. The Seller and Company shall have
------------------------
caused Gary L. Porter to enter into the Noncompetition Agreement attached hereto
as Exhibit 7.8.
Section 7.9 Consulting Agreement. The Seller and Company
--------------------
shall have caused Gary L. Porter to enter into the Consulting Agreement attached
hereto as Exhibit 7.9.
Section 7.10 Resignations. The Seller shall have caused all directors
------------
and officers of the Company, Telephone and all of their subsidiaries to have
resigned.
Section 7.11 Other Documents. The Purchaser shall have been furnished
---------------
with such other and further documents and certificates, including certificates
of the Seller, the Porters or the Company's officers, directors and others, as
the Purchaser shall reasonably request to evidence compliance with the
conditions set forth in this Agreement.
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Section 7.12 Liens. The Porters shall have removed all Liens on the
-----
assets and properties of the Company other than Permitted Liens.
Section 7.13 Sale of Billing Services Company. The Company's fifty
--------------------------------
percent (50%) interest in a billing services business named Central Illinois
Data Services shall have been sold to El Paso Telephone prior to December 31,
1996, with appropriate proceeds therefor to have been paid to and remain the
property of the Company, and Purchaser shall have been furnished with
information on and evidence of the same. The Company shall not have entered into
any agreements obligating it to use the services in any way of Central Illinois
Data Services after such sale other than on a month-to-month basis. There shall
be no other continuing obligations with respect thereto.
Section 7.14 Delivery of Minute Books. The Porters shall deliver at
------------------------
Closing all original minute books and stock transfer records of the Company,
Telephone and of all their direct and indirect subsidiaries.
Section 7.15 Delivery of Financial Statements. The Porters shall have
--------------------------------
delivered to the Purchaser as soon as possible after the date hereof Tax Returns
with respect to the 1996 fiscal year for the Company, for Telephone and for each
of their subsidiaries. Further, the Porters shall deliver Unaudited Financial
Statements to the Purchaser on a monthly basis from and after the date hereof as
soon as such Unaudited Financial Statements shall have been prepared and as
provided in Section 4.9 hereof.
Section 7.16 Distribution of Odyssey Capital Stock. The Company shall
-------------------------------------
have, prior to Closing, distributed all of the capital stock of Odyssey owned by
the Company to Gary L. Porter, thereby spinning off all of the operations,
employees, assets and liabilities of Odyssey and its subsidiaries (including of
the Streator, Illinois retail store).
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS
OF THE SELLER
The obligations of the Seller under this Agreement shall be subject to the
satisfaction of each of the following conditions unless waived in writing by the
Porters:
Section 8.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in Article III hereof and elsewhere in
this Agreement and all information contained in any Exhibit, Schedule or
attachment hereto shall be true and correct in all material respects when made
and on
-34-
<PAGE>
the Closing Date as though then made, except as expressly provided herein or
therein. The Purchaser shall have performed and complied in all material
respects with all agreements, covenants and conditions required by this
Agreement to be performed and complied with by it prior to the Closing Date. An
officer of the Purchaser in his capacity as such shall have delivered to the
Seller a certificate, dated the Closing Date, certifying to the foregoing,
providing such supplemental information, agreements and disclosures as shall be
necessary to make such representations and warranties as accurate on the Closing
Date as on the date originally given.
Section 8.2 Consents and Approvals. The Purchaser, the Seller and the
----------------------
Company shall have obtained all consents, approvals, orders, qualifications,
licenses, Permits or other authorizations, specified in Schedules 2.3, 2.26 and
3.3 hereto and, to the extent not listed in Schedules 2.3, 2.26 and 3.3 hereto,
required by all applicable Regulations, Orders and Contracts binding on the
Purchaser, the Seller or the Company or any of their respective properties and
assets with respect to the execution, delivery and performance of this
Agreement.
Section 8.3 No Proceeding or Litigation. No Order or Regulation shall
---------------------------
be in effect which would prevent the consummation of the transactions
contemplated hereby.
Section 8.4 Secretary's Certificate. The Seller shall have received a
-----------------------
certificate, signed by the Secretary of the Purchaser, dated the Closing Date,
as to the charter and by-laws of the Purchaser and the resolutions adopted by
the directors of the Purchaser in connection with this Agreement in a form
reasonably satisfactory to the Seller.
Section 8.5 Opinion of Purchaser's Counsel. Purchaser shall deliver at
------------------------------
Closing an opinion of counsel to Purchaser addressed to Seller in substantially
the form attached hereto as Exhibit 8.5.
ARTICLE IX
CLOSING
Section 9.1 Closing. Unless this Agreement shall have been terminated
-------
or abandoned pursuant to the provisions of Article X hereof, a closing of the
transactions contemplated by this Agreement (the "Closing") shall be held on or
before October 15, 1997 (or on such date either before or after October 15, 1997
as the parties hereto shall mutually agree which shall be at least ten (10) days
after receipt of all ICC and other approvals required as a precondition to
Closing) (the "CLOSING DATE") in the offices of the Purchaser's counsel;
provided, that the Closing shall occur as soon as practicable after the
- --------
satisfaction of the conditions contained in Articles VII and VIII hereof.
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<PAGE>
Section 9.2 Closing Date Payment and Receipt of Shares. On the Closing
------------------------------------------
Date, (i) the Seller will assign and transfer to the Purchaser good and valid
title in and to the Shares, free and clear of all Liens, by delivering to the
Purchaser stock certificates representing the Shares, duly endorsed for transfer
or accompanied by duly executed stock powers endorsed in blank with requisite
stock transfer tax stamps, if any, attached; (ii) the Purchaser shall, by wire
transfer of same-day funds, pay to the Seller the amount of the Purchase Price;
and (iii) the parties shall deliver to each other the documents required under
this Agreement to be delivered at or prior to the Closing.
Section 9.3 Purchase of Certain Shares. If any Seller other than Gary
--------------------------
L. Porter, Virginia M. Porter and Renee Porter shall have elected not to
participate in the Closing or should any Seller not have been located prior to
Closing, then Purchaser hereby agrees to pay the Purchase Price to such Seller
for such number of Shares set forth on Exhibit A hereto should they elect to
participate at some time after the Closing or should they be located after the
Closing. Further, with respect to the unaccounted for 750th share, Purchaser
hereby agrees to pay the Purchase Price for such 750th share should a legitimate
owner therefor hereafter appear. Notwithstanding anything to the contrary herein
provided, Gary L. Porter shall otherwise be liable hereunder should any other
shareholder come forth and legitimately claim ownership of shares in the Company
or should a Seller legitimately claim ownership of shares in excess of the
number set forth with respect to him, her or it on Exhibit A hereto.
ARTICLE X
TERMINATION AND ABANDONMENT
Section 10.1 Methods of Termination. This Agreement may be terminated
----------------------
and the transactions herein contemplated may be abandoned at any time:
(a) Mutual Consent. By mutual written consent of the Purchaser and
--------------
the Porters.
(b) Seller's Failure to Perform. By the Purchaser if as of the
---------------------------
Closing Date any of the conditions specified in Article VII hereof have not been
satisfied (and remain so unsatisfied for more than ten (10) days after the
Purchaser has notified the Porters in writing thereof) or if either the Seller
or the Company is otherwise in default in any material respect under this
Agreement (and remains in default for more than ten (10) days after the
Purchaser has notified the Porters in writing of such default) or if at any time
prior to the Closing Date it becomes apparent to the Purchaser (on reasonable
grounds) that either the Seller or the Company will be unable to satisfy one or
more of the
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<PAGE>
representations and warranties in Article II hereof or one or more of the
covenants or agreements in Articles IV, VI or VII hereof,
(c) Purchaser's Failure to Perform. By the Porters if as of the
------------------------------
Closing Date any of the conditions specified in Article VIII hereof have not
been satisfied (and remain so unsatisfied for more than ten (10) days after the
Porters have notified the Purchaser in writing thereof) or if the Purchaser is
otherwise in default in any material respect under this Agreement (and remains
in default for more than ten (10) days after the Porters shall have notified the
Purchaser in writing of such default) or if at any time prior to the Closing
Date it becomes apparent to the Porters (on reasonable grounds) that the
Purchaser will be unable to satisfy one or more of its representations and
warranties in Article III hereof or one or more of the covenants or agreements
in Articles V, VI or VIII hereof.
(d) Remedies. In the event of any failure to perform as described in
--------
this Section 10.1, the nonbreaching party shall have such remedies for breach of
contract as are allowed by law in addition to or in substitution of the right of
termination.
Section 10.2 Procedure Upon Termination. If this Agreement is terminated
--------------------------
as provided herein:
(a) Return of Records. Each party shall as promptly as practicable
-----------------
redeliver to the party furnishing the same, all data, information and other
written material (including all copies thereof) of any other party relating to
the transactions contemplated hereby, whether obtained before or after the
execution hereof.
(b) Confidentiality. All information received by any party hereto
---------------
with respect to the business of any other party (other than information which is
a matter of public knowledge or which has heretofore been or is hereafter
published in any publication for public distribution or filed as public
information with any governmental authority) shall not at any time be used by,
or disclosed to, third parties.
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
Section 11.1 Survival. All of the terms and conditions of this
--------
Agreement, together with the representations, warranties and covenants contained
herein or in any instrument or document delivered or to be delivered pursuant to
this Agreement and the agreements of the parties to indemnify each other as set
forth in this Article XI shall survive the execution of this Agreement and the
Closing Date and shall continue for, and all claims with
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respect thereto shall be made prior to the end of, eighteen (18) months from the
Closing Date (the "INDEMNIFICATION PERIOD"); provided, however, that with
respect to any income tax liability of the Company, Telephone or any of their
subsidiaries attributable to any activities or transactions occurring by any of
them on or prior to the Closing Date, the agreement of Gary L. Porter to
indemnify Purchaser and its Affiliates shall survive until, and all claims with
respect thereto shall be made prior to, the expiration of the applicable statute
of limitations prescribed by Section 6501 of the Internal Revenue Code of 1986.
Section 11.2 Indemnification by Gary L. Porter. After the Closing Date,
---------------------------------
subject to the limitations set forth in Section 11.1 hereof, the Purchaser and
its Affiliates and their respective officers, directors, employees,
shareholders, representatives and agents shall, as their sole and exclusive
remedy, be indemnified and held harmless by Gary L. Porter against and in
respect of any and all damage, loss, liability, cost or expense (including,
unless otherwise provided herein, the reasonable fees and expenses of counsel
and any Tax liability resulting from any indemnity payment made hereunder)
resulting from, or in respect of, any of the following:
(a) Misrepresentation or Breach. Any misrepresentation or breach of
---------------------------
warranty of the Seller, the Porters or the Company, or nonfulfillment of any
obligation on the part of the Company (to be performed prior to the Closing) or
the Seller or the Porters under this Agreement, or contained in any Schedule or
Exhibit to this Agreement or from any misrepresentation in or omission from any
certificate, Schedule, Exhibit, related agreement, Financial Statement or
instrument delivered by or on behalf of the Seller, the Porters or the Company
hereunder.
(b) Taxes. All Taxes of the Seller, of the Porters, of the Company,
-----
Telephone or any of their subsidiaries or investments attributable to any period
beginning or ending prior to or on the Closing Date, including but not limited
to any Taxes that may result should the reverse triangular merger of the Company
consummated as of December 15, 1995 not be held to be tax-free under the IRC.
(c) Third Party Claims. Any Claim of a third party arising out of
------------------
the business or operations of the Company prior to or on the Closing Date or any
Claim relating to the Excluded Liabilities or to Odyssey either prior to or
after the Closing Date, or any Claim resulting from or arising out of the
ownership, management or use of the Shares and/or the business of the Company
prior to or on the Closing Date.
(d) Related Expenses. All expenses and costs, including but not
----------------
limited to legal fees, reasonably paid or incurred in connection with any such
indemnified Claim.
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<PAGE>
Notwithstanding anything to the contrary herein provided, the liability of Gary
L. Porter pursuant to Section 11.3(a) and (c) shall be limited to One Million
Dollars ($1,000,000.00) in the aggregate.
Section 11.3 Indemnification by the Purchaser. After the Closing, subject
--------------------------------
to the limitation set forth in Section 11.1, the Seller and its Affiliates and
their respective officers, directors, employees, shareholders, representatives
and agents shall be indemnified and held harmless by the Purchaser against and
in respect of any and all damage, loss, liability, cost or expense (including,
unless otherwise provided herein, the reasonable fees and expenses of counsel
and any Tax liability resulting from any indemnity payment made hereunder)
resulting from, or in respect of, any of the following:
(a) Misrepresentation or Breach. Any misrepresentation or breach of
---------------------------
warranty of the Purchaser, or nonfulfillment of any obligation on the part of
the Company (to be performed after the Closing) or the Purchaser under this
Agreement, or contained in any Schedule or Exhibit to this Agreement or from any
misrepresentation in or omission from any certificate, Schedule, Exhibit,
related agreement or instrument delivered by or on behalf of the Purchaser
hereunder.
(b) Taxes. All Taxes of the Purchaser or of the Company attributable
-----
to any period which begins after the Closing Date.
(c) Third Party Claims. Any Claim of a third party arising out of
------------------
the business or operations of the Company after the Closing Date.
(d) Related Expenses. All expenses and costs, including but not
----------------
limited to legal fees, reasonably paid or incurred in connection with any such
indemnified Claim.
Section 11.4 Third Party Claims.
------------------
(a) Generally. Except as otherwise provided in this Agreement, the
---------
following procedures shall be applicable with respect to indemnification for
third party Claims. Promptly after receipt by the party seeking indemnification
hereunder (hereinafter referred to as the "INDEMNITEE") of notice of the
commencement of any action or the assertion of any Claim, liability or
obligation by a third party (whether by legal process or otherwise), against
which Claim, liability or obligation another party to this Agreement
(hereinafter the "INDEMNITOR") is, or may be, required under this Agreement to
indemnify such Indemnitee, the Indemnitee shall, if a claim thereon is to be, or
may be, made against the Indemnitor, immediately notify the Indemnitor in
writing of the commencement or assertion thereof and give the Indemnitor a copy
of
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<PAGE>
such Claim or process and all legal pleadings. The Indemnitee's failure to give
timely notice as required by this Section 11.4(a) shall not serve to eliminate
or limit the Indemnitor's obligation to indemnify the Indemnitee unless such
failure prejudices the rights of the Indemnitor, and then only to the extent of
such prejudice. Moreover, the Indemnitee shall have the right to take any
actions or steps it deems reasonable to avoid the occurrence of any prejudice to
the rights of the Indemnitee. The Indemnitor shall have the right to assume the
defense of such action with counsel of reputable standing unless with respect to
such action (A) injunctive or equitable remedies have been sought therein in
respect of the Indemnitee or its business or (B) such action is for an alleged
amount of less than Five Thousand Dollars ($5,000); provided, that the
--------
Indemnitee and counsel to the Indemnitee shall have the right to participate in
the defense of any and all Claims pursuant to the provisions of Section 11.4(b)
hereof. The Indemnitor and the Indemnitee shall reasonably cooperate in the
defense of such Claims. If the Indemnitee shall be required by judgment or a
settlement agreement to pay any amount in respect of any obligation or liability
against which the Indemnitor has agreed to indemnify the Indemnitee under this
Agreement, the Indemnitor shall pay such amount to the Indemnitee in order to
enable the Indemnitee to make such payment, and otherwise shall promptly
reimburse the Indemnitee in an amount equal to the amount of such payment, in
either case, plus all reasonable out-of-pocket expenses (including reasonable
legal fees and expenses) incurred by such Indemnitee at the specific request of
the Indemnitor, as provided above, or as otherwise authorized by Section 11.4(b)
hereof, in connection with such obligation or liability subject to this Article
XI. No Indemnitor, in the defense of any such Claim, shall, except with the
consent of the Indemnitee, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnitee of a release from all liability
with respect to such Claim. In the event that the Indemnitor does not accept the
defense of any matter for which it is entitled to assume such defense as
provided in this Section 11. 4(a), the Indemnitee shall have the full right to
defend against any such Claim and shall be entitled to settle or agree to pay in
full such Claim in its sole discretion. With respect to any matter as to which
the Indemnitor is not entitled to assume the defense pursuant to the terms of
this Section 11.4(a), the Indemnitee shall not enter into any settlement for
which an indemnification Claim will be made hereunder without the approval of
the Indemnitor, which shall not be unreasonably withheld.
(b) Counsel. An Indemnitee shall have the right to employ its own
-------
counsel, but the fees and expenses of such counsel shall be at the expense of
the Indemnitee unless (i) the employment of such counsel shall have been
authorized in writing by the Indemnitor in connection with the defense of such
Claim and the Indemnitor has agreed in writing to pay such fees and expenses, or
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<PAGE>
(ii) the Indemnitor shall not have employed counsel in the defense of such Claim
(which counsel may be in-house counsel unless and until a lawsuit has been
commenced). In either of which events, such fees and expenses of not more than
one additional counsel for the indemnified parties shall be borne by the
Indemnitor.
Section 11.5 Right of Offset. Without limiting its other rights and
---------------
remedies, Purchaser shall be entitled to set off, against any and all sums
otherwise due and payable to Gary L. Porter under the Noncompetition Agreement,
all amounts with respect to which Purchaser is entitled to indemnification
pursuant to the provisions of this Article XI hereof. Purchaser shall notify
Gary L. Porter of any such sums to be set off, specifying the basis for such set
off and the amount thereof.
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Amendment and Modification. Subject to applicable
--------------------------
Regulations, this Agreement may be amended, modified and supplemented at any
time with respect to any of the terms contained herein, by a written agreement
signed by the parties hereto.
Section 12.2 Waiver. The failure of any party hereto to comply with any
------
obligation, covenant, agreement or condition herein may be waived in writing by
the other parties hereto, but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing.
Section 12.3 Certain Definitions.
-------------------
"AFFILIATE" shall mean, with regard to any Person, any Person which,
directly or indirectly controls, is controlled by, or is under common control
with, such Person and, with respect to any Person who is an individual, the
spouse, ancestors and descendants (lineal or by marriage) thereof. Control"
(including, with correlative meaning, the terms controlled by" and under common
control with"), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by Contract or otherwise.
"AGREEMENT" shall have the meaning ascribed to such term in the preamble
hereof.
"AUTHORITY" shall mean any governmental authority, including, without
limitation, the FCC and the ICC and any other governmental,
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<PAGE>
regulatory or administrative body, agency, commission, board of arbitrators, or
any court or judicial authority, whether federal, state, local or foreign.
"BUSINESS DAY" shall mean any day that is not a Saturday or Sunday and
that in Ransom, Illinois, or Charlotte, North Carolina, or Herndon, Virginia, is
not a day on which banking institutions are generally authorized or obligated by
Regulation to close.
"CERCLA" shall have the meaning ascribed to such term in Section 2.21(c)
hereof.
"CERCLIS" shall have the meaning ascribed to such term in Section 2.21(c)
hereof.
"CLAIM" shall mean any action, written claim, complaint, lawsuit, written
demand, suit, notice of a violation, litigation, proceeding, arbitration or
other dispute noticed in writing, whether civil, criminal, administrative or
otherwise, by any Authority or other Person.
"CLOSING" shall have the meaning ascribed to such term in Section 9.1
hereof.
"CLOSING DATE" shall have the meaning ascribed to such term in Section 9.1
hereof.
"COMPANY" shall have the meaning ascribed to such term in the preamble
hereof, but with respect to all representations, warranties, covenants and
agreements contained herein or in any Exhibit or Schedule hereto shall mean the
Company, Telephone and all their subsidiaries and shall include, but not be
limited to, C-R Communications, Inc., C-R Telephone Company, C-R Cellular, Inc.,
C-R Long Distance, Inc. and Odyssey Communications, Inc.
"CONTRACT" shall mean any agreement, contract, commitment, instrument or
other binding arrangement or understanding, whether written or oral.
"ENVIRONMENTAL LAW" shall mean any Regulation or Order, including, but not
limited to, any term or condition included in a validly issued Permit to
construct or operate a facility subject to any Regulation or Order, which
relates to or otherwise imposes liability or standards of conduct concerning
environmental matters, mining or reclamation of mined land, discharges,
emissions, releases or threatened releases of noises, odors or any pollutants,
contaminants or hazardous or toxic wastes, substances or materials, whether as
matter or energy, into ambient air, water or land or otherwise relating to the
manufacture, processing, generation, distribution, use, treatment, storage,
disposal, cleanup, transport or handling of pollutants, contaminants or
hazardous wastes,
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<PAGE>
substances or materials, including (but not limited to) CERCLA, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, the Toxic Substances Control
Act of 1976, as amended, the Federal Water Pollution Control Act Amendments of
1972, the Clean Water Act of 1977, as amended, any so-called "SUPERLIEN" law and
any other similar Regulation by any Authority in effect on or before the Closing
Date.
"ENVIRONMENTAL PERMIT" shall mean a Permit relating to or required by any
Environmental Law.
"ERISA" shall have the meaning ascribed to such term in Section 2.19
hereof.
"ERISA Plans" shall have the meaning ascribed to such term in Section 2.19
hereof.
"FCC" shall mean the Federal Communications Commission.
"FINANCIAL STATEMENTS" shall have the meaning ascribed to such term in
Section 2.9(a) hereof.
"GAAP" shall mean United States generally accepted accounting principles,
consistently applied, as in existence at the date hereof.
"HAZARDOUS MATERIALS" shall have the meaning ascribed to such term in
Section 2.21(a) hereof.
"IMPROVEMENTS" shall have the meaning ascribed to such term in Section
2.14(c) hereof.
"ICC" shall mean the Commerce Commission of the State of Illinois.
"INDEMNITEE" shall have the meaning ascribed to such term in Section
11.4(a) hereof.
"INDEMNITOR" shall have the meaning ascribed to such term in Section
11.4(a) hereof.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"LIEN" shall mean any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, claim, easement, restriction (on transfer or
otherwise) or interest of another Person of any kind or nature.
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<PAGE>
"MATERIAL ADVERSE CHANGE" shall mean any developments or changes which
would have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, any
circumstances, state of facts or matters which could reasonably be expected,
either individually or in conjunction with any other circumstance, state of
facts or matter, to have a material adverse effect in respect of such Person's
business, business prospects, properties, assets, condition (financial or
otherwise) or results of operations.
"ORDER" shall mean any judgment, decree (consent or otherwise), order,
injunction (preliminary or permanent), stipulation, ruling, decree or consent of
or by an Authority.
"PCB" shall mean polychlorinated biphenyls.
"PERMITS" shall have the meaning ascribed to such term in Section 2.26
hereof.
"PERMITTED LIENS" shall mean (i) statutory Liens for Taxes not yet due and
payable, (ii) such imperfections or irregularities of title, Liens, easements,
charges or encumbrances as do not interfere with the present use of the
properties or assets subject thereto or affected thereby, do not otherwise
impair present business operations at such properties, or do not have a Material
Adverse Effect on the value of such properties and assets and (iii) Liens
reflected in the Financial Statements.
"PERSON" shall mean any corporation, partnership, joint venture,
organization, entity, Authority or natural person.
"PENSION BENEFIT PLAN" shall have the meaning ascribed to such term in
Section 2.19 hereof.
"PROPRIETARY RIGHTS" shall mean all (i) patents, patent applications,
patent disclosures and all related continuation, continuation-in-part,
divisional, reissue, reexamination, utility, model, certificate of invention and
design patents, registrations and applications for registrations, (ii)
trademarks, service marks, logos, trade names and corporate names and
registrations and applications for registration thereof and (iii) copyrights and
registrations and applications for registration thereof.
"PURCHASE PRICE" shall have the meaning ascribed to such term in Section
1.2 hereof.
"PURCHASER" shall have the meaning ascribed to such term in the preamble
hereof.
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<PAGE>
"REGULATION" shall mean any law, statute, regulation, ordinance,
requirement, rule, executive order or binding action of or by an Authority.
"RELEASE" shall have the meaning ascribed to such term in Section 9601(22)
of Title 42 of the United States Code.
"SELLER" shall have the meaning ascribed to such term in the preamble
hereof.
"SHARES" shall have the meaning ascribed to such term in the recitals
hereof.
"TAX RETURNS" shall have the meaning ascribed to such term in Section
2.16(a) hereof.
"TAX" or "TAXES" means any income, gross receipt, net proceeds,
alternative or add-on minimum, ad valorem, value added, estimated, turnover,
-- -------
sales, use, property, personal property (tangible and intangible), stamp,
leasing, lease, user, excise, duty, franchise, transfer, license, withholding,
payroll, employment, foreign, fuel, excess profits, occupational and interest
equalization, windfall profits, severance and other taxes, charges, fees, levies
or other assessments of any kind whatsoever (including interest, penalties,
fines and additions thereto) imposed by any taxing authority, federal, state,
local or foreign.
"UNAUDITED FINANCIAL STATEMENTS" shall have the meaning ascribed to such
term in Section 2.9(a) hereof.
"WELFARE BENEFIT PLAN" shall have the meaning ascribed to such term in
Section 2.19 hereof.
Section 12.4 Notices. All notices, claims, requests, demands or other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand, by first class certified
mail, return receipt requested, with postage paid, or by receipted overnight
courier service to the intended recipient at the address specified below or at
such other address as shall be designated by such party in any notice to the
other parties.
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<PAGE>
Notices to Purchaser: With a Copy to:
-------------------- --------------
MJD Ventures, Inc. Underwood Kinsey Warren &
521 East Morehead Street Tucker, P.A.
Suite 250 201 S. College Street,
Charlotte, NC 28202 Suite 2020
ATTN: Eugene B. Johnson, Charlotte, NC 28244
Senior Vice President (704) 333-1200 (Phone)
(704) 344-8150 (Phone) (704) 377-9630 (Fax)
(704) 344-8121 (Fax)
Notices to Seller, to the
Company, to the Porters
and to Gary L. Porter With a Copy to:
------------------------- --------------
Gary L. Porter B. McLean Arnold, Esq.
C-R Communications, Inc. 306 North Center Street
201 S. Lincoln Street Bloomington, IL 61701
Ransom, IL 60470 (309) 827-8212 (Phone)
(815) 536-4211 (Phone) (309) 827-3305 (Fax)
(815) ___________ (Fax)
Section 12.5 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties;
provided, that the Purchaser may, without the prior written consent of the
- --------
Seller, assign its rights and obligations hereunder and under any other
Contracts or documents executed or delivered in connection herewith to (i) an
Affiliate of the Purchaser, including but not limited to MJD Holdings Corp., or
(ii) its lenders as collateral in connection with the financing of the
transactions contemplated hereby.
Section 12.6 Governing Law. This Agreement shall be governed by the laws
-------------
of the State of North Carolina, without regard to its principles of conflict of
laws.
Section 12.7 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 12.8 Headings. The Article and Section headings contained in
--------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
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<PAGE>
Section 12.9 Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the parties hereto with regard to the subject
matter hereof and supersedes all prior agreements, representations, warranties,
promises, covenants, arrangements and understandings, oral or written, express
or implied, among the parties with respect to such subject matter. There are no
agreements, representations, warranties, promises, covenants, arrangements or
understandings among the parties with respect to such subject matter other than
those expressly set forth or referred to herein.
Section 12.10 No Benefit. This Agreement shall not be construed so as to
----------
confer any right or benefit upon any Person other than the signatories to this
Agreement and each of their respective successors and permitted assigns.
Section 12.11 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party hereto upon any breach or default
of another party hereto under this Agreement shall impair any such right, power
or remedy of such party nor shall it be construed to be a waiver of any such
breach or default or an acquiescence therein or of or in any similar breach or
default thereafter occurring. All remedies, whether under this Agreement, by
Regulation or otherwise, afforded to any party shall be cumulative and not
alternative.
Section 12.12 Severability. Unless otherwise provided herein, if any
------------
provision of this Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 12.13 Expenses. Each of the parties hereto shall bear its own
--------
expenses, including, without limitation, legal fees, taxes and expenses, with
respect to this Agreement and the transactions contemplated hereby; provided,
--------
however, that in the event a breach of Section 6.4 hereof occurs and the
- -------
transactions contemplated hereby are not consummated, the Porters shall pay to
the Purchaser the Purchaser's out-of-pocket fees, including, without limitation,
reasonable legal fees and expenses, incurred in connection with the transactions
contemplated hereby. Further the parties hereto agree that the Company shall pay
the fees and expenses of ICC and FCC counsel with respect to the transactions
contemplated by this Agreement and that the Company shall pay the fees and
expenses of B. McLean Arnold, Esq. for professional services rendered to the
Company in connection with this transaction or otherwise for the periods through
December 1, 1996 and thereafter up to a maximum of Eighteen Thousand Dollars
($18,000.00). The Porters shall pay the fees and expenses of B. McLean Arnold,
Esq. for professional services provided after December 2, 1996 which are in
excess of the $18,000.00 maximum the Company will pay. Further, the Purchaser
and Gary L. Porter each
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<PAGE>
hereby agree that each shall pay one-half of the appraisal expenses related to
this transaction, including one-half of the $500.00 to appraise the excluded
real estate going to Virginia Porter as provided on Schedule 1.3 hereto and one-
half of the $2,500.00 to appraise the Odyssey assets going to Gary Porter as
provided on Schedule 1.3 hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MJD VENTURES, INC.
/s/ Eugene B. Johnson
------------------------------------
By: Eugene B. Johnson
---------------------------------
Title: Senior Vice President
------------------------------
/s/ Gary L. Porter (SEAL)
------------------------------
GARY L. PORTER
/s/ Virginia M. Porter (SEAL)
------------------------------
VIRGINIA M. PORTER
/s/ Renee Porter (SEAL)
------------------------------
RENEE PORTER
C-R COMMUNICATIONS, INC.
/s/ Gary L. Porter
------------------------------------
By: GARY L. PORTER
---------------------------------
Title: PRESIDENT
------------------------------
C-R TELEPHONE COMPANY
/s/ Gary L. Porter
------------------------------------
By: GARY L. PORTER
---------------------------------
Title: PRESIDENT
------------------------------
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<PAGE>
Exhibit A
Other Stockholders
Ruth Alene Wormley Myrtle R. Gahm
R. R. R. R. 1
Ransom, IL 60470 Streator, IL 61364
4 shares 1 share
Oscar Strobel
c/o Richard Strobel
806 Richland Avenue
Effingham, IL 62401
1 share
Wayne Sampson
143 Sunset Court
Morton, IL 61550
1 share
Mrs. Geraldine Gordon
Ransom, IL 60470
1 share
Lois Easley, Edmund Smally,
Gladys Brown
3830 N. 3300 E.
Kimberly, Idaho 83341
1 share
Tessie Weber
Ransom, IL 60470
1 share
Elaine M. Feeley
4521 7th Street North
St. Petersburg, FL 33703
2 shares
School Trustees
c/o Mrs. Lois Smith
R. R. 1
Streator, IL 61364
1 share
Larry McCann
P. O. Box 11
210 S. Garfield Street
Ransom, IL 60470
1 share
<PAGE>
Exhibit 7.7
Opinion of Seller's Counsel
<PAGE>
[LETTERHEAD OF ARNOLD LAW OFFICE]
October 15, 1997
MJD Ventures, Inc.
521 East Morehead Street
Suite 250
Charlotte, NC 28202
Rural Telephone Finance Cooperative
2201 Cooperative Way
Herndon, VA 20171-3025
Re: C-R Communications, Inc. and Shareholders
Ladies and Gentlemen:
We have served as counsel to C-R Communications, Inc., its subsidiaries and
affiliates (collectively the "Company"), each an Illinois corporation, in
connection with the preparation, execution and delivery of the Stock Purchase
Agreement dated as of June 24, 1997 (the "Agreement"), among MJD Ventures, Inc.
("MJD"), the Company and the shareholders of the Company individually (such
shareholders shall be referred to collectively herein as the "Shareholders"),
relating to the purchase of the shares of capital stock of C-R Communications,
Inc. (the "Shares") owned by the Shareholders. This opinion is delivered to you
pursuant to Section 7.7 of the Agreement. All capitalized terms used herein
have the meaning assigned to them in the Agreement except as otherwise provided
herein.
In connection with the opinions expressed below, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of such documents, corporate records and other writings of the
Company, certificates of public officials or officers of the Company, and such
other documents and writings as were deemed necessary or appropriate for the
opinions hereinafter expressed. With respect to our opinions, we have advised
you and you have acknowledged that our investigation has been limited to
reasonable inquiry.
In making such examination and rendering the opinions set forth below, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies, and
<PAGE>
MJD Ventures, Inc.
Rural Telephone Finance Cooperative
October 15, 1997
Page 2
the authenticity of the originals of such documents and the legal capacity of
all natural persons.
Our opinions as hereinafter expressed are subject to the following
qualifications:
1. Our opinions are subject to the effect of bankruptcy, fraudulent
conveyance, insolvency, reorganization, arrangement, moratorium and other
similar laws;
2. Our opinions are subject to limitations imposed by laws and judicial
decisions relating to or affecting the rights of creditors or secured creditors
generally, or general principles of equity (regardless of whether enforcement is
considered in proceedings at law or in equity) upon the enforceability of any of
the remedies, covenants and other provisions of the Agreement and upon the
availability of injunctive relief or other equitable remedies;
3. We express no opinion as to the creation or enforceability of security
interests or as to the recoverability of attorneys' fees and legal expenses;
4. We express no opinion as to the laws or the effect or applicability of
the laws of any jurisdiction other than the laws of the State of Illinois;
5. The opinions expressed herein are as of the date hereof, and we
undertake no responsibility to advise you of changes occurring after the date of
this letter.
Based upon the foregoing and subject to further assumptions, limitations
and qualifications set forth below, we are of the opinion that:
(a) C-R Communications, Inc. and each of its subsidiaries is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Illinois with full corporate power and authority
to carry on the business in which it is presently engaged and to own, lease
and operate its properties as now being conducted and to perform its
obligations under the Agreement. The Shareholders are residents of
Illinois, Florida and Idaho, as set forth in the Agreement or as shown on
Exhibit A to the Agreement.
<PAGE>
MJD Ventures, Inc.
Rural Telephone Finance Cooperative
October 15, 1997
Page 3
(b) The execution and delivery of the Agreement has been duly
authorized and approved by the Company's board of directors and the
Shareholders. The Agreement is a valid and binding obligation of the
Company and the Shareholders, enforceable in accordance with its terms,
subject to limitations and qualifications noted above. All persons who have
executed this Agreement on behalf of the Company have been duly authorized
to do so by all necessary action of the Company and its Shareholders.
(c) The authorized capital stock of C-R Communications, Inc. consists
of 750 shares of $10.00 par value common stock, of which all 750 shares are
issued and outstanding (the "C-R Stock"). Each Shareholder is the lawful
owner of the number of shares reported in the Agreement or in Exhibit A to
the Agreement. C-R Communications, Inc. has no other class of stock
authorized or issued and outstanding. All of the issued and outstanding
shares of the C-R Stock are duly and validly issued and outstanding, are
fully paid and nonassessable, were issued in compliance with all state and
federal laws and are held by the Shareholders. The delivery by the
Shareholders to Purchaser at Closing of certificates representing the C-R
Stock will pass good and marketable title to all of the C-R Stock to
Purchaser free and clear of all liens, encumbrances, claims, restrictions
and equities of any kind, other than as disclosed on Schedule 2.7 of the
Agreement. There are no outstanding warrants, options, rights, puts, calls
or other commitments of any nature relating to the C-R Stock, and there are
no outstanding securities or debt obligations of the Company convertible
into shares of capital stock of the Company. To our best knowledge, none of
the issued and outstanding shares of capital stock of the Company was
issued in violation of preemptive rights. No shares of capital stock of the
Company are held in the treasury of the Company.
The foregoing opinions are equally applicable to the capital
stock of each affiliate or subsidiary of the Corporation hereinafter
set forth, except that the authorized, issued and outstanding capital
stock of such corporations are as follows:
<PAGE>
MJD Ventures, Inc.
Rural Telephone Finance Cooperative
October 15, 1997
Page 4
<TABLE>
<CAPTION>
Issued and
Authorized Outstanding
Corporation Capital Stock Capital Stock
----------- -------------- -------------
<S> <C> <C>
C-R Telephone Company 750 shares, 100 shares issued to
$10.00 par value, C-R Communications, Inc.
common stock on December 15, 1995
C-R Cellular, Inc. 10,000 shares, 2,500 shares issued to
no par value, C-R Telephone Company
common stock on June 1, 1991
C-R Long Distance, Inc. 10,000 shares, 100 shares issued to
no par value, C-R Communications, Inc.
common stock on December 15, 1995
Odyssey Communications, Inc. 1,000 shares, 300 shares issued to
no par value, C-R Communications on
common stock December 30, 1996
</TABLE>
(d) To our actual knowledge, based on examination of certificates
received from the Company, the execution, delivery and performance of the
Agreement and the consummation of the transactions contemplated by the
Agreement will not: (i) violate or result in a breach of or default or
acceleration under the Articles of Incorporation or Bylaws of the Company
or any instrument or agreement to which the Company or the Shareholders are
a party or are bound which would have a material adverse effect on the
Company's properties or operations; (ii) violate any judgment, order,
injunction, decree or award against or binding upon the Company or upon the
C-R Stock or other securities, property or business of the Company which
would have a material adverse effect on the Company's properties or
operations; (iii) result in the creation of any material lien, charge or
encumbrance upon the properties or assets of the Company or the C-R Stock;
or (iv) violate any law or regulation of any jurisdiction relating to the
Company or the C-R Stock or other securities, property or business of the
Company, assuming all required regulatory approvals have been obtained in
connection with the transactions contemplated by the Agreement.
<PAGE>
MJD Ventures, Inc.
Rural Telephone Finance Cooperative
October 15, 1997
Page 5
(e) To our actual knowledge, based on examination of certificates
received from officers of the Company, there is no litigation, claim or
proceeding, pending or threatened against the Company or the Shareholders,
or against any of their respective assets or properties, or relating to the
ownership of any or all of the C-R Stock, or which questions the validity
or enforceability of the Agreement, or which could prevent, hinder or delay
consummation of the Agreement or any of the transactions contemplated
thereby.
(f) To our actual knowledge, based on examination of certificates
received from officers of the Company, there is not pending any threatened
or existing claim, unsatisfied judgment, litigation, governmental
investigation or proceeding before any court, arbitrator or federal, state
or other governmental commission, board or other agency by or against the
Company or the Shareholders or adversely affecting the operations or
financial condition of the Company or its business, property, prospects or
assets.
The opinions expressed herein are solely for your benefit in connection
with the Agreement and, without our express written consent, neither our
opinions nor this opinion letter may be assigned, quoted or relied upon for any
other purpose. No other person or entity may rely upon or claim reliance upon
this opinion, and it is not to be quoted in whole or in part or otherwise
referred to by any governmental agency or other person or entity without prior
written consent of this firm.
Very truly yours,
ARNOLD LAW OFFICE
By:_____________________________________
B. McLEAN ARNOLD
<PAGE>
Exhibit 7.8
NONCOMPETITION AGREEMENT
------------------------
<PAGE>
NONCOMPETITION AGREEMENT
------------------------
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made effective as of the
15th day of October, 1997 (the "Effective Date"), by and between GARY L. PORTER,
a resident of Illinois ("Porter"), C-R COMMUNICATIONS, INC., an Illinois
corporation, C-R TELEPHONE COMPANY, an Illinois corporation (C-R Communications,
Inc. and C-R Telephone Company collectively, "the Company") and MJD VENTURES,
INC., a Delaware corporation ("MJD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Stock Purchase Agreement by and among
Porter, the Company and MJD, among others, dated as of June 24, 1997 (the
"Purchase Agreement"), MJD is purchasing all of the outstanding capital stock of
the Company; and
WHEREAS, Porter is a principal shareholder of the Company, and Porter's
knowledge of and contacts within the Company's relevant trade are such that MJD
is unwilling to enter into the Purchase Agreement in the absence of Porter's
agreement to the covenants set forth herein.
NOW, THEREFORE, in consideration of and as an inducement to MJD's entering
into the Purchase Agreement and the transactions contemplated thereby, and for
other good and valuable consideration as provided herein, the receipt and
sufficiency of which are hereby acknowledged, Porter hereby undertakes and
agrees as follows:
1. Porter will not, without the prior written approval of the Company and
MJD, directly or indirectly engage or attempt to engage in any of the following
competitive activities within the "Restricted Territory" during the "Restricted
Period" (as defined in Paragraphs 1(c) and 1(d) hereof, respectively):
(a) ownership, management, operation or control of, or participation
in the ownership, management, operation or control of, or connection with
or ownership of any interest in, or exploitation of any customers, business
or opportunities of, to or with, or otherwise assisting in any manner, any
entity which is engaged in any one or more of the "Restricted Activities"
(as defined in Paragraph 1 (e) hereof). By way of example and not
limitation, this restriction shall apply to actions taken by Porter in the
capacity of director, officer, employee, agent, consultant, partner or
stockholder (except that Porter shall be permitted to acquire a stock
interest in a corporation provided such stock is publicly traded and the
stock so acquired is not more than five percent (5%) of the total
outstanding shares of such corporation) and shall further apply to actions
taken by Porter through
<PAGE>
Virginia M. Porter or Renee Porter or any other relative or friend of his
or theirs; or
(b) employing or engaging or attempting to employ or engage, or
knowingly arranging or soliciting to have any other person or entity employ
or engage or attempt to employ or engage, any person who heretofore has
been employed or engaged by the Company and who is, on the Effective Date
or thereafter, employed or engaged by the Company or MJD, including,
without way of limitation, all such persons working in the capacity of
employee, agent, sales consultant or independent contractor; provided,
however, that such restriction shall not apply to the following persons:
Virginia M. Porter, Renee Porter, and those persons employed by Odyssey
Communications, Inc. or the Streator retail store as of the Closing Date.
(c) As used herein, the term "Restricted Territory" shall include any
and all locations which as of the Effective Date are within the operating
area of C-R Telephone Company, as defined by the Illinois Commerce
Commission.
(d) As used herein, the term "Restricted Period" shall be a period of
five (5) consecutive years, commencing with the Effective Date.
(e) As used herein, the term "Restricted Activities" shall mean the
provision or sale of any of the following telecommunications services to
any existing or future wireline customer of the Company (i.e., any Person
----
within the Restricted Territory):
(1) Paging;
(2) Cellular Resale;
(3) Paging Resale;
(4) Internet Access;
(5) PCS;
(6) Voice Mail;
(7) Fax Store & Forward;
(8) Directory;
(9) Pre-Paid Calling Cards;
(10) Toll Resale;
-2-
<PAGE>
(11) Cable Television (wired and/or wireless);
(12) Local Dial Tone; and
(13) Optional Wire Maintenance.
2. Notwithstanding anything to the contrary herein provided, Porter may,
without further consent of the Company or MJD, engage in the following permitted
activities (the "Permitted Activities"):
(1) Internet sales outside of the Restricted Territory;
(2) Illinois Valley Cellular, Inc. agent operations outside the
Restricted Territory;
(3) Computer sales and services, whether within or outside the
Restricted Territory;
(4) Non-telecommunications services within the Restricted Territory;
and
(5) Telecommunications-related services outside the Restricted
Territory.
3. Porter shall not, directly or indirectly, at any and all times
hereafter, use, divulge or make available to any person or entity, any
confidential information or any documents, files or other papers concerning the
business of the Company, except for such disclosure which is consented to in
writing in advance by MJD, or otherwise required by applicable law or
regulations.
4. As consideration for the foregoing restrictions upon competition (in
addition to MJD's execution of the Purchase Agreement), MJD shall pay Porter the
principal sum of Seven Hundred Fifty Thousand and no/100 Dollars ($750,000.00)
(the "Noncompete Payment"). The Noncompete Payment shall be payable in Twenty
(20) equal quarterly installments of Thirty-Seven Thousand Five Hundred and
no/100 Dollars ($37,500.00) each. The quarterly installments shall be payable
in arrears, commencing on the last day of the first full calendar quarter ending
after the Effective Date, and continuing on the last day of each calendar
quarter occurring thereafter until the Noncompete Payment has been paid in full,
subject to the provisions hereof. To the extent that the Effective Date has
occurred after the start of a particular calendar quarter, then the first
quarterly installment shall be prorated accordingly. The Noncompete Payment may
be prepaid in part or in full at any time by MJD, in its sole discretion,
without penalty or premium.
5. Without limiting its other rights and remedies, MJD shall be entitled
to set off, against all sums otherwise due and payable hereunder, all amounts
with respect to which MJD is entitled to indemnification pursuant to the terms
of the Purchase Agreement.
-3-
<PAGE>
MJD shall notify Porter of any such sums to be set off, specifying the basis for
such set off and the amount thereof.
6. In the event of any breach by Porter of any provision contained
herein, all obligations and liabilities of MJD with respect to the Noncompete
Payment shall cease and terminate, and the Restricted Period shall, to the
extent permitted by law, be extended by any period of time during which (i) such
breach continues and (ii) there is pending litigation in which MJD is seeking to
enforce the terms of this Agreement.
7. Except as otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to them in the Purchase Agreement. In the
event that any provision contained herein is held to be invalid, prohibited or
unenforceable because of the scope, duration or area of its applicability or for
other reasons, such provision shall be ineffective only to the extent of such
invalidity, prohibition or unenforceability, without invalidating the remaining
provisions hereof. No narrowed construction, court-modification or invalidation
of any provision hereof shall affect the construction, legality, validity or
enforceability of any other provision hereof.
8. Porter acknowledges that the Company and MJD will be irreparably
damaged if the provisions hereof are not specifically enforced, and agrees that
either or both of the Company and/or MJD shall be entitled to an injunction
restraining any violation or attempted violation of this Agreement (without any
bond or other security being required), or any other appropriate decree of
specific performance. Such remedies shall not be exclusive and shall be in
addition to any other remedy which the Company and/or MJD may have.
9. This Agreement shall be governed and construed in accordance with the
laws of the State of North Carolina. This Agreement shall inure to the benefit
of the Company and MJD and their successors and assigns. This Agreement is
personal to Porter and may not be assigned by him. The restrictive covenants
contained herein shall apply to all actions taken by Porter or any person or
entity directly or indirectly controlling, controlled by or affiliated with
Porter. The terms hereof may not be modified or
-4-
<PAGE>
terminated except by a writing signed by the Company, MJD and Porter.
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
as of the date first set forth above.
___________________________(SEAL)
GARY L. PORTER
C-R COMMUNICATIONS, INC.
ATTEST:
_________________________________ _________________________________
By:______________________________ By:______________________________
Title:___________________________ Title:___________________________
(Corporate Seal)
C-R TELEPHONE COMPANY
ATTEST:
_________________________________ _________________________________
By:______________________________ By:______________________________
Title:___________________________ Title:___________________________
(Corporate Seal)
MJD VENTURES, INC.
ATTEST:
_________________________________ _________________________________
By:______________________________ By:______________________________
Title:___________________________ Title:___________________________
(Corporate Seal)
-5-
<PAGE>
EXHIBIT 7.9
CONSULTING AGREEMENT
--------------------
<PAGE>
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (the "Agreement") is made effective as of the
15th day of October, 1997 by among GARY L. PORTER, a resident of Illinois
("Consultant"), C-R COMMUNICATIONS, INC., an Illinois corporation, C-R TELEPHONE
COMPANY, an Illinois corporation (C-R Communications, Inc. and C-R Telephone
Company collectively, the "Company") and MJD VENTURES, INC., a Delaware
corporation ("MJD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is an Illinois corporation engaged in, among other
activities, the ownership and operation of a telephone company that provides
wire line telecommunications services in the exchanges of Ransom and Cornell,
Illinois (the "Business"); and
WHEREAS, Consultant possesses valuable knowledge and experience regarding
the business affairs of the Company; and
WHEREAS, the Company desires to obtain the services of Consultant for its
business in order to insure an orderly transition of control of the Business,
and Consultant is willing to provide such services;
C O V E N A N T S:
- - - - - - - - -
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Consultation Services. The Company hereby engages Consultant to
---------------------
provide Business consulting services, and Consultant hereby agrees to provide
such services to the Company. The specific services to be rendered by
Consultant shall be mutually agreed upon from time to time between Consultant
and appropriate officers and/or the Board of Directors of the Company.
Consultant agrees to devote such time and energy as may be necessary to perform
the duties and responsibilities requested by the Company.
2. Term. The term of this Agreement shall be for a period of six (6)
----
months commencing as of the date hereof ("Term").
3. Compensation. For all services rendered by Consultant under this
------------
Agreement, the Company shall pay Consultant upon execution of this Agreement the
amount of One Hundred Forty Thousand and no/100 Dollars ($140,000.00) (the
"Consulting Payment").
<PAGE>
4. Relationship of the Parties.
---------------------------
(a) It is expressly agreed and understood that Consultant shall act as
an independent contractor and not as an employee or agent of the Company.
The Company has no responsibility for Consultant as an independent
contractor, and has no responsibility for any employees hired by
Consultant.
(b) As an independent contractor, Consultant hereby expressly agrees
that he is responsible for the payment of all taxes, including federal,
state and local taxes, arising out of Consultant's performance of the
services, including, but not limited to, federal and state income tax,
Social Security tax, unemployment insurance taxes, worker's compensation
and any and all other taxes .
(c) It is expressly agreed that Consultant will make any insurance
arrangements for himself he deems necessary. Consultant understands that he
shall not be entitled to receive any health insurance benefits, retirement
benefits or other benefits available to employees of the Company, except as
specifically set forth in the Stock Purchase Agreement by and among
Consultant, the Company and MJD, among others, dated as of June 24, 1997.
5. Entire Agreement. This Agreement, with the Stock Purchase Agreement
----------------
and the Noncompetition Agreement entered into by Consultant simultaneously
herewith, contains the entire agreement of the parties with respect to its
subject matter and, as of the date hereof, supersedes all previous and
contemporaneous agreements and understandings, inducements, or conditions,
expressed or implied, oral or written, between the parties with respect to the
subject matter hereof, and no waiver, modification, or change of any of its
provisions shall be valid unless in writing and signed by the parties against
whom such claimed waiver, modification or change is sought to be enforced.
6. Waiver of Breach. The waiver of any breach of any term or condition
----------------
of this Agreement shall not be deemed to constitute a waiver of any other term
or condition of this Agreement.
7. Severability. If any term or provision of this Agreement or the
------------
application thereof to any person of circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement shall not be affected thereby
and each term and provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
8. Applicable Law. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the laws of the State of North Carolina.
-2-
<PAGE>
9. Notices. Any notices, requests, demands or other communications under
-------
this Agreement to a party hereto shall be in writing and shall be deemed to have
been fully given when delivered in person or deposited in the United States
Mail, postage pre-paid, by registered or certified mail, return receipt
requested, to the parties hereto to the following address:
as to Consultant: Gary L. Porter
Post Office Box 8
304 S. Wallace
Ransom, IL 60470
as to the Company: C-R Communications, Inc.
201 S. Lincoln Street
Ransom, IL 60470
as to MJD: MJD Ventures, Inc.
521 E. Morehead Street
Suite 250
Charlotte, NC 28202
Any party hereto may change its address to which notices or other communications
hereunder are to be directed (and the person to whom
-3-
<PAGE>
such notice or other communication is to be directed) by giving notice thereof
to the other parties hereto as hereinabove provided.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first above written.
________________________________(SEAL)
GARY L. PORTER
C-R COMMUNICATIONS, INC.
ATTEST:
___________________________ ______________________________________
By:________________________ By:___________________________________
Title:_____________________ Title:________________________________
(Corporate Seal)
C-R TELEPHONE COMPANY
ATTEST:
___________________________ ______________________________________
By:________________________ By:___________________________________
Title:_____________________ Title:________________________________
(Corporate Seal)
MJD VENTURES, INC.
ATTEST:
___________________________ ______________________________________
By:________________________ By:___________________________________
Title:_____________________ Title:________________________________
(Corporate Seal)
-4-
<PAGE>
Exhibit 8.5
Opinion of Purchaser's Counsel
<PAGE>
[LETTERHEAD OF UNDERWOOD KINSEY WARREN & TUCKER P.A.]
October 15, 1997
Shareholders of C-R Communications, Inc.
201 S. Lincoln Street
Ransom, IL 60470
Ladies and Gentlemen:
We have acted as counsel to MJD Ventures, Inc., a Delaware corporation
("MJD" or "Purchaser"), in connection with the purchase by Purchaser of all of
the capital stock of C-R Communications, Inc. (the "Company") from Gary L.
Porter, Virginia M. Porter, Renee' Porter and the Other Stockholders ("Seller"),
pursuant to a Stock Purchase Agreement entered into as of June 24, 1997 (the
"Purchase Agreement") by, between and among Purchaser, the Company and Seller.
This opinion is being delivered to you pursuant to Section 8.5 of the
Purchase Agreement. Capitalized terms used herein which are not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement.
In connection with this transaction, we have reviewed the Articles of
Incorporation and Bylaws (the "Organizational Documents") of the Purchaser, the
Purchase Agreement and such other instruments and documents as are executed and
delivered pursuant to the Purchase Agreement, and have examined such other
records and information and have conducted such other investigations as we have
deemed necessary to render the opinion set forth below. As to facts material to
our opinion, we have relied upon the factual representations of Purchaser in the
Purchase Agreement, certificates from certain state authorities and on those
certificates delivered at Closing.
We have assumed the conformity of all copies to the originals of all
documents reviewed by us, the genuineness of all signatures (other than those of
the shareholders, directors and
<PAGE>
Shareholders of C-R Communications, Inc.
October 15, 1997
Page 2
officers of Purchaser) and the authenticity of all documents submitted to us
(whether originals or copies).
For the purposes of our opinion, we have assumed that the Purchase
Agreement and all other instruments and documents executed and delivered
pursuant thereto have been duly authorized, executed and delivered by all of the
parties thereto other than Purchaser.
Whenever a statement herein is qualified by the phrases "known to us" or
"to our knowledge", or similar phrases, it is intended to indicate that during
the course of our representation of Purchaser and the transactions contemplated
by the Purchase Agreement, and having made inquiry of certain officers of
Purchaser as to such matters, no information that would give us actual
knowledge of the inaccuracy of such statement has come to our attention.
However, we have not undertaken any independent investigation or review to
determine the accuracy of any such statement. No inference as to our knowledge
of any matters bearing on the accuracy of any such statement should be drawn
from our representation of Purchaser.
Based upon the foregoing, and subject to the assumptions and qualifications
herein set forth, it is our opinion that:
1. MJD is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware with full corporate power and
authority to carry on the business in which it is engaged, to own, lease and
operate its properties, and to enter into and to perform its obligations under
the Purchaser Agreement.
2. The execution and delivery of the Purchaser Agreement was duly
authorized and approved by the Board of Directors of MJD. The Purchase Agreement
is a valid and binding obligation of MJD enforceable in accordance with its
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights in the event of future bankruptcy,
insolvency or reorganization of Purchaser, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. All persons who have executed this Purchase
Agreement on behalf of MJD have been duly authorized to do so by all necessary
corporate action.
3. To our best knowledge, MJD has given all notices to and has obtained
from all state and federal regulatory authorities
<PAGE>
Shareholders of C-R Communications, Inc.
October 15, 1997
Page 3
any approvals, consents, permits and authorizations required in order to
consummate the transactions contemplated in the Purchase Agreement.
The opinions expressed herein are based upon and limited to matters
governed by the laws of the State of North Carolina and the State of Delaware,
and we express no opinion as to any matter governed by the laws of any other
jurisdiction. We are not authorized to practice law in the State of Delaware
and the opinions set forth herein are rendered solely upon our review of
applicable provisions of Delaware corporation law as currently published in
standard compilations and such consultations with Delaware local counsel as we
have deemed necessary or appropriate.
This opinion is given as of the date hereof and we assume no obligation to
update or supplement this opinion to reflect any facts or circumstances which
may hereafter come to our attention or any changes in laws which may hereafter
occur. This opinion is limited to matters herein, and no opinion may be
inferred or implied beyond the matters expressly stated herein.
This opinion is being furnished to you in connection with the transactions
contemplated by the Purchase Agreement. This opinion is solely for your benefit
and is not to be used, circulated, quoted or otherwise referred to for any other
purpose nor relied upon by any other person or entity without our prior written
consent.
Finally, the opinions expressed herein represent our reasonable judgment as
to the matters of law addressed herein, based upon the facts presented or
assumed, and are not, and should not be construed or considered as, a guaranty.
Very truly yours,
UNDERWOOD KINSEY WARREN & TUCKER, P.A.
<PAGE>
EXHIBIT 10.24
AGREEMENT AND PLAN OF MERGER
DATED AS OF
SEPTEMBER 2, 1997
MJD HOLDINGS CORP.
TACONIC ACQUISITION CORP.
AND
TACONIC TELEPHONE CORP.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT made as of this 2nd day of September, 1997 by and among TACONIC
TELEPHONE CORP., a New York corporation (the "Company"), MJD HOLDINGS CORP., a
Delaware corporation ("Parent") and TACONIC ACQUISITION CORP., a New York
corporation ("Acquisition Sub").
WITNESSETH
WHEREAS, the respective Boards of Directors of Parent, Acquisition Sub and
the Company have approved the merger of Acquisition Sub with and into the
Company (the "Merger"), upon the terms and subject to the conditions set forth
herein and in the certificate of merger annexed as Exhibit A (the "Certificate
of Merger"), as a result of which Acquisition Sub will be merged into the
Company and the shareholders of the Company (other than shareholders who perfect
appraisal rights) will be entitled to receive the consideration provided in this
Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and of the representations, warranties, covenants and agreements
hereinafter contained, Parent, Acquisition Sub and the Company agree as follows:
SECTION 1 THE MERGER
----------
1.1 Surviving Corporation. In accordance with the provisions of this
---------------------
Agreement, the Certificate of Merger and the Business Corporation Law of the
State of New York ("NYBCL"), at the Effective Date (as defined in Section 1.6),
Acquisition Sub shall be merged with and into the Company, and the Company shall
be the surviving corporation in the Merger (hereinafter sometimes called the
"Surviving Corporation"). At the Effective Date, the separate existence of
Acquisition Sub shall cease.
1.2 Certificate of Incorporation. As of the Effective Date, the
----------------------------
Certificate of Incorporation of the Company immediately prior to the Effective
Date shall be the Certificate of Incorporation of the Surviving Corporation,
until thereafter amended as otherwise provided by law or in such Certificate of
Incorporation.
1.3 By-laws. The By-laws of the Acquisition Sub as in effect at the
-------
Effective Date shall be the By-laws of the Surviving Corporation, until
thereafter amended or repealed as provided by law.
1.4 Directors. The directors of Acquisition Sub at the Effective Date
---------
shall, from and after the Effective Date, be the directors of the Surviving
Corporation and shall hold office
<PAGE>
from the Effective Date until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and By-laws of the Surviving Corporation, or as otherwise provided
by law.
1.5 Officers. The officers of Surviving Corporation at the Effective
--------
Date shall, from and after the Effective Date, be the officers whose names are
set forth in Schedule 1.5 and they shall hold office from the Effective Date
until their respective successors are duly elected or appointed and qualified in
the manner provided in the Certificate of Incorporation and By-laws of the
Surviving Corporation, or as otherwise provided by law.
1.6 Effective Date. The Merger shall become effective at the time of
--------------
filing of the Certificate of Merger with the Secretary of State of the State of
New York in accordance with Section 907 of the NYBCL. The Certificate of Merger
shall be filed with the Secretary of State of the State of New York on the
Closing Date (as defined in Section 8.1 hereof). The date when the Merger
becomes effective is herein referred to as the "Effective Date".
1.7 Additional Action. If, at any time after the Effective Date, the
-----------------
Surviving Corporation determines that any deeds, bills of sale, assignments,
assurances or any other acts or things are necessary or desirable to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, its
right, title or interest in, to or under any of the rights, properties or assets
of the Company or its Subsidiaries acquired or to be acquired by reason of, or
as a result of, the Merger, or otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors shall
be authorized to execute and deliver, in the name and on behalf of the Company
and its Subsidiaries, all such deeds, bills of sale, assignments and assurances
and to do, in the name and on behalf of the Company and its Subsidiaries, all
such other acts and things necessary or desirable to vest, perfect or confirm
any and all right, title or interest in, to or under such rights, properties or
assets in the Surviving Corporation or otherwise to carry out the purposes of
this Agreement.
1.8 Conversion of Company Stock.
---------------------------
(a) Each share of the Company's common stock, no par value per
share (the "Company Common Stock"), actually issued and outstanding at the
Effective Date (except for Dissenting Shares, as defined in Section 1.10) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive from the Parent consideration,
payable as set forth on Schedule 1.8 hereto (the "Merger Consideration"). The
Merger Consideration consists of $67,500,000 in immediately available U.S.
funds.
(b) Any share of Company Common Stock held by Parent or in the
Company's treasury at the Effective Date shall, by virtue of the Merger, be
cancelled without payment of any consideration therefor and without any
conversion thereof.
<PAGE>
1.9 Conversion of Acquisition Sub Common Stock. Each share of common
------------------------------------------
stock, par value $.01 per share, of Acquisition Sub (the "Acquisition Sub Common
Stock") issued and outstanding at the Effective Date shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and exchangeable for one fully paid and nonassessable share of common
stock, no par value per share, of the Surviving Corporation (the "Surviving
Corporation Common Stock"). From and after the Effective Date, each outstanding
certificate theretofore representing shares of Acquisition Sub Common Stock
shall be deemed for all purposes to evidence ownership of, and to represent the
number of shares of, Surviving Corporation Common Stock into which such shares
of Acquisition Sub Common Stock shall have been converted.
1.10 Dissenting Shares. Notwithstanding anything in this Agreement to
-----------------
the contrary, shares of Company Common Stock issued and outstanding on the
Effective Date which are held of record by shareholders who shall not have voted
such shares in favor of the Merger and who shall have properly exercised rights
to demand payment of the fair value of such shares in accordance with Section
910 of the NYBCL (the "Dissenting Shares") shall not be converted into the right
to receive any portion of the Merger Consideration specified in Section 1.8, but
the holders thereof instead shall be entitled to payment of the fair value of
such shares in accordance with the provisions of Section 910 of the NYBCL (the
"Dissenting Consideration"); provided, however, that (i) if such a holder fails
-------- -------
to file a notice of election to dissent in accordance with Section 623 of the
NYBCL or, after filing such notice of election, subsequently delivers an
effective written withdrawal of such notice or fails to establish his
entitlement to appraisal rights as provided in Section 623 of the NYBCL, if he
or she be so required, or (ii) if a court shall determine that such holder is
not entitled to receive payment for his shares or such holder shall otherwise
lose his or her appraisal rights, then in either of such cases, each share of
Company Common Stock held of record by such holder or holders shall
automatically be converted into and represent only the right to receive the
portion of the Merger Consideration indicated on Schedule 1.8, upon the
surrender of the certificate or certificates representing such Dissenting
Shares. The Company shall give Parent prompt notice of any demands received by
the Company for payment of the fair value of such shares, and Parent shall have
the right to participate in all the negotiations and proceedings with respect to
such demands. The Company shall not, except with the prior written consent of
Parent, make any payment (except to the extent that any such payment is made
pursuant to a court order) with respect to, or settle or offer to settle, any
such demands.
1.11 Surrender of Shares.
-------------------
(a) At the Closing, Parent shall deliver the Merger Consideration
to the former shareholders of the Company, pro rata in accordance with a
schedule to be provided by the Company at least five (5) days prior to the
Closing Date.
<PAGE>
(b) Upon surrender to Parent of a certificate representing each of
the shares of Company Common Stock (each, a "Certificate") or an affidavit of
loss stating that the holder of the Certificate has lost such Certificate,
together with, at the election of Parent, (i) an indemnity agreement providing
for indemnification of the Company, Parent and Surviving Corporation for any
loss, damage or other expense resulting from a third party having a claim to
such Certificate or the shares of stock underlying such Certificate or (ii) an
indemnity or surety bond in such amounts reasonably acceptable to Parent with
respect to such lost Certificate ("Affidavit"), the holder of such Certificate
or Affidavit shall be entitled to receive in exchange for each share of Company
Common Stock represented by such Certificate or subject to the Affidavit, as the
case may be, the portion of the Merger Consideration indicated on Schedule 1.8,
and such Certificate shall forthwith be canceled (if a Certificate is presented)
and the records of the Company shall be modified accordingly upon receipt by the
holder of such Certificate or Affidavit, as the case may be, of the indicated
portion of the Merger Consideration. Such surrender of Certificates and
Affidavits to Parent shall be made at Closing in exchange for the appropriate
portion of the Merger Consideration. No interest will be paid or accrued on any
portion of the Merger Consideration payable upon the surrender of such
Certificates or Affidavits.
(c) If payment is to be made to a person other than the person in
whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition of payment of the relevant portion of the Merger
Consideration that the Certificate so surrendered be properly endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name of the record holder appears on such Certificate, with signature
guaranteed, and is otherwise in proper form for transfer, and that the Person
requesting such payment shall pay any transfer or other taxes required by law as
a result of such payment to a Person other than the record holder of the
Certificate surrendered, or shall establish to Parent's satisfaction that such
tax has been paid or is not applicable.
(d) After the Effective Date, there shall be no further transfers
on the stock transfer books of the Surviving Corporation of the shares of
Company Common Stock, which are outstanding at the Effective Date. If, after the
Effective Date, Certificates are presented to the Surviving Corporation for
transfer, they shall be canceled and there shall be issued to the transferee in
exchange for each share of Company Common Stock the portion of the Merger
Consideration indicated on Schedule 1.8.
(e) The consideration payable upon the surrender for exchange of
Certificates in accordance with the terms of this Section 1 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock theretofore represented by such Certificates, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Date. If, after the Effective
Date,
<PAGE>
Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Section 1.
SECTION 2 REPRESENTATIONS AND WARRANTIES
------------------------------
The Company hereby represents and warrants to Parent and Acquisition Sub as
follows:
2.1 Organization and Corporate Power. Each of the Company and its
--------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation as specified in Schedule
2.1 attached hereto, (b) is qualified to do business as a foreign corporation in
each jurisdiction in which such qualification is required, except where failure
to so qualify would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, and (c) has all required corporate power and
authority to own its property and to carry on its business as presently
conducted or contemplated. Subject to (i) the receipt of required PSC and FCC
approvals (if any are required), (ii) the approval of any governmental
authorities with respect to any cable system owned, operated, or controlled by
the Company or any of its Subsidiaries and (iii) the expiration or termination
of the waiting periods under HSR, each of the Company and its Subsidiaries has
all required corporate power and authority to enter into and perform this
Agreement and the Related Documents, and generally to carry out the transactions
contemplated hereby and by the Related Documents. The copies of the charter and
by-laws of each of the Company and each of its Subsidiaries, as amended to date,
which have been furnished to counsel for Parent, are correct and complete at the
date hereof. Except as provided in Schedule 2.1, neither the Company nor any of
its Subsidiaries is in violation of any term of its charter or by-laws, or any
agreement, franchise, instrument, judgment, decree, order, law, statute,
ordinance, rule or government regulation applicable to it.
2.2 Authorization and No Contravention. Subject to the receipt of the
----------------------------------
approval of the Company's stockholders, the execution and delivery of, and
performance by the Company of its obligations under, this Agreement and the
Related Documents have been duly authorized by all corporate action of the
Company, and except as may otherwise be specifically provided in this Agreement,
and subject to the receipt of the approval of the Company's stockholders, each
of this Agreement and the Related Documents constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting the enforcement of creditors' rights generally, and general
principles of equity and the availability of equitable remedies. The Company's
execution and delivery of this Agreement and the Related Documents, and its
respective performance of the transactions contemplated hereby and thereby, will
not: (i) except as set forth on Schedule 2.2, violate, conflict with or result
in a default under any contract, instrument, agreement, indenture, obligation or
commitment to which the Company or any of its Subsidiaries is a party or by
which its assets, or any of their assets, are bound, or any charter provision or
by-law of the Company or any of its Subsidiaries, or the creation of any lien,
charge or encumbrance of any nature upon any of the properties or assets of the
Company or any of its
<PAGE>
Subsidiaries except pursuant to this Agreement and the agreements contemplated
hereby; (ii) violate or result in a violation of, or constitute a default under,
any provision of any law, statute, ordinance, regulation, franchise or rule, or
any decree, judgment or order of, or any restriction imposed by, any court or
other federal, state or local governmental agency; or (iii) except as set forth
on Schedule 2.2, require any notice to, filing with, or consent or approval of
any governmental authority or other third party.
2.3 Capitalization; Stockholders; Subsidiaries. The authorized and
------------------------------------------
issued capital stock of the Company and each of its Subsidiaries is as set forth
in Schedule 2.3. All of the presently issued shares of capital stock of the
Company and each of its Subsidiaries have been duly and validly authorized and
issued in accordance with all applicable federal and state securities laws and
are fully paid and non-assessable. Neither the Company nor any of its
Subsidiaries has issued any other shares of its capital stock and there are no
outstanding warrants, options or other rights to purchase or acquire any of such
shares, nor any outstanding securities convertible into such shares or
outstanding warrants, options or other rights to acquire any such convertible
securities. The authorized shares of preferred stock of the Company referred to
on Schedule 2.3 have been cancelled by the Company and there is no amount due
and owing by the Company with respect to any shares of the preferred stock.
There are no preemptive rights with respect to the issuance or sale by the
Company, or any of its Subsidiaries of the Company's or such Subsidiary's
capital stock. Except as disclosed in Schedule 2.3, the Company knows of no
restrictions on the transfer of the Company's capital stock other than those
arising from federal and state securities laws or under this Agreement. To the
best knowledge of the Company, there are no rights of first refusal, rights of
first offer or such other similar rights with respect to any of the securities
of the Company or any of its Subsidiaries. The outstanding shares of capital
stock of the persons identified in Schedule 2.3 are held in the amounts
indicated therein. Except as set forth in Schedule 2.3, the Company has no
Subsidiaries and neither the Company nor any of its Subsidiaries has any
investments in, or loans or advances to, any other corporation, trust,
partnership or business entity and is not a party to any joint venture.
2.4 Financial Statements. Attached hereto as Schedule 2.4 are the
--------------------
Company's consolidated and consolidating audited statements of operations, cash
flow and stockholders' equity and the related balance sheets as of and for the
fiscal years ended December 31, 1995 and December 31, 1996 and Company-prepared
unaudited statements of income and retained earnings, cash flow and
stockholders' equity and the related balance sheet for the six months ended June
30, 1997 (such balance sheet, dated as of December 31, 1996, is herein referred
to as the "Base Balance Sheet"). Except as set forth in the Base Balance Sheet
and on Schedule 2.11, neither the Company nor any of its Subsidiaries has any
material contingent obligations, liabilities or material forward or long-term
commitments. The foregoing financial statements have been prepared (i) to the
extent required, in accordance with the rules and regulations of
<PAGE>
the PSC and the FCC and (ii) in accordance with generally accepted accounting
principles applied on a consistent basis. All of such financial statements
fairly represent the financial condition of the Company and its Subsidiaries as
of the date thereof, and are true and correct as of the date thereof in all
material respects. Nothing has come to the attention of the senior management of
the Company since such dates which would indicate that such financial statements
were not true and correct in all material respects as of the date thereof.
2.5 Business; Franchises and Regulations. Except as set forth in
------------------------------------
Schedule 2.5, the Company and each of its Subsidiaries has ownership of and/or
the right to use (i) all franchises, permits, registrations, licenses (other
than FCC Licenses) and other authorizations required by applicable law or
regulation, and (ii) all patent, copyright, trademark, or other rights and
privileges, in the case of both (i) and (ii) used or useful in their respective
businesses as presently conducted, or contemplated to be conducted, to be
conducted or required or necessary to permit it to own its properties and to
conduct its business as presently conducted or contemplated to be conducted and
neither their present nor contemplated activities infringe any such patent,
copyright, trademark or other proprietary rights of other. Schedule 2.5
correctly sets forth all of the franchises, authorizations, permits,
registrations and licenses (other than FCC Licenses) which are held by the
Company and its Subsidiaries (the "Company Franchises") and correctly set forth
the issuer and termination or expiration date of each Company Franchise. Each
Company Franchise was duly and validly issued by the issuer thereof to the
Company or its Subsidiaries pursuant to procedures that complied with all
requirements of applicable law. Each Company Franchise or other right held by
the Company or any of its Subsidiaries is in full force and effect, free of any
Lien, charge or encumbrance of any nature, and are not subject to any
restrictions or conditions which, individually or in the aggregate, would
materially impair the ability of the Company and its Subsidiaries to own their
respective properties and to carry on their respective businesses as presently
conducted or contemplated to be conducted, and the Company and each of its
Subsidiaries are in compliance with the terms thereof with no conflict with the
valid rights of others which could affect or impair in any manner the business,
assets or condition, financial or otherwise, of the Company and its Subsidiaries
taken as a whole except as set forth in Schedule 2.5. No event has occurred
which permits, or after notice or lapse of time or both would permit, the
revocation or termination of any Company Franchise, except as set forth in
Schedule 2.5. No proceedings to revoke, refuse to renew, modify or restrict such
Company Franchises are pending or, to the best knowledge of the Company,
threatened. No Company Franchise authorizing the installation, construction,
development, ownership or operation of a cable television system by the Company
or its Subsidiaries has been surrendered or has expired or otherwise terminated
without the issuance of a replacement Company Franchise to the Company or its
Subsidiaries. Except for the Hillsdale license relating to CATV which expires
July 1999 (and which does not provide for an automatic renewal) and, except for
an FCC radio station license, due to expire on November 4, 1998 (as provided in
Schedule 2.8), which Hillsdale license and FCC radio station license renewals
will be filed as soon as practicable, which in the case of the radio license is
when the FCC gives notice of renewal, a written request for renewal has been
timely
<PAGE>
filed, if necessary or applicable, pursuant to applicable laws or regulations,
with respect to any Company Franchise or FCC Licenses expiring within 48 months
of the date of this representation.
No Person, including any governmental authority, has any right to
acquire any interest in any of the cable systems (including, without limitation,
any right of first refusal or similar right), other than rights of condemnation
or eminent domain afforded by law or upon the termination of or default under
any Company Franchise.
Except as described on Schedule 2.10, the Company has timely and
properly made all filings and reports required by the PSC, the FCC and all other
regulatory entities having jurisdiction over the Company or its Subsidiaries.
2.6 Tariffs: FCC Licenses.
---------------------
(a) The regulatory tariffs applicable to the Company and its
Subsidiaries stand in full force and effect in accordance with their terms, and
there is no outstanding notice of suspension, cancellation or termination or, to
the Company's knowledge, any threatened suspension, cancellation or termination
in connection therewith. Except as otherwise disclosed on Schedule 2.6, neither
the Company nor any of its Subsidiaries is subject to any restrictions or
conditions applicable to its regulatory tariffs that limit or would limit the
operations of the Company or any of its Subsidiaries (other than restrictions or
conditions generally applicable to tariffs of that type). Each such tariff has
been duly and validly approved by the appropriate regulatory agency. Except as
otherwise disclosed on Schedule 2.6, neither the Company nor any of its
Subsidiaries is in violation under the terms and conditions of any such tariff,
and there is no basis for any claim of violation by the Company or any of its
Subsidiaries under any such tariff. There are no applications by the Company or
any of its Subsidiaries, nor any complaints or petitions, or other filings by
others, or proceedings pending or threatened, before the PSC or the FCC relating
to the Company or any of its Subsidiaries, or their respective operations or
regulatory tariffs. There are no violations by subscribers or others under any
such tariff. A true and correct copy of each tariff applicable to the Company or
any of its Subsidiaries has been made available to Parent.
(b) Schedule 2.6 correctly sets forth all of the FCC Licenses held
by the Company or any of its Subsidiaries and correctly sets forth the
expiration or termination date of each FCC License. The Company and its
Subsidiaries hold all FCC Licenses required by applicable law or regulation, or
which are used or useful in their respective businesses as presently conducted
or as contemplated to be conducted. Except as disclosed on Schedule 2.6, each
such FCC License was duly and validly issued to the Company or its Subsidiaries
pursuant to procedures which complied with all requirements of applicable law.
Each FCC License is in full force and effect in accordance with its terms, and
there is no outstanding notice of cancellation or termination or, to the
Company's knowledge, any threatened cancellation or termination in connection
therewith nor are any of such FCC Licenses subject
<PAGE>
to any restrictions or conditions that limit the operations of the Company or
any of its Subsidiaries (other than restrictions or conditions generally
applicable to licenses of that type). No proceedings to revoke, refuse to renew,
modify or restrict such FCC Licenses are pending or, to the best knowledge of
the Company, threatened. The Company has no reason to believe that any of the
FCC Licenses (i) could be revoked, cancelled or suspended and (ii) would not be
renewed or extended in the ordinary course of business.
2.7 Rate Base. Except for amounts that are disallowed or excluded due
---------
to regulation applied generically to all Local Exchange Carriers, as listed on
Schedule 2.7., neither the Company nor any of its Subsidiaries has any material
amount of inventory, plant or equipment that has been disallowed from rate base
or excluded from the revenue calculations for any pool, and neither the Company
nor any of its Subsidiaries has received notification that the FCC or any state
regulatory authority or pool administrator proposes to exclude any assets from
rate base or revenue calculations for the pools.
2.8 Overbillings; Refunds. Except as set forth on Schedule 2.8,
---------------------
neither the Company nor any of its Subsidiaries has any liabilities for any
customer overbillings or prospective refunds of overearnings.
2.9 Capital Improvements Required by State Authorities. Except as set
--------------------------------------------------
forth on Schedule 2.9, neither the Company nor any of its Subsidiaries is
required by any federal, state or local regulatory body to make any changes,
upgrades or enhancements with respect to its physical plant and neither the
Company nor any of its Subsidiaries has reason to believe that any such changes,
upgrades or enhancements will be so required in the foreseeable future.
2.10 Compliance with Law. Except as set forth in Schedule 2.10, each of
-------------------
the Company and its Subsidiaries has been and is in compliance with all
applicable statutes, laws, ordinances, regulations, franchises, rules,
governmental policies or orders of any foreign, federal, state or local
government or any governmental department or agency (including without
limitation, the PSC and the FCC), and any judgment, ruling, decree or order of
any court, administrative agency or tribunal or any arbitrator or arbitral panel
or tribunal applicable to its business or operations; and the conduct of the
Company's and each of its Subsidiaries' respective businesses has been and is in
compliance with all federal, state and local energy, public utility, health,
wage and hour (including but not limited to the Fair Labor Standards Act),
employment, workplace or worker safety and health, including but not limited to
OSHA, and environmental requirements and all other federal, state and local
governmental regulatory requirements (including without limitation, requirements
of the PSC and the FCC). The Company and its Subsidiaries have all permits,
licenses, registrations, franchises and other authorizations from, and have made
all necessary filings with, all governmental agencies, including the PSC and the
FCC, required to conduct their businesses as now being conducted or as
contemplated to be conducted.
<PAGE>
2.11 Absence of Undisclosed Liabilities. Except as otherwise
----------------------------------
specifically disclosed in the Base Balance Sheet or as set forth in Section 2.4
or on Schedule 2.11, neither the Company nor any of its Subsidiaries has any
accrued or contingent liability or liabilities arising out of any transaction or
state of facts existing prior to the date hereof, accrued, to become due,
contingent, or otherwise.
2.12 Absence of Certain Developments. Except as specifically disclosed
-------------------------------
in Schedule 2.12, since December 31, 1996 there has been (i) no material adverse
change in the assets, liabilities, properties or financial condition of the
Company or any of its Subsidiaries, (ii) no declaration, setting aside or
payment of any dividend or other distribution with respect to, or any direct or
indirect redemption or acquisition of, any of the capital stock of the Company
or any of its Subsidiaries (except as set forth in Section 7.5 hereof), (iii) no
waiver of any valuable right of the Company or any of its Subsidiaries or the
cancellation of any debt or claim held by the Company or any of its Subsidiaries
(including any settlement of any claims or litigation), (iv) no loan by the
Company or any of its Subsidiaries to any officer, director, employee or
stockholder of the Company or any of its Subsidiaries, or any agreement or
commitment therefor, (v) other than pursuant to the current contractual
obligations set forth on Schedule 2.12 and 2.26 (Exhibit A), no increase, direct
or indirect, in the compensation paid or payable to any officer, director,
employee, person or entity performing services as an independent contractor,
consultant or agent of the Company or any of its Subsidiaries, (vi) no loss,
destruction or damage to any property of the Company or any of its Subsidiaries,
whether or not insured in excess of $25,000 in the aggregate, (vii) no strikes,
work stoppages, slow downs, lockouts, union organizing or recognition efforts,
grievance procedures, claims of unfair labor practices or similar incidents of
significant labor difficulty of any nature whatsoever involving the Company or
any of its Subsidiaries and no material change in the personnel of the Company
or any of its Subsidiaries or the terms and conditions of any collective
bargaining agreements, employment contracts or independent contractor or
consulting agreements to which any of them are parties, (viii) no acquisition or
disposition of any assets (or any contract or arrangement therefor) nor any
other transaction by the Company or any of its Subsidiaries otherwise than in
the ordinary course of business, (ix) no creation, incurrence, guarantee or
assumption of any indebtedness by the Company or any of its Subsidiaries for
borrowed money (other than pursuant to existing credit facilities), (x) no
amendment, cancellation or termination of any contract, license or other
instrument material to the Company or any of its Subsidiaries, (xi) no change in
accounting methods or practices by the Company or any of its Subsidiaries
affecting their respective assets, liabilities or business, (xii) no revaluation
by the Company or any of its Subsidiaries of any of their respective assets,
including without limitation, writing off notes or accounts receivable, (xiii)
no mortgage, pledge or other encumbrance of any material assets of the Company
and its Subsidiaries, (xiv) no increase or change in any assumptions underlying
or methods of calculating any bad debt, contingency or other reserves, other
than in the ordinary course of business, and (xv) no payment, discharge or
satisfaction of any liabilities other than the payment, discharge or
satisfaction (1) in the ordinary course of business and consistent with the past
practice of
<PAGE>
liabilities reflected or reserved against in the Base Balance Sheet or incurred
in the ordinary course of business and consistent with the past practice since
December 31, 1996 and (2) of other liabilities involving $50,000 or less singly
and $100,000 or less in the aggregate.
2.13 Title to Properties.
-------------------
(a) Except as specifically disclosed on Schedule 2.13, the Company
and each of its Subsidiaries has good and marketable title to, or in the case of
leased property have valid leasehold interests in, all of its properties and
assets, free and clear of all mortgages, liens, restrictions or encumbrances.
All owned or leased real property of the Company and its Subsidiaries is listed
on Schedule 2.13. A true copy of each lease to which the Company or any of its
Subsidiaries is a party, is listed on Schedule 2.13 and has been delivered by
the Company to Parent, is in full force and effect and affords the Company or
the Subsidiary, as the case may be, peaceful and undisturbed possession of the
subject matter of such lease. No default or event of default on the part of the
Company or any of its Subsidiaries or on the part of the lessor, exists under
any lease, and neither the Company nor any of its Subsidiaries has received any
notice of default under any such lease or any indication that the owner of the
leased property intends to terminate such lease, and no event has occurred which
with notice or the lapse of time, or both, would constitute a default under any
such lease. Except as specifically disclosed on Schedule 2.13, the Company holds
all easements, rights-of-way and other rights necessary to own, operate and
maintain its physical plant (including all telephone lines) and the Company is
not in breach of, or default under, any such easement, right-of-way or other
right and there are not any materially burdensome limitations or obligations on
the Company under any such easement, right-of-way or other right.
(b) Except as set forth on Schedule 2.13, neither the Company nor
any of its Subsidiaries is in violation of any zoning, land-use, building or
safety law, ordinance, regulation or requirement or other law or regulation
applicable to the operation of its owned or leased properties, nor has it
received any notice of violation with which it has not complied, in any case in
which the consequences of such violation if asserted by the applicable
regulatory authority would be adverse with respect to the Company or such
Subsidiary. All real property occupied pursuant to leases, and substantially all
tangible personal property owned or leased by the Company and its Subsidiaries
taken as a whole and required for the purpose of carrying on its business and
operations, is in good operating condition and repair, reasonable wear and tear
excepted, and no material portion of any such real or personal property has
suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition to the extent
necessary or useful in the continued operation of its business.
2.14 Tax Matters.
-----------
(a) Each of the Company and its Subsidiaries has timely filed all
Tax reports and returns that it was required to file. All such reports and
returns are correct and
<PAGE>
complete in all material respects. All Taxes owed by any of the Company and its
Subsidiaries (whether or not shown to be due on any report or return) have been
paid. Except as disclosed on Schedule 2.14, none of the Company or its
Subsidiaries currently is the beneficiary of any extension of time within which
to file any report or return. Except as disclosed on Schedule 2.14, no claim has
ever been made by a Taxing Authority in a jurisdiction where any of the Company
or its Subsidiaries does not file reports and returns that it is or may be
subject to taxation by that jurisdiction. There are no security interests on any
of the assets of the Company and its Subsidiaries that arose in connection with
any failure (or alleged failure) to pay any Tax.
(b) Except as disclosed in Schedule 2.14, each of the Company and
its Subsidiaries has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, creditor,
independent contractor, stockholder or other third party.
(c) Neither the President nor the Vice President/COO of the
Company and of its Subsidiaries (nor any officer or employee responsible for Tax
matters) has actual knowledge that or has any reasonable basis to believe that
any authority will assess any additional Taxes for any period for which returns
have been filed. Except as disclosed in Schedule 2.14, there is no dispute or
claim concerning any Tax liability of any of the Company or its Subsidiaries
either (i) claimed or raised by any Taxing Authority in writing or (ii) as to
which any of the directors and officers (and employees responsible for Tax
matters) of the Company and its Subsidiaries has knowledge based upon personal
contact with any agent of such Taxing Authority. All federal, state, local and
foreign income tax returns filed with respect to the Company and/or any of the
Subsidiaries for taxable periods ended on or after December 31, 1993, December
31, 1994, December 31, 1995 and December 31, 1996 are set forth on Schedule
2.14, and Schedule 2.14 indicates those returns that have been audited or
currently are the subject of an audit. The Company has made available to the
Parent correct and complete copies of all federal income Tax returns,
examination reports and statements of deficiencies assessed against or agreed to
by any of the Company and its Subsidiaries since December 31, 1993.
(d) Except as set forth on Schedule 2.14, none of the Company and
its Subsidiaries has waived any statute of limitations in respect to Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
Neither the Company nor any of its Subsidiaries has entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code").
(e) The unpaid Taxes of the Company and its Subsidiaries (i) did
not, as of December 31, 1996 materially exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Base
Balance Sheet (rather than in any notes thereto) and (ii) do not
<PAGE>
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Company and its
Subsidiaries in filing their Tax returns.
(f) None of the Company and its Subsidiaries has filed a consent
under Code Section 341(f) concerning collapsible corporations. None of the
Company and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments of the Company and its Subsidiaries has been in
United States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). Neither the Company nor its Subsidiaries has on any of its
federal income tax returns taken a position that could give rise to a
substantial understatement of federal income tax within the meaning of Code
Section 6662. Except as set forth on Schedule 2.14, none of the Company and its
Subsidiaries is a party to any Tax allocation or sharing agreement. None of the
Company and its Subsidiaries (i) has been a member of an Affiliated Group filing
a consolidated federal income Tax return (other than a group the common parent
of which was the Company) or (ii) has any liability for the Taxes of any Person
(other than any of the Company and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(g) Schedule 2.14 sets forth the following information with
respect to each of the Company and its Subsidiaries as of December 31, 1996: (i)
the Company's best estimate of the tax basis of the Company and its Subsidiaries
in their respective assets; (ii) the amount of the net operating loss, net
capital loss, unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to the Company or any of its Subsidiaries and
(iii) the amount of any deferred gain or loss allocable to the Company or any of
its Subsidiaries arising out of any Deferred Intercompany Transaction.
(h) Except as set forth on Schedule 2.14, none of the Company and
its Subsidiaries is a party to any agreement, contract, arrangement or plan that
has resulted or could result, separately or in the aggregate, in the payment of
any amount that constitutes or could constitute an "excess parachute payment"
within the meaning of Code Section 280G.
(i) Except as set forth on Schedule 2.14, the disallowance of a
deduction under Code Section 162(m) for employee remuneration will not apply to
any amount paid or payable by the Company or any of its Subsidiaries under any
contract, plan, program, arrangement or understanding currently in effect.
2.15 Insurance. The Company has in force all policies of insurance
---------
described in Schedule 2.15, in the amounts and covering the risks described
therein. Neither the Company
<PAGE>
nor any of its Subsidiaries has ever been refused any insurance coverage for
which it has applied.
2.16 Contracts and Commitments. Except as set forth in Schedule 2.5 and
-------------------------
2.16, neither the Company nor any of its Subsidiaries (a) is a party to any
contract, obligation, understanding or commitment (whether written or oral)
which involves a potential or actual commitment or aggregate payments to or from
the Company or any of its Subsidiaries to or from any third party in excess of
$25,000, or which is otherwise material and not entered into in the ordinary
course of business, or relates to provisioning of services between the Company
and Richmond Telephone Company or (b) has any employment contracts; stock
redemption or purchase agreements; financing agreements; collective bargaining
agreements; consulting agreements; independent contractor agreements or
agreements with any current or former officers, directors, employees or
shareholders of the Company or any of its Subsidiaries or persons or
organizations related to or affiliated with any such persons. Except as
disclosed in Schedule 2.16, neither the Company nor any of its Subsidiaries is
in default under any contract, obligation, understanding or commitment and to
the best knowledge of the Company, there is no state of facts which upon notice
or lapse of time or both would constitute such a default, the consequences of
which default if asserted by the other contracting party would be materially
adverse with respect to the Company and its Subsidiaries, taken as a whole.
Except as set forth in Schedule 2.16, neither the Company nor any of its
Subsidiaries is a party to any contract or arrangement which is likely to have a
material adverse effect on the assets, liabilities, properties, business, or
financial condition of the Company and its Subsidiaries, taken as a whole.
Neither the Company nor any of its Subsidiaries has entered into any government
contracts or subcontracts that remain in full force and effect.
2.17 Litigation. Except as set forth in Schedule 2.17, there is no
----------
investigation, complaint, charge, claim, grievance, action, suit or proceeding
at law or in equity or by or before any governmental or administrative
instrumentality or other agency (including, without limitation, the PSC or the
FCC) or before any court, arbitrator, or similar tribunal now pending or, to the
best knowledge of the Company, threatened against the Company or any of its
Subsidiaries to which the Company or any of its Subsidiaries or their properties
is party or is subject. To the best knowledge of the Company, there is no
investigation, complaint, action, suit or proceeding at law or in equity or by
or before any governmental instrumentality or other agency now pending against
the Company, any of its Subsidiaries, any director, officer or key employee of
the Company or any of its Subsidiaries which has a reasonable possibility of
calling into question the validity, or hindering the enforceability or
performance, of this Agreement or any action taken or to be taken pursuant
hereto or any of the other agreements and transactions contemplated hereby, nor,
to the best knowledge of the Company, has there occurred any event or does there
exist any condition on the basis of which any such litigation, proceeding or
investigation might properly be instituted. There is no outstanding judgment,
injunction, decree or order issued by any governmental instrumentality or other
agency (including, without limitation, the PSC or the FCC) against the Company
or its
<PAGE>
Subsidiaries which would, individually or in the aggregate, have a material
adverse effect on the Company and its Subsidiaries, taken as a whole.
2.18 Environmental Matters. Except as set forth in Schedule 2.18:
---------------------
(a) Neither the Company nor any of its Subsidiaries is or has been
required to obtain from Governmental Authorities any permits, licenses,
authorizations or other consents ("Environmental Permits") required under
applicable Environmental Law for the operation of its business as currently
conducted or contemplated to be conducted.
(b) No Hazardous Substances have ever been or are being generated,
used, stored, treated or otherwise managed on real property owned or leased by
the Company or any of its Subsidiaries (the "Properties"), or to the best
knowledge of the Company by any other Persons. For any Property at which any
Hazardous Substance has ever been or is now being generated, used, stored,
treated or otherwise, managed, each such activity has been and is in compliance
with applicable Environmental Laws, and then only in the ordinary course of
business as then conducted and in such amounts as are typical of the business of
the Company or its Subsidiaries. No Hazardous Substances have ever been, are
being, are intended to be or threatened to be, spilled, released, discharged,
disposed, placed, or otherwise caused to come to be located on or in the soil,
surface water or groundwater in, on or under any of the Properties, by the
Company or any Subsidiary, or, to the best knowledge of the Company by any other
Person. No Hazardous Substances have been shipped or transported from any of the
Properties for treatment, storage or disposal at any other facility, by the
Company or any of its Subsidiaries, or, to the best knowledge of the Company,
any other Person. The Company and each of its Subsidiaries have not disposed,
stored, treated, or sent for disposal, storage or treatment, any solid waste,
pollutant, contaminant or waste (whether hazardous waste or other waste), or
Hazardous Substances, except in compliance with applicable Environmental Laws,
and then only to a facility which possessed a valid permit under all applicable
Environmental Laws and which operated in compliance with applicable
Environmental Laws. There have never been and are no underground or above-ground
storage tanks on any Property. The known and suspect asbestos-containing
materials identified in the Phase I Environmental Site Assessment dated August
1997 (prepared by O'Brien & Gere Engineers) are in a condition that would not
allow for asbestos fibers to be released into the atmosphere.
(c) Neither the Company nor any Subsidiary has received, and to
the best knowledge of the Company, no circumstances exist nor with the passage
of time would exist that would form the basis for, (i) any notice of violation
of any applicable Environmental Law; or (ii) any notice of any suit, action,
claim, liability (contingent or otherwise), or proceeding (whether at law, in
equity, or administrative) concerning or related to environmental matters or any
environmental condition. Neither the Company nor any Subsidiary has received any
notice, nor is the Company aware of any circumstances related to, liability as a
potentially
<PAGE>
responsible party, under the Comprehensive Environmental Response, Compensation
and Liability Act, or any state analogue thereto.
(d) For purposes of this Agreement, the term "Environmental
Laws" shall mean all federal, state, or local laws, statutes, ordinances,
decrees, orders, regulations, permits or permit conditions, or other legally
enforceable requirements relating to the emission or discharge of pollutants or
to the environment or health and safety, including without limitation
requirements under the Clean Air Act, Federal Water Pollution Control Act,
Resource Conservation and Recovery Act, Comprehensive Environmental Response
Compensation and Liability Act, the Oil Spill Act, each as amended and in effect
from time to time, and any state analogues thereto. The term "Hazardous
Substances" shall mean crude oil and any refined fraction or product thereof,
any substance defined as a Hazardous Substance under Section 101(14) of the
Comprehensive Environmental Response Compensation and Liability Act, asbestos,
polychlorinated biphenyls, or any substance regulated as hazardous or toxic
under applicable Environmental Laws.
(e) The Company and each of its Subsidiaries have been and are
in compliance with all applicable Environmental Laws.
2.19 Investment Company. Neither the Company nor any of its
------------------
Subsidiaries is an Investment Company as such term is defined in the Investment
Company Act of 1940, as amended.
2.20 Margin Securities. Neither the Company nor any of its
-----------------
Subsidiaries owns or has any present intention of acquiring, any "margin
security" within the meaning of Regulation G (12 C.F.R. Part 207), or any
"margin stock" within the meeting of Regulation U (12 C.F.R. Part 221), of the
Board of Governors of the Federal Reserve System (herein called "margin
security" and "margin stock").
2.20 Employee Benefit Programs.
-------------------------
(a) Schedule 2.21 sets forth a list of every Employee Program
that has been maintained by the Company and its Subsidiaries at any time during
the period beginning or ending on the date hereof.
(b) Each Employee Program which has ever been maintained by the
Company or any of its Subsidiaries and which has been intended to qualify under
Section 401(a) or 501(c)(9) of the Code has received a favorable determination
letter from the Internal Revenue Service ("IRS") regarding its qualification
under such section. Each such Employee Program has, in fact, remained qualified
under the applicable section of the Code from the effective date of the
favorable determination letter for such Employee Program through and including
the date hereof (or, if earlier, the date that all of such Employee Program's
assets
<PAGE>
were distributed). No event or omission has occurred which would cause any such
Employee Program to lose its qualification under the applicable Code section.
(c) The Company does not know, nor should it reasonably know, of
any material failure of any party to comply with any laws applicable with
respect to the Employee Programs that have been maintained by the Company or any
of its Subsidiaries. With respect to any Employee Program ever maintained by the
Company, any Subsidiary or any affiliate thereof, there has been no "prohibited
transaction" as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Code Section 4975, or breach of
any duty under ERISA or other applicable law or any agreement which could
subject the Company or any of its Subsidiaries thereof to material liability
either directly or indirectly (including, without limitation, through any
obligation of indemnification or contribution) for any damages, penalties, or
taxes, or any other loss or expense. To the best knowledge of the Company, no
litigation or governmental administrative proceeding (or investigation) or other
proceeding (other than those relating to routine claims for benefits) is pending
or overtly threatened with respect to any such Employee Program.
(d) Except as described in Schedule 2.21, neither the Company,
any of its Subsidiaries nor any affiliate thereof has incurred any liability
under Title IV of ERISA which has not been paid in full prior to the date
hereof. There is no "accumulated funding deficiency" (whether or not waived)
with respect to any Employee Program maintained by the Company or any Subsidiary
thereof and subject to Code Section 412 or ERISA (for which the notice
requirement is not waived under 29 C.F.R., Part 2615) and (ii) no event or
condition which presents a material risk of plan termination. All payments
and/or contributions required to have been made (under the provisions of any
agreements or other governing documents or application law) with respect to all
Employee Programs maintained by the Company or any of its Subsidiaries, for all
periods prior to the date hereof, either have been made or have been accrued
(and all such unpaid but accrued amounts are described on Schedule 2.21. Except
as described in Schedule 2.21, no Employee Program maintained by the Company,
any of its Subsidiaries or any affiliate thereof and subject to title IV of
ERISA has ever had any "unfunded benefit liabilities" within the meaning of
Section 4001(a)(18) of ERISA, as of the date hereof. Except as described in
Schedule 2.21, none of the Employee Programs maintained by the Company or any
Subsidiary thereof has ever provided or promised health care or non-pension
benefits to former employees (other than as required by Part 6 of subtitle B of
title I of ERISA).
(e) With respect to each Employee Program maintained by the
Company or any of its Subsidiaries within the three years preceding the date
hereof, complete and correct copies of the following documents (if applicable to
such Employee Program) have previously been delivered to Parent: (i) all
documents embodying or governing such Employee Program, as they may have been
amended to the date hereof; (ii) the most recent IRS determination letter with
respect to such Employee Program and any applications for determination
subsequently
<PAGE>
filed with the IRS; (iii) the three most recently filed IRS Forms 5500, with all
applicable schedules attached thereto; (iv) the three most recent actuarial
valuation reports completed with respect to such Employee Program; (v) the
summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; and
(vi) any insurance policy (including any fiduciary liability insurance policy)
related to such Employee Program.
(f) Except as disclosed in Schedule 2.21 hereto, no collective
bargaining agreement or other contract, written or oral, with any trade or labor
union, employees' association or similar organization is in effect as of the
date hereof with respect to any employee of the Company or any of its
Subsidiaries, and neither the Company, any of its Subsidiaries nor any affiliate
has ever maintained or participated in any multiemployer plan, as defined in
Section 3(37) of ERISA.
(g) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit
plans within the meaning of Section 3(3) of ERISA (including, but
not limited to, employee benefit plans such as foreign or excess
benefit plans which are not subject to ERISA); and (B) all stock
option plans, bonus, incentive award or profit sharing plans,
severance pay policies or agreements, deferred compensation
agreements, supplemental income arrangements, and all other
employee benefit plans, agreements, and arrangements not
described in (A) above.
(ii) An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides benefits under such
Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such
Employee Program, or if such Employee Program provides benefits
to or otherwise covers employees of such entity (or their
spouses, dependents, or beneficiaries).
(iii) An entity is an "Affiliate" of the Company or any of
its Subsidiaries if it would have ever been considered a single
employer with the Company or such Subsidiary under Section 4001
(b) of ERISA or part of the same "controlled group" as the
Company or such Subsidiary for purposes of 302 (d) (8) (C) of
ERISA.
2.22 Solvency. Neither the Company nor any of its Subsidiaries has
--------
(i) made a general assignment for the benefit of creditors, (ii) filed any
voluntary petition in bankruptcy or suffered the filing of any involuntary
petition by its creditors, (iii) suffered the appointment of a receiver to take
possession of all, or any substantial portion of its assets, (iv) suffered the
<PAGE>
attachment or other judicial seizure of all, or any substantial portion of its
assets, (v) admitted in writing its inability to pay its debts as they come due
or (vi) made an offer of settlement, extension or composition to its creditors
generally.
2.23 Brokers or Finders. Except as set forth on Schedule 2.23, none of
------------------
the Company or any Subsidiary thereof has engaged the services of any brokers or
finders in connection with the execution of this Agreement.
2.24 Corporate Records. (a) The minute books of the Company and its
-----------------
Subsidiaries contain true and complete records of all meetings of, or written
consents in lieu of meetings executed by, their respective boards of directors
(and all committees thereof) and shareholders; (b) all actions and transactions
taken or entered into by the Company or any of its Subsidiaries, or otherwise
requiring action by their respective boards of directors or shareholders, have
been duly authorized or ratified as necessary and are evidenced in such minute
books; (c) the stock certificate books and stock records of the Company and its
Subsidiaries are true and complete; and (d) the signatures appearing in such
minute books, stock certificate books and stock records are the genuine
signatures of the persons purporting to have signed them.
2.25 Books of Account. The books of account of the Company and its
----------------
Subsidiaries have been maintained in accordance with normal business practices,
and accurately and fairly reflect all of the properties, assets, liabilities,
transactions and appropriate accruals of the Company as each of its
Subsidiaries.
2.26 Certain Employment Matters.
--------------------------
(a) Schedule 2.26 contains a true and complete list of names and
current hourly wage, monthly salary or other compensation of all directors,
officers, management employees, consultants, independent contractors or managers
of the Company, with a summary of existing bonuses, additional compensation and
other benefits (whether current or deferred), if any, paid or payable to each
such person for services rendered in the fiscal year ended December 31, 1996,
or, determined as of the date hereof, to be rendered in the fiscal year ended
December 31, 1997. Schedule 2.26 contains a true and complete listing and
summary description of all employment, compensation, non-competition,
confidentiality, consulting and independent contractor agreements between the
Company or any Subsidiary thereof and its directors, officers, employees,
independent contractors and consultants.
(b) Except as set forth in Schedule 2.26, the Company and its
Subsidiaries have complied in all material respects with all applicable laws
relating to the payment and withholding of taxes, including income and social
security taxes, and has withheld (and paid over to the appropriate authorities)
all amounts required by local, state or federal law or by other agreement to be
withheld from the wages or salaries of its employees. Neither the
<PAGE>
Company nor any Subsidiary thereof has any liability or obligation for any
arrears of wages or benefits or any taxes or penalties for failure to comply
with any of the foregoing.
(c) Except as set forth on Schedule 2.26, the Company and its
Subsidiaries are not parties to any contract with any labor organization, nor
have they agreed to, been required to or been asked to recognize or negotiate
any union or other collective bargaining unit, nor has any union or other
collective bargaining unit been certified as representing any of their
respective employees. Neither the Company nor any Subsidiary thereof has
knowledge of any organization currently being made, pursued or threatened by or
on behalf of any labor union with respect to their respective employees. Except
as set forth on Schedule 2.26, neither the Company nor any Subsidiary thereof
has, within the last three years, experienced any strike, work stoppage, slow
down, lockout, grievance proceeding, claim of unfair labor practices or other
significant labor difficulty of any nature, nor are any claims pending or, to
the best knowledge of the Company, threatened between the Company or its
Subsidiaries and any of their respective employees.
(d) Except as set forth on Schedule 2.26, neither the Company
nor any Subsidiary thereof has received notification that any of its current
employees presently plan to terminate or otherwise resign from employment,
whether by reason of the transactions contemplated hereby or otherwise. Except
as set forth on Schedule 2.26, the employment of all persons presently employed
or retained by the Company is terminable at will, and neither the Company nor
any of its Subsidiaries will be, pursuant to any current contract, arrangement
or understanding (including collective bargaining agreements), applicable law,
or otherwise, obligated to pay any severance pay or other benefit by reason of
the voluntary or involuntary termination of employment of any present or former
employee (including managers), consultant, independent contractor or agent,
prior to, on or after the Effective Date.
2.27 Intracompany Contracts. Except as set forth on Schedule 2.27,
----------------------
there are no contracts, understandings, arrangements or commitments (whether
written or oral) between (i) the Company, on the one hand, and any of the
Company's Subsidiaries, on the other hand, (ii) any Company Subsidiary, on the
one hand, and another Company Subsidiary, on the other hand, (iii) the Company
or any of its Subsidiaries, on the one hand, and any Selling Shareholder, any
officer, director or employee of the Company or any of its Subsidiaries or any
of their respective affiliates, on the other hand.
2.28 Confidential Offering Memorandum. The Company has previously
--------------------------------
delivered to Parent a Confidential Offering Memorandum dated December 12, 1996
which is attached hereto as Exhibit 2.29 (the "Offering Memorandum"). All of
the facts contained in the Offering Memorandum were true and correct in all
respects on the date made and there has been no change therein other than such
changes which are in the ordinary course of business or immaterial.
<PAGE>
2.29 No Material Misstatement or Omission. No statement of fact made
------------------------------------
by or on behalf of the Company or any of its Subsidiaries in this Agreement or
in any certificate, Schedule or Exhibit furnished to Parent pursuant hereto, or
otherwise delivered by the Company or any of its Subsidiaries to Parent contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the statements contained therein or herein not misleading.
There is no fact relating to the Company or any of its Subsidiaries, or the
business, property, operations, or condition of the Company or any of its
Subsidiaries, presently known to the Company which has not been disclosed to the
Parent and which materially adversely affects or in the future is reasonably
likely to materially adversely affect the assets, liabilities, property,
business, operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole.
2.30 '97 Budgets. The Company has provided Parent with the Company's
-----------
1997 operating and capital budgets which are attached hereto as Exhibit E (the
"'97 Budgets"). The assumptions underlying the '97 Budgets are believed by the
Company to be reasonable and the '97 Budgets are based upon good faith and
diligent estimates of the anticipated consolidated operating and capital needs
of the Company and its Subsidiaries.
SECTION 3 REPRESENTATIONS AND WARRANTIES OF PARENT.
----------------------------------------
Parent hereby represents and warrants to the Company as follows:
3.1 Organization and Corporate Power. Parent and each of its
--------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (b) is qualified to do
business as a foreign corporation in each jurisdiction in which such
qualification is required, except where failure to so qualify would not have a
material adverse effect on the Parent or its Subsidiaries taken as a whole and
(c) has all required corporate power and authority to own its property and to
carry on its business as presently conducted or contemplated. Subject to PSC
and FCC approvals and the expiration or termination of the waiting periods under
HSR, the Parent has all required corporate power and authority to enter into and
perform this Agreement and the Related Documents and generally to carry out the
transactions contemplated hereby and by the Related Documents.
3.2 Authorization and No Contravention. The execution and delivery
----------------------------------
of, and performance by the Parent of its obligations under, this Agreement and
the Related Documents and the delivery of the Merger Consideration have been
duly authorized by all requisite corporate, director and stockholder action of
Parent, and except as otherwise may be specifically provided in this Agreement,
each of this Agreement and the Related Documents constitutes the legal, valid
and binding obligation of Parent, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally, and general principles
of equity and the availability of equitable
<PAGE>
remedies. Parent's execution and delivery of this Agreement and the Related
Documents, and its performance of the transactions contemplated hereby and
thereby, will not: (i) violate, conflict with or result in a default under any
contract, instrument, agreement, indenture, obligation or commitment to which
Parent is a party or by which it or its assets are bound, or any charter
provision or by-law of Parent, or the creation of any lien, charge or
encumbrance of any nature upon any of the properties or assets of Parent; (ii)
violate or result in a violation of, or constitute a default under, any
provision of any law, statute, ordinance, regulation or rule, or any decree,
judgment or order of, or any restriction imposed by, any court or other federal,
state or local governmental agency; or (iii) except as set forth on Schedule
3.2, require any notice to, filing with, or consent or approval of any
governmental authority or other third party which will not, prior to the
closing, have been duly and properly given, made or obtained.
3.3 Financial Condition. Parent has the financial resources with which
-------------------
to consummate the transactions contemplated hereby, including, but not limited
to, the assumption of indebtedness and the delivery of the Merger Consideration.
3.4 Brokers or Finders. Neither Parent or any of its Subsidiaries has
------------------
engaged the services of any brokers or finders in connection with the execution
of this Agreement.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUB.
-------------------------------------------------
Acquisition Sub hereby represents and warrants to the Company as
follows:
4.1 Organization and Corporate Power. Acquisition Sub (a) is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, and (b) has all required corporate power and
authority to own its property and to carry on its business as presently
conducted or contemplated. Acquisition Sub has all required corporate power and
authority to enter into and perform this Agreement and Related Documents and to
generally carry out the transactions contemplated hereby and by the Related
Documents.
4.2 Authorization and No Contravention. The execution and delivery of,
----------------------------------
and the performance by Acquisition Sub of its obligations under, this Agreement
and the Related Documents have been duly authorized by all requisite corporate
action of the Acquisition Sub, and except as may otherwise be specifically
provided in this Agreement, each of this Agreement and the Related Documents
constitutes the legal, valid and binding obligation of Acquisition Sub,
enforceable in accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors' rights
generally, and general principles of equity and the availability of equitable
remedies. Acquisition Sub's execution and delivery of this Agreement and the
Related Documents, and its performance of the transactions contemplated hereby
and thereby, will not: (i) violate, conflict with or result in a default under
<PAGE>
any contract, instrument, agreement, indenture, obligation or commitment to
which Acquisition Sub is a party or by which it or its assets are bound, or any
charter provision or by-law of Acquisition Sub or the creation of any lien,
charge or encumbrance of any nature upon any of the properties or assets of
Acquisition Sub, except pursuant to this Agreement and the agreements
contemplated hereby; (ii) violate or result in a violation of, or constitute a
default under, any provision of any law, statute, ordinance, regulation or rule,
or any decree, judgment or order of, or any restriction imposed by, any court or
other federal, state or local governmental agency; or (iii) except as set forth
on Schedule 4.2, require any notice to, filing with, or consent or approval of
any governmental authority or other third party which will not, prior to the
closing, have been duly and properly given, made or obtained.
4.3 Capitalization. The authorized and issued capital stock of
--------------
Acquisition Sub is set forth on Schedule 4.3.
4.4 Brokers or Finders. Acquisition Sub has not engaged the services
------------------
of any brokers or finders in connection with the execution of this Agreement.
SECTION 5 PARENT'S AND ACQUISITION SUB'S CONDITIONS OF MERGER
---------------------------------------------------
Parent's and Acquisition Sub's obligations hereunder shall be subject
to compliance by the Company with its agreements herein contained and to the
fulfillment to the Parent's and Acquisition Sub's satisfaction on or before and
at the Closing Date of the following conditions:
5.1 Certificate. The representations and warranties of the Company
-----------
contained in Section 2 of this Agreement shall be true and correct in all
respects (and to the extent by its terms it is not qualified by materiality,
shall be true and correct in all material respects) with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date; each of the conditions hereafter specified in this Section
shall have been satisfied in all material respects; and on the Closing Date one
or more certificates to such effect executed by the President and the Chief
Operating Officer of the Company shall be delivered to Parent.
5.2 Delivery of Documents. The Company shall have executed and
---------------------
delivered to Parent (or shall have caused to be executed and delivered to Parent
by the appropriate persons) the following:
(a) A certified copy of resolutions of the Company's Board of
Directors, approving this Agreement, the Merger and all transactions
contemplated by this Agreement, and a certified copy of the resolutions adopted
by the holders of Company's Common Stock holding, in the aggregate, no fewer
than 2/3 of the voting power of such shares, approving this Agreement, the
Merger and all transactions contemplated by this Agreement;
<PAGE>
(b) A copy of the Company's and each of its Subsidiaries'
corporate charter certified as of a recent date by the appropriate Secretary of
State and the secretary of the pertinent corporation;
(c) A copy of the by-laws of each of the Company and each of its
Subsidiaries certified, in each case, by the secretary of the pertinent
corporation;
(d) A certificate issued by the appropriate Secretary of State
of the state of incorporation of the Company and each of its Subsidiaries
certifying that the Company or such Subsidiary, as the case may be, is in good
standing in such state;
(e) True and correct copies of all consents, instruments and
other documents specified in Schedule 2.2 attached hereto which have not
otherwise been delivered to Parent;
(f) All other certificates and other documents reasonably
requested by Parent in writing at least two (2) days before the Closing Date.
The form and substance of all such certificates and other documents hereunder
shall be reasonably satisfactory in all respects to Parent and its counsel; and
(g) A copy of the Shareholder Representative Appointment
Agreement.
(h) A copy of the Solvency Certificate fully executed and
substantially in the form attached hereto as Exhibit F and made a part hereof.
5.3 Opinion of Company's Counsel. Parent shall have received the
----------------------------
favorable written opinion of (i) counsel for the Company dated the Closing Date,
in form and substance reasonably satisfactory to Parent and (ii) FCC counsel for
the Company dated the Closing Date, in substantially the form attached hereto as
Exhibit C-2.
5.4 Compliance with Agreements. The Company shall have performed and
--------------------------
complied with all agreements, covenants and conditions contained herein, in any
other document contemplated hereby and all other related documents which are
required to be performed or complied with by the Company on or before the
Closing Date.
5.5 All Proceedings Satisfactory. All corporate and other proceedings
----------------------------
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to Parent, and
Parent shall receive such copies thereof and other materials (certified, if
requested) as it may reasonably request in connection therewith.
5.6 Regulatory Matters.
------------------
<PAGE>
(a) All required waiting periods under HSR, shall have expired
or been terminated.
(b) The PSC and the FCC shall, if required by law, have approved
the consummation of the transactions contemplated hereby (including, but not
limited to, the transfer of any cable system franchises) and such approvals
shall (i) be free of any terms, conditions or restrictions that are unacceptable
to Parent and (ii) have become Final Orders. Parent and Acquisition Sub agree
that any Final Order containing terms, conditions or restrictions which are, in
substance, substantially similar to those contained in Final Orders previously
issued by the PSC or FCC in similar transactions shall not be deemed
unacceptable Final Orders.
(c) The approval of any other governmental entity required for
the consummation of the transactions contemplated hereby shall have been
obtained including, without limitation, the approval of any local or municipal
governmental entity necessary or appropriate in connection with the transfer of
control of the Company Franchises.
5.7 Litigation. There shall be no charge, claim, complaint,
----------
grievance, arbitration, investigation, action, suit or proceeding at law or in
equity or by or before any governmental or administrative instrumentality or
other agency, or before any court, arbitrator, or similar tribunal, pending or,
to the knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or, to the best knowledge of the Company, any director, officer or
key employee of the Company or any of its Subsidiaries which would have a
reasonable possibility of calling into question the validity, or hinder the
consummation, enforceability or performance, as the case may be, of the Closing,
this Agreement, any action taken or to be taken pursuant hereto or any of the
other agreements and transactions contemplated hereby.
5.8 Properties. Parent shall have received title insurance in form
----------
and substance reasonably satisfactory to Parent on all real property owned by
the Company or any of its Subsidiaries.
5.9 Adverse Changes. From the date hereof, through and including the
---------------
Effective Date, and without regard to matters related to approvals required by
Section 5.6 hereof or actions undertaken pursuant to this Agreement, there shall
have been (i) no material adverse change in the assets and properties of the
Company, the business operations, liabilities, profits or financial condition of
the Company and (ii) no material damage to the assets and properties of the
Company caused by fire, flood, casualty, act of God or the public enemy or other
cause, the loss of any of which is not adequately covered by insurance. Parent
and Acquisition Sub agree and acknowledge that any further Federal or State
regulation or deregulation, or any changes in laws applicable to Federal or
State deregulation of the Company occurring between the date hereof and the
Closing Date, even if such changes have, or are reasonably expected to
<PAGE>
have, a negative effect on the Company shall neither (a) constitute a breach of
any representation or warranty made by the Company herein nor (b) constitute a
failure of a condition precedent to Parent's or Acquisition Sub's obligations
hereunder.
5.10 Directors and Officers. The Company shall have duly and validly
----------------------
obtained resignations of all directors and officers (except for officers who
retain their title by contract) of the Company and each of its Subsidiaries
(except for those individuals set forth on Schedule 1.5) whose resignation is
requested by Parent at least two (2) days before the Closing Date, to be
effective as of the Effective Date.
5.11 Opinion of Special PSC Counsel and Cable Counsel. Parent shall
------------------------------------------------
have received a favorable written opinion of (i) special communications counsel
for the Company, dated the Closing Date, with respect to PSC and related matters
in a form reasonably acceptable to Parent and (ii) special counsel for the
Company, dated the Closing Date, with respect to cable and related matters in
substantially the form.
5.12 Employment Agreements. The employment agreements between the
---------------------
Company and each of the individuals listed on Schedule 5.12 shall be in full
force and effect on the Closing Date.
5.13 Dissenting Shareholders. No shareholder of the Company shall have
-----------------------
exercised his or its dissenter's rights under Section 910 of the NYBCL (the
"Dissenting Shareholder") or filed a notice of election to dissent in accordance
with Section 623 of the NYBCL (The "Dissenting Notice"). In the event any
Dissenting Notice is properly delivered to the Company by any Dissenting
Shareholder, the Company shall immediately notify and forward such Dissenting
Notice to Parent and Acquisition Sub. Within 5 business days after receipt of
such Dissenting Notice by Parent and Acquisition Sub, Parent shall notify the
Company (the "Response Notice") that Parent and Acquisition Sub shall take
either of the following 2 actions: (x) Parent and Acquisition Sub will
consummate the Merger notwithstanding the existence of the Dissenting Shares
with no further obligation on the part of the Company or (y) Parent and
Acquisition Sub will not consummate the Merger unless and until the Shareholder
Representative enters into an agreement in form and substance satisfactory to
Parent in its sole discretion (the "Dissenting Agreement") pursuant to which the
Shareholder Representative, for itself and on behalf of all of the other
shareholders of the Company agrees (a) to be responsible for any and all amounts
to be paid by the Surviving Corporation and/or Parent) to any Dissenting
Shareholder, (2) to indemnify the Surviving Corporation and Parent of any and
all losses, claims, damages, costs and expenses relating to the Dissenting
Shares and (iii) that under no circumstances shall Parent pay more than the
Merger Consideration for 100% of the outstanding shares of Company Common Stock.
In the event the Shareholder Representative fails to execute the Dissenting
Agreement within five (5) business days after receipt of the Response Notice,
the Company hereby agrees to pay to Parent in immediately available funds a
breakup fee in an amount equal to $1,000,000 plus all
<PAGE>
of the documented costs and expenses incurred by Parent and its affiliates in
connection with the transactions contemplated by this Agreement.
5.14 Waiver or Cure of Bank Defaults. The Company shall have cured or
-------------------------------
obtained waiver of the defaults under certain financing arrangements described
on Schedule 2.1(b)(1) hereto.
SECTION 6 COMPANY'S CONDITIONS OF MERGER
------------------------------
The Company's obligation hereunder shall be subject to compliance by the
Parent and Acquisition Sub with their agreements herein contained and to the
fulfillment to the Company's satisfaction on or before and at the Closing Date
of the following conditions:
6.1 Certificate. The representations and warranties of the Parent and
-----------
Acquisition Sub contained in Sections 3 and 4 of this Agreement shall be true
and correct in all material respects with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date;
each of the conditions hereafter specified in this Section 6 shall have been
satisfied; and on the Closing Date one or more certificates to such effect
executed by the President and the Chief Financial Officer of the Parent and
Acquisition Sub shall be delivered to the Company.
6.2 Delivery of Documents. Parent shall have executed and delivered
---------------------
to the Company (or shall have caused to be executed and delivered to the Company
by the appropriate persons) the following:
(a) Certified copies of resolutions of the Board of Directors
and the stockholders of Parent and Acquisition Sub authorizing the execution and
delivery of this Agreement and the Related Documents;
(b) A certificate issued by the appropriate Secretary of State
of the state of incorporation of Parent and Acquisition Sub certifying that
Parent or such Acquisition Sub as the case may be, is in good standing in such
state;
(c) True and correct copies of all consents, instruments and
other documents specified in Schedules 3.2 and 4.2 attached hereto which have
not otherwise been made available for review by Company; and
(d) All other certificates and other documents reasonably
requested by the Company in writing at least two (2) days before the Closing
Date. The form and substance of all such certificates and other documents
hereunder shall be reasonably satisfactory in all respects to the Company and
its counsel.
<PAGE>
6.3 Opinion of Parent's Counsel. The Company shall have received the
---------------------------
favorable written opinion of Parent's counsel dated the date hereof, in a form
reasonably acceptable to the Company.
6.4 Compliance with Agreements. Parent and Acquisition Sub shall have
--------------------------
performed and complied with all agreements, covenants and conditions contained
herein, in any other document contemplated hereby and all other Related
Documents which are required to be performed or complied with by Parent and
Acquisition Sub on or before the Closing Date.
6.5 All Proceedings Satisfactory. All corporate and other proceedings
----------------------------
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the Company
and Company shall receive such copies thereof and other materials (certified, if
requested) as they may reasonably request in connection therewith.
6.6 Regulatory Matters.
------------------
(a) All required waiting periods under HSR shall have expired or
been terminated.
(b) The PSC and the FCC shall each have approved, to the extent
any approval is necessary, the consummation of the transactions contemplated
hereby and such approvals shall: (i) be free of any terms, conditions or
restrictions that are unacceptable to the Company and (ii) have become Final
Orders; provided, that Parent in its sole discretion may waive the Final Order
requirement.
6.7 Litigation. There shall be no investigation, action, suit or
----------
proceeding at law or in equity or by or before any governmental instrumentality
or other agency pending or threatened against Parent or Acquisition Sub, or, to
the best knowledge of Parent and Acquisition Sub, any director, officer or key
employee of Parent or Acquisition Sub, which would have a reasonable possibility
of calling into question the validity, or hinder the consummation,
enforceability or performance, as the case may be, of the Closing, this
Agreement, any action taken or to be taken pursuant hereto or any of the other
agreements and transactions contemplated hereby.
6.8 Shareholder Approval. After receipt of a Final Order of the PSC,
--------------------
the Company shall call a special meeting of common stockholders of the Company
to be held for the purpose of voting on the Merger (the "Special Meeting") at
which at least 2/3 of the voting power of the Company shall have been cast in
favor of the Merger and the transactions anticipated by this Agreement. The
proxy statement to be delivered to the Company's Shareholders in connection with
the Special Meeting (the "Proxy Statement") shall state,
<PAGE>
interalia, (i) that the Board of Directors of the Company has unanimously
- ---------
approved the Merger and recommends that the shareholders vote in favor of the
Merger, (ii) that all of the Board members intend to vote in favor of the
Merger, and (iii) that all of the Company's shareholders should make plans to
deliver their shares free and clear of all liens and encumbrances. In the event
that at least 2/3 of the voting power of the Company is not cast in favor of the
Merger, the Company shall be required to pay to Parent a break-up fee of
$1,000,000, plus an amount equal to all of the documented costs and expenses
incurred by Parent and its affiliates in connection with the transactions
contemplated by this Agreement, in immediately available funds and this
Agreement shall be deemed to have terminated pursuant to Section 10.1(a)(iv)
hereof.
SECTION 7 COVENANTS
---------
Until the Closing Date, each of the Parent, Acquisition Sub and the Company
agree that they shall act, or refrain from acting where so required, to comply
with the following:
7.1 Regular Course of Business.
--------------------------
(a) Generally. The Company shall operate its business consistent
---------
with past management practices, shall maintain all of its properties in
customary repair, order and condition, shall maintain (except for expiration due
to lapse of time or cancellation by another party pursuant to the terms thereof)
in the ordinary course of business all leases, contracts, agreements,
understandings and commitments (whether written or oral) in effect without
change, modification or termination except as expressly provided herein and
shall comply with the provisions of all laws, regulations and orders of
Governmental Authorities and all Company Franchises and FCC Licenses applicable
to the Company and the conduct of its business. The Company shall comply,
without modification, with all contracts and commitments relating to capital
expenditures as set forth on Schedule 2.9. The Company shall maintain its
financial and accounting records in a manner consistent with that employed at
December 31, 1996.
(b) Insurance. The Company shall maintain in full force and
---------
effect its insurance policies with the coverage and in the amounts set forth on
Schedule 2.15.
(c) Claims. The Company shall promptly notify the Parent of any
------
actions, claims, complaints, lawsuits or investigations that may be commenced
against it.
(d) Supplement. From time to time prior to the Closing Date, the
----------
Company shall promptly notify Parent of any changes with respect to the
information set forth in this Agreement or the Schedules hereto and of any
matters hereafter arising which, if in existence at the date hereof, would have
been required to be set forth in this Agreement or the Schedules hereto. Nothing
contained herein or in any information provided to Parent pursuant
<PAGE>
hereto shall be deemed to constitute (i) a change, modification or amendment of
any representation, warranty, Schedule hereto or any other provision contained
in this Agreement unless such updated information shall be acceptable to Parent
in its sole discretion and such acceptance is expressly set forth in writing and
signed by Parent or (ii) a waiver by Parent of any breach of any such
representation, warranty or other provision of which Parent, through such
update, becomes aware. Any such waiver must be expressly set forth in writing
and signed by Parent.
7.2 '98 Operating Budgets. The Company shall provide to Parent
---------------------
promptly, but in no event later than November 30, 1997, 1998 operating and
capital budgets, which budgets shall be subject to Parent's approval, which
approval may not be unreasonably withheld (the "'98 Budgets").
7.3 Amendments. No change or amendment shall be made to the
----------
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries shall merge
into or consolidate with any other Person or change the character of its
business.
7.4 Capital Changes. The Company shall not issue, sell, purchase or
---------------
redeem any shares of its capital stock of any class or issue or sell any
securities convertible into, or options, warrants or other rights to subscribe
for, any shares of its capital stock. The Company shall not and shall use
reasonable efforts to cause its stockholders not to, pledge or otherwise
encumber any shares of its capital stock.
7.5 Dividends. The Company shall not declare, pay or set aside for
---------
payment any dividend or other distribution in respect of its capital stock,
other than dividends declared no earlier than 10 days prior to the last day of a
fiscal quarter, which dividends may not exceed $2.80 per share for end of the
first three quarters and $3.00 per share for the fourth fiscal quarter.
7.6 Capital Expenditures. Except to the extent provided for in the
--------------------
'97 or '98 Budget, without the prior written consent of Parent, the Company
shall not make any capital expenditures in excess of what has been budgeted in
the aggregate, or commitments with respect thereto, except as provided in
Schedule 2.9. The Company shall not make or accept any loan or advance to or
from any of its Affiliates.
7.7 Borrowing. Except to the extent provided for in the '97 or '98
---------
Budget, without the prior written consent of the Parent, the Company shall not
incur, assume or guarantee any indebtedness or obligation not reflected on the
Base Balance Sheet.
<PAGE>
7.8 Property. The Company shall not sell, transfer, or dispose of any
--------
of its assets and properties, or allow any of its assets and properties to
become subject to a Lien, except the sale of obsolete or worn out equipment in
the ordinary course of business.
7.9 Other Commitments. Except as set forth in this Agreement or
-----------------
permitted in writing by the Parent, the Company shall not enter into any
transaction, make any commitment or incur any obligation other than in the
ordinary course of business.
7.10 Interim Financial Information. The Company shall supply Parent
-----------------------------
with a copy of its internal unaudited monthly financial statements within forty-
five (45) days after the end of each month.
7.11 Compensation. The Company shall not increase the compensation (in
------------
whatever form) or the benefits payable or to become payable to any officer,
director, consultant, or other employee of the Company or any of its
Subsidiaries, except for increases or changes consistent with past practices or
required by contract.
7.12 Consents and Authorizations. The Parent and the Company shall,
---------------------------
promptly after the date hereof, cooperatively commence efforts to obtain PSC and
FCC approvals of the transactions contemplated hereby and the consents, waivers
and authorizations listed in Schedules 2.2 and 2.6, including the approval of
the Company's Shareholders, which approval the Company agrees to use reasonable
efforts to obtain within 30 business days after the receipt of PSC approval.
The Parent and the Company shall diligently pursue and use their best efforts to
obtain such consents, waivers and authorizations as promptly as practicable
prior to the Closing Date.
7.13 Access. The Company shall afford to the Parent and its counsel,
------
accountants, agents and other authorized representatives and to financial
institutions specified by the Parent reasonable access during business hours to
the Company's and its Subsidiaries' plants, properties, books and records in
order that the Parent may have full opportunity to make such reasonable
investigations as it shall desire to make of the affairs of the Company and its
Subsidiaries. The Company shall cause its and its Subsidiaries' officers,
employees and auditors to furnish such additional financial and operating data
and other information as the Parent shall from time to time reasonably request.
7.14 Notice of Transfer. Each of the Parent and the Company shall
------------------
cooperate in providing any required notices to the appropriate Governmental
Authority regarding any issues of ownership or control or change thereof
(including, without limitation, any such issues relating to the Company
Franchises).
7.15 Payment of Tax. All transfer (including any real estate transfer
--------------
or gains tax), documentary (other than stock transfer), sales, use, registration
and other such Taxes and fees
<PAGE>
(including any penalties and interest) incurred in connection with this
Agreement shall be borne by the Company when due, and it will file on a timely
basis all necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, registration and other Taxes and fees, and,
if required by applicable Regulation, will, and will cause its Affiliates to,
join in the execution of any such Tax returns and other documentation.
7.16 Agreement to Defend. In the event any claim of the nature
-------------------
specified in Section 5.7 hereof is commenced, whether before or after the
Closing Date, the parties hereto agree to cooperate and use all reasonable
efforts to defend against and respond thereto.
7.17 '97 and '98 Budgets. The Company shall promptly advise Parent of
-------------------
any event or circumstance which would render the '97 or '98 Budgets or the
assumptions underlying the same no longer reasonable or accurate.
7.18 Further Assurances. On the terms and subject to the conditions of
------------------
this Agreement, the parties hereto shall use all reasonable efforts at their own
expense to take, or cause to be taken, all actions, and to do, or to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable regulations to consummate and
make effective as promptly as possible the transactions contemplated by this
Agreement, and to cooperate with each other in connection with the foregoing,
including, without limitation, using all reasonable efforts (a) to obtain all
necessary waivers, consents and approvals from other parties to loan agreements,
leases, mortgages and other contracts, (b) to obtain all necessary consents,
approvals and authorizations as are required to be obtained under any judgment,
decree, order, law, statute, ordinance, rule or any regulations or in connection
with any Company Franchises, (c) to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby and (d) to fulfill all
conditions to the obligations of the parties under this Agreement. Each of the
parties hereto further covenants and agrees that it shall use all reasonable
efforts to prevent a threatened or pending preliminary or permanent injunction
or other Order.
7.19 Consents. Without limiting the generality of this Section 7.19,
--------
each of the parties hereto shall, if necessary, use reasonable efforts to obtain
all waivers, authorizations, consents and approvals of all Persons and
Governmental Authorities necessary, proper or advisable in connection with the
consummation of the transactions contemplated by this Agreement prior to the
Closing Date.
7.20 No Solicitation or Negotiation. Unless and until this Agreement
------------------------------
is terminated, the Company shall not, and shall use its best efforts to cause
its Affiliates, and the directors, officers, employees, representatives, agents,
advisors, accountants, shareholders and attorneys of each of them, not to
initiate or solicit, directly or indirectly, any inquiries or the making of any
proposal with respect to, or engage in negotiations concerning, or provide any
confidential information or data to any Person with respect to, or have any
discussions with
<PAGE>
any Person relating to, or enter into, or agree to enter into, any acquisition,
business combination or purchase of all or any significant portions of the
assets of, or any equity interest in, directly or indirectly, the Company, or
otherwise facilitate any effort or attempt to do or seek any of the foregoing
and shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing; provided that no director of the Company shall be
required to comply with this Section 7.20 to the extent such compliance would
cause such director to breach his or her fiduciary duty to the Company or its
Shareholders. In the event the restrictions set forth in this Section 7.20 are
breached, Parent may immediately terminate this Agreement pursuant to Section
10.1(a)(iv) hereof, and the Company shall pay Parent $1,750,000 as a break-up
fee as well as reimburse Parent and its affiliates for all of the documented
costs and expenses reasonably incurred by them in connection with the
transactions contemplated by this Agreement.
7.21 Public Announcements. Prior to the Closing Date, no party hereto
--------------------
nor any Affiliate, representative or shareholder of such party, shall disclose
any of the terms of this Agreement to any third party, except as required to
obtain the consents, waivers and authorizations listed in the Schedules and in
connection with the Parent's financing of the transactions contemplated hereby,
without the other parties' prior written consent. Prior to the Closing Date,
the form, content and timing of all press releases, public announcements or
publicity statements with respect to this Agreement and the transactions
contemplated hereby shall be subject to the prior approval of both the Company
and the Parent, which approval shall not be unreasonably withheld; provided,
--------
however, that either party may withhold such approval in its sole discretion
- -------
with respect to any of the foregoing which discloses any of the financial terms
of this transaction. Prior to the Closing Date, no press releases, public
announcements or publicity statements shall be released by either party without
such prior mutual agreement. Notwithstanding the foregoing, no party hereto
will disclose the Merger Consideration or the manner in which the Merger
Consideration is calculated, without the prior written consent of the other
parties hereto, other than in connection with seeking consents required by
Section 7.12.
7.22 THIS SECTION INTENTIONALLY LEFT BLANK
7.23 Employee Plans. Prior to Closing, the Company shall (i) file for
--------------
a favorable determination letter from the Internal Revenue Service that the
termination of the Company's two (2) defined benefit pension plans will not
affect their qualified status under Code Section 401(a) and (ii) satisfy all
applicable requirements of Title IV of ERISA involved in terminating such plans
to the extent such requirements are required by Title IV of ERISA to be
performed prior to the Closing Date.
<PAGE>
7.24 Regulatory Matters. The Company will not change local rates
------------------
charged to telephone customers or rates charged to cable subscribers other than
in the normal course of business and in accordance with applicable laws and
regulations.
7.25 Indemnification and Insurance. The Surviving Corporation agrees
-----------------------------
to indemnify and hold harmless the Company's officers and directors against any
costs or expenses (including reasonable attorney's fees), judgments, fines,
losses, claims, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative arising out of or pertaining to matters existing
or occurring at or prior to the Effective Date, to the fullest extent permitted
under the NYBCL. The Surviving Corporation will maintain director and officer
liability insurance for acts and omissions occurring prior to the Closing Date
with coverage in amount and scope at least as favorable as Company's existing
director and officer liability insurance for a period of six years after the
Closing Date provided, however, if the existing director and officer liability
-------- -------
insurance expires, is terminated or cancelled during such six-year period, the
Surviving Corporation will use its best efforts to obtain director and officer
liability insurance in an amount and scope as great as can be obtained for the
remainder of such period.
7.26 Payment of Regulatory Fees. The Parent shall pay 100% of (i) any
--------------------------
filing fee imposed under HSR, in connection with the transactions contemplated
by this Agreement and the Related Documents and (ii) any fees and expenses
(including fees and expenses of Harter, Secrest & Emery in such Firm's capacity
as regulatory counsel, which in no event shall exceed $70,000) incurred in
connection with obtaining PSC approval of the transactions contemplated by this
Agreement and the Related Documents.
7.27 Tax Periods; Allocations of Income and Loss. Parent and the
-------------------------------------------
Company agree that if the Company or any of its Subsidiaries is permitted but
not required under any applicable state, local or foreign income tax law to
treat the Closing Date as the last day of a taxable period, Parent and the
Company shall (and the Company shall cause any such Subsidiary to) treat such
date as the last day of a taxable period. For purposes of this Agreement, if a
taxable period begins before the Closing Date and ends after the Closing Date,
then the Closing Date shall be treated as the last day of a taxable period. In
the case of all Taxes other than those based on or measured by property or
capital or otherwise described in Section 7.15, the amount of Taxes attributable
to such period shall be based upon, where relevant, the actual operations of the
Company and its Subsidiaries through the Closing Date as shown on their
permanent books and records, including work papers. Only for purposes of
computing taxable income and the related Tax attributable to such period,
accruals of operating income and expenses otherwise properly accruable under
relevant tax authorities if the Closing Date were actually the end of the
taxable period, shall be considered properly accruable as of such date. In the
case of Taxes based on, or measured by, property or capital (including, but not
limited to, any ad valorem and real and personal property Taxes) the amount of
-- -------
Taxes attributable to the period ending on the Closing Date shall be equal to
the total amount of such
<PAGE>
Taxes for the taxable period in question multiplied by a fraction the numerator
of which is the number of days in such period prior to the Closing Date and the
denominator of which is the total number of days in such period.
7.28 Risk of Regulatory Changes. Notwithstanding anything else
--------------------------
contained herein to the contrary, Parent and Acquisition Sub hereby acknowledge,
covenant and agree that they will bear the risk of Federal and/or New York State
regulation and deregulation in the telecommunications industry and that any such
changes in those areas shall not constitute a material adverse change to the
business of the Company.
7.29 Cable Franchises. Within thirty (30) days after the date hereof,
----------------
the Company shall use its reasonable best efforts to obtain at least eight (8)
year extensions or renewals of its currently existing CATV franchises covering
50% or more of the Company's and its Subsidiaries' cable subscribers. The
Company shall permit Parent to participate in all such extension of renewal
proceedings.
7.30 Waiver or Cure. The Company will use its reasonable best efforts
--------------
to obtain waivers of or cure prior to Closing, the CATV-related defaults
described on Schedule 2.1(b)(4) hereto.
7.31 Delivery of Proxy Statement. The Company shall deliver the Proxy
---------------------------
Statement to its shareholders within three business days after obtaining the
PSC's initial approval and schedule a shareholders meeting as soon as possible
thereafter as permitted by law.
7.32 Environmental Matters.
---------------------
(a) UST Compliance.
--------------
(i) The Company shall take, or cause each of its
Subsidiaries to take, the following steps, which shall be completed prior to the
Closing, in each instance in compliance with all applicable laws and
regulations, regarding any underground storage tank ("UST") now or formerly
located on any owned or leased real property, and the costs incurred hereunder
shall be allocated in accordance with Section 7.32(d) below:
(ii) For each UST currently located on any owned or leased
property, whether or not such UST is currently in use or operation, the Company
shall remove, or cause its Subsidiary to remove, the UST, and to conduct such
testing and remediation of soil and groundwater as required by all applicable
laws and regulations. Where a storage tank is required for current or
contemplated operations, the UST shall be replaced by an above-ground tank of
appropriate size, with secondary containment of appropriate size, properly
constructed and installed with all fittings and appurtenant equipment for
operation in the ordinary course,
<PAGE>
except for any locations where an above-ground tank cannot be used, in which
case a UST will be installed that complies with the federal requirements of 40
CFR part 280 for USTs in operation after December 22, 1998. The Company shall
assure that any replacement tank is property installed, is registered in
accordance with all applicable laws and regulations, and that it receives
customary warranties and operating manuals.
(iii) For each UST which was previously removed at the West
Lebanon, Hoags Corners and Canaan, New York facilities, the Company shall engage
a technically qualified consultant (who shall be reasonably acceptable to
Parent) to conduct soil and, if necessary, groundwater sampling and analysis, to
demonstrate that no contamination currently is in place as a result of the
former tank that would require remediation be conducted to comply with
applicable laws and regulations. Where the sampling and analysis show
contamination to be present, the Company shall engage a technically qualified
consultant to remediate the contamination to the extent necessary to be in
compliance with all applicable laws and regulations.
(iv) The Company shall provide, as least 10 business days
prior to the Closing, a current registration for each UST or above-ground tank,
or a closure report for each such tank which is no longer in operation.
(v) The Company shall timely provide Parent and
Acquisition Sub with a copy of any analytic data, and each report,
correspondence or other document contemplated under this Section 7.32.
(b) Remediation of 16 Lebanon Springs. The Company shall cause
---------------------------------
the New York State Department of Environmental Conservation's files concerning
the remediation of a 1990 tanker spill and tank removal ("the DEC Spill File")
to be reviewed by a technically qualified consultant to determine if any
contamination must be remediated to be in compliance with all applicable laws
and regulations. In the event the analysis of the DEC files indicates
remediation is necessary to be in compliance with all applicable laws and
regulations, or there is insufficient information to make such a determination,
the Company shall engage a qualified consultant to sample and analyze the soil
affected by the 1990 tanker spill or former UST and, if necessary, remediate any
contamination to be in compliance with all applicable laws and regulations. The
Company shall timely provide Parent and Acquisition Sub with a copy of the DEC
Spill File and all analytic results and reports of the sampling and the analytic
effort shall be allocated in accordance with Section 7.32(d) below.
(c) Remediation at Taconic Place.
----------------------------
(i) Prior to the Closing, the Company shall install
secondary containment appropriate in size and construction, around the existing
above-ground storage tank at Taconic Place. Prior to installation of the
secondary containment, the Company shall
<PAGE>
assure that there is no existing contamination requiring, by law or regulation,
remediation in the vicinity of the above-ground tank. If the Company continues
to store more than 1100 gallons of petroleum products at the facility, it will
properly register the facility under the New York State Petroleum Bulk Storage
Program.
(ii) The Company shall engage a qualified consultant to
undertake removal and disposal of the existing septic drum at Taconic Place, in
compliance with all applicable laws and regulations, including any sampling and
analysis of soil and, if necessary, groundwater to determine whether
contamination has resulted from the operation of the septic drum. In the event
sampling and analysis shows contamination that requires remediation to be in
compliance with applicable laws and regulations, the Company shall engage a
qualified consultant to remediate the contamination in compliance with all
applicable laws and regulations. All work contemplated under this subparagraph
(c) shall be completed prior to the Closing.
(iii) The Company shall timely provide copies of all
analytic data, reports, correspondence, or other documents hereunder to Parent
and Acquisition Sub.
(d) Cost Allocation for Environmental Matters. The costs
-----------------------------------------
incurred under this Section 7.32 shall be paid by the parties as follows:
(i) The Company shall identify to Parent and Acquisition
Sub the environmental or other consultants and contractors it proposes to engage
to undertake the work, and shall provide an estimate from the contractor or
consultant for the cost of the work. Parent and Acquisition Sub shall have 10
business days after receipt of the information to make reasonable objections to
the consultant or the costs proposed. If Parent or Acquisition Sub objects, the
parties shall in good faith undertake such negotiations or other actions as
required to resolve the dispute. If no objection is made, the Company may
proceed.
(ii) The Company shall pay the first $250,000 of costs
incurred for environmental remediation hereunder, provided that such work is
undertaken by the approved consultant or contractor, has been completed in
accordance with all applicable laws and regulations, and all analytic reports or
other documents and filings have been completed as required by this Agreement.
(iii) The shareholders of the Company shall pay any costs of
remediation in excess of the first $250,000 up to an additional total of
$250,000, and such amount shall reduce, on a dollar for dollar basis, the Merger
Consideration.
(iv) In the event estimated costs of remediation as
provided by Parent and Acquisition Sub exceed a total of $500,000, the Company,
Parent or Acquisition Sub shall have the right, upon 15 business days notice, to
terminate this Agreement, with no further
<PAGE>
right or obligation on any party hereto, except as specified in subparagraph (v)
of this Section, below.
(v) The Company shall pay for the Phase I Environmental
Site Assessments of all Properties performed by O'Brien & Gere Engineers and the
Phase II Environmental Site Assessment performed by O'Brien & Gere Engineers at
Taconic Place in August, 1997. The Parent shall reimburse the Company for the
Phase I and II Site Assessments in the event this Agreement is terminated by any
of the parties prior to Closing.
SECTION 8 CLOSING AND POST-CLOSING COVENANTS.
----------------------------------
8.1 Time and Place.
--------------
(a) Subject to the provisions of Sections 5 and 6 hereof and the
Company's compliance with the covenants contained in Section 7, the closing (the
"Closing") of the transactions contemplated hereby shall take place at the
offices of Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New
York 10022, or such other place as agreed to by the parties, at 9:30 a.m., local
time, on the last business day of the month immediately after the month of the
receipt of all federal, state and local regulatory approvals; provided however,
-------- -------
that in no event shall the Closing occur later than December 31, 1998 (the
"Closing Date").
(b) On the Closing Date, Parent, Acquisition Sub and the Company
shall cause the Certificate of Merger to be filed in accordance with the
provisions of the NYBCL and shall take any and all other lawful actions and do
any and all other lawful things necessary to effect the Merger and to cause the
Merger to become effective.
8.2 Additional Post-Closing Covenants. The Parent shall honor
---------------------------------
existing employment contracts and use its best efforts to retain Taconic
Employees consistent with good business practices.
SECTION 9 DEFINITIONS
-----------
Unless the context specifically requires otherwise, capitalized terms used
in this Agreement shall have the meaning specified below:
"Affiliated Group" means any affiliated group within the meaning of the
Code Section 1504(a), or similar group defined under a similar provision of
state, local or foreign law.
"Defined Intercompany Transaction" shall have the meaning set forth in
Treasury Regulation Section 1.1502-13.
<PAGE>
"FCC" means the Federal Communications Commission (or any successor agency,
commission, bureau, department or other political subdivision of the United
States of America).
"FCC License" means any license, permit, approval, registration or
authorization granted or issued by the FCC.
"Final Order" means an action by the FCC or the PSC as to which: (a) no
request for stay of the action by the FCC or the PSC, as the case may be, is
pending, no such stay is in effect, and if any time period is permitted by
statute or regulation for filing any request for such a stay, such time period
has passed; (b) no petition for rehearing or reconsideration, or application for
review, of the action is pending before the FCC or the PSC, as the case may be,
and the time permitted for filing any such petition or application has passed;
(c) the FCC or the PSC, as the case may be, does not have the action under
reconsideration on its own motion and the time in which such reconsideration is
permitted has passed; and (d) no appeal to a court, or request for stay by a
court, of the FCC's or PSC's action, as the case may be, is pending or in
effect, and the deadline for filing any such appeal or request has passed.
"GAAP" means generally accepted accounting principles in effect from time
to time.
"Governmental Authority" means any governmental agency, body or
instrumentality (whether federal, state, local or foreign).
"HSR" means the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended.
"Investment Company" shall have the meaning ascribed to such term in the
Investment Company Act of 1940, as amended.
"Lien" means any interest in property securing an obligation owed to, or
claim by, a Person other than the owner of the property, whether such interest
is based on the common law, statute or contract, and including but not limited
to the security interest lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" includes, without limitation, reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances (including,
without limitation, with respect to stock, stockholders agreements, voting trust
agreements, buy-back agreements and all similar arrangements) affecting
property. For the purposes of this Agreement, the Company or a Subsidiary shall
be deemed to be the owner of any property which it has acquired or holds subject
to a conditional sale agreement, financing lease or other arrangement pursuant
to which title to the property has been retained by or vested in some other
Person for security purposes and such retention or vesting shall be deemed to be
a "Lien".
<PAGE>
"OSHA" means the Occupational Safety and Health Act of 1978, as amended
from time to time.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust or unincorporated organization or any
government or any agency or political subdivision thereof.
"PSC" means the New York Public Service Commission and the Massachusetts
Department of Public Utilities.
"Related Documents" means this Agreement and the Certificate of Merger,
together with all related instruments and documents as the same may be amended
from time to time.
"Shareholder Representative" means Lorinda Ackley.
"Subsidiary" of any Person means any corporation or other entity of which
more than 50% of the outstanding voting securities are at the time owned,
directly or indirectly, by such Person.
"Tax" means any federal, state, local, or foreign income, gross receipts,
capital stock, franchise, profits, withholding, social security, unemployment,
disability, real property, personal property, stamp, excise, occupation, sales,
use, transfer, value added, alternative minimum, estimated or other tax,
including any interest, penalty or addition thereto, whether disputed or not.
"Taxing Authority" means any domestic, foreign, federal, national, state,
provincial, county or municipal or other local government, any subdivision,
agency, commission or authority thereof, exercising any taxing authority or any
other authority exercising any Tax regulatory authority.
The following terms shall have the meanings assigned to them in the
provisions of this Agreement referred to below:
'97 and '98 Budgets - Section 7.2
Acquisition Sub - Preamble
Base Balance Sheet - Section 2.4
Closing - Section 8.1
Closing Date - Section 8.1(a)
Code - Section 2.14(d)
Company - Preamble
Company Franchises - Section 2.5
Employee Program - Section 2.21
<PAGE>
ERISA - Section 2.21(c)
IRS - Section 2.21(b)
Merger - Recitals
NYBCL - Section 1.1
Parent - Preamble
Properties - Section 2.18(a)
SECTION 10 GENERAL
-------
10.1 Termination.
-----------
(a) This Agreement may be terminated at any time prior to the
Closing:
(i) by mutual written consent of the parties hereto;
(ii) by written notice by either the Company, on the one
hand, or the Parent and Acquisition Sub, on the other hand, if there has been a
material misrepresentation or breach of warranty or breach of covenant on the
part of the other parties in the representations and warranties or covenants set
forth in this Agreement;
(iii) by written notice by either the Company or Parent if
the Closing has not occurred by December 31, 1998, provided that neither the
Company nor Parent will be entitled to terminate this Agreement pursuant to this
subsection if its willful breach of this Agreement has prevented the
consummation of the transactions contemplated hereby;
(iv) (a) by either the Company or Parent, in the event the
Company cannot consummate the transactions contemplated hereby as a result of
the Board of Directors exercising its fiduciary duties pursuant to Section 7.20,
hereof, and taking into account the break-up fee contemplated by Section 7.20;
or (b) by the Company or Parent, in the event the Company determines not to
consummate the transactions contemplated hereby as a result of the perfection of
Shareholders' dissenter's rights as contemplated by Section 5.13 hereof, and
taking into account the break-up fee contemplated by Section 5.13; or (c) by the
Company or Parent, in the event the Company fails to obtain a favorable vote for
the Merger of at least 2/3 of the Company's shares entitled to vote at the
Special Meeting, as contemplated by Section 6.8 hereof, and taking into account
the break-up fee contemplated by Section 6.8.
(b) In the event this Agreement is terminated pursuant to
Paragraph (a) of this Section 10.1 and the transactions contemplated hereby are
not consummated, this Agreement shall be of no further force and effect.
10.2 Break-up Fees. The break-up fees set forth in Sections 5.13, 6.8
-------------
and 7.20 shall be the exclusive remedy for the conduct so contemplated and in no
event shall the Company's obligations to pay such break-up fees under such
Sections be cummulative.
<PAGE>
10.3 Amendments, Waivers and Consents. FOR THE PURPOSES OF THIS
--------------------------------
AGREEMENT AND ALL AGREEMENTS, DOCUMENTS, AND INSTRUMENTS EXECUTED PURSUANT
HERETO, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH HEREIN OR THEREIN, NO COURSE
OF DEALING BETWEEN THE COMPANY, THE PARENT AND ACQUISITION SUB AND NO DELAY ON
THE PART OF ANY PARTY HERETO IN EXERCISING ANY RIGHTS HEREUNDER OR THEREUNDER
SHALL OPERATE AS A WAIVER OF THE RIGHTS HEREOF AND THEREOF. NO COVENANT OR
OTHER PROVISION HEREOF OR THEREOF MAY BE WAIVED OTHERWISE THAN BY A WRITTEN
INSTRUMENT SIGNED BY THE PARTY SO WAIVING SUCH COVENANT OR OTHER PROVISION.
10.4 Governing Law; Consent to Jurisdiction. THIS AGREEMENT SHALL BE
--------------------------------------
DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF.
10.5 Section Headings. The descriptive headings in this Agreement have
----------------
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
10.6 Notices and Demands. Any notice or demand which, by any provision
-------------------
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or provided
to be given shall be deemed to have been sufficiently given or served and
received for all purposes three days after being sent by certified or registered
mail, postage and charges prepaid, return receipt requested, or by express
delivery providing receipt of delivery, to the following addresses:
If to Parent to:
MJD Communications, Inc.
521 East Morehead Street
Suite 250
Charlotte, NC 28202
Attention: Eugene B. Johnson
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022
Attention: Neil A. Torpey, Esq.
<PAGE>
If to the Company to:
Taconic Telephone Corp.
Taconic Place
Chatham, New York 12037
Attention: Lorinda Ackley
With a copy to:
Harter, Secrest & Emery
700 Midtown Tower
Rochester, NY 14604
Attention: John T. Pattison, Esq.
or at any other address designated by any party to this Agreement to each of the
other parties in writing.
10.7 Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which when so executed and delivered shall
be taken to be an original; but such counterparts shall together constitute but
one and the same document.
10.8 Severability; Complete Agreement. Whenever possible, each
--------------------------------
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be deemed prohibited if or invalid under such applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
and such prohibition or invalidity shall not invalidate the remainder of such
provision or the other provisions or this Agreement.
THIS AGREEMENT AND THE RELATED DOCUMENTS ARE INTENDED BY THE
PARTIES HERETO TO BE A COMPLETE AND FINAL EXPRESSION OF THEIR AGREEMENT AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL AGREEMENT.
BY INITIALING IN THE MARGIN, THE PARTIES ACKNOWLEDGE AND AGREE THAT NO UNWRITTEN
ORAL AGREEMENT EXISTS BETWEEN THEM WITH RESPECT TO THE SUBJECT MATTER OF THIS
AGREEMENT.
10.9 Expenses. Unless otherwise provided for in this Agreement, each
--------
of the Parent, the Company and Acquisition Sub shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement.
<PAGE>
10.10 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto, either in whole or in part, without the prior written
consent of the other parties hereto; provided that Parent may assign this
Agreement or any of the rights, interests or obligations hereunder to an
affiliate without the prior written consent of the Company.
10.11 Accounting Terms. All accounting terms used herein which are not
----------------
expressly defined in this Agreement shall have the meanings given to them in
accordance with GAAP.
10.12 Parties. Nothing in this Agreement is intended to confer any
-------
rights or remedies under or by reason of this Agreement on any persons or
entitles other than the parties hereto and their respective successors and
permitted assigns. Without limiting the foregoing, no third Person shall be a
beneficiary of any provision of this Agreement.
10.13 Jury Waiver. EACH OF THE PARENT, COMPANY, AND ACQUISITION SUB
-----------
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, SUIT, OR COUNTERCLAIM ON
ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT
AND THE RELATED DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.
10.14 Arbitration. Any dispute, controversy or claim arising out of or
-----------
relating to this Agreement not resolved by mutual agreement of Parent and the
Company shall be settled by arbitration in New York, New York, or in such other
location as the parties may mutually agree, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"). In the
event of such a dispute, either party may demand arbitration by written notice
to the other and, within fifteen (15) days after receipt of such demand, each
party shall appoint an arbitrator (each, an "Appointed Arbitrator") who shall
together agree on a third Arbitrator, failing which agreement they shall request
the AAA to appoint a third and presiding arbitrator ("Presiding Arbitrator"), in
accordance with the then existing rules of the AAA or any successor organization
thereto. The parties acknowledge and agree that individuals may be designated as
Appointed Arbitrators by each respective party, whether or not such Appointed
Arbitrators are listed on the National Panel of Arbitrators as such list is
maintained by the AAA. Any award therein shall be final and binding on the
parties and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereto. The costs of the arbitration
(including, but not limited to, fees and disbursements of counsel and the
Appointed Arbitrator, and the fees of the Presiding Arbitrator) shall be borne
by the non-prevailing party or as otherwise determined by the Presiding
Arbitrator.
<PAGE>
THIS SPACE LEFT INTENTIONALLY BLANK
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
TACONIC TELEPHONE CORP.
By:__________________________________
Lorinda Ackley, President
MJD HOLDINGS CORP.
By:___________________________________
Eugene B. Johnson
Senior Vice President
TACONIC ACQUISITION CORP.
By:___________________________________
Eugene B. Johnson
Senior Vice President
-46-
<PAGE>
State of )
County of ) SS:
On this _______ day of _____________ 19__, before me personally came
______________________________, to me known, who, being by me duly sworn did
depose and say that the above-named person resides in
___________________________________, that said person is ______________________
of __________________________, the corporation described in and which executed
the foregoing instrument; and that the above-named person signed thereto by
order of the Board of Directors of said corporation.
______________________________
Notary Public
State of )
County of ) SS:
On this _______ day of _______________, 19__, before me personally came
_________________________, to me known, who, being by me duly sworn did depose
and say that the above-named person resides in
___________________________________, that said person is ______________________
of __________________________, the corporation described in and which executed
the foregoing instrument; and that the above-named person signed thereto by
order of the Board of Directors of said corporation.
______________________________
Notary Public
State of )
County of ) SS:
On this _______ day of _______________ 19__, before me personally came
______________________________, to me known, who, being by me duly sworn did
depose and say that the above-named person resides in
___________________________________, that said person is ______________________
of __________________________, the corporation described in and which executed
the foregoing instrument; and that the above-named person signed thereto by
order of the Board of Directors of said corporation.
______________________________
-47-
<PAGE>
Notary Public
EXHIBIT NAME RESPONSIBILITY
- ------- ---- --------------
Exhibit A Certificate of Merger HS&E
Exhibit B [Reserved]
Exhibit C-2 Opinion of Counsel - FCC TTC
Exhibit E '97 Budgets TTC
Exhibit F Solvency Certificates PHJ&W/HS&E
SCHEDULES NAME RESPONSIBILITY
--------- ---- --------------
Schedule 1.5 Surviving Corporation Officers TTC
Schedule 1.8 Payment of Cash for Stock TTC
Schedule 2.1 Taconic States of Operation TTC
Schedule 2.2 Change in Control Consents TTC/HS&E/PHJ&W
Schedule 2.3 Capitalization of Taconic and subsidiaries TTC
Schedule 2.4 TTC Financial Statements TTC
Schedule 2.5 Franchises and Intellectual Property Use TTC
Schedule 2.6 Timely and Proper Regulatory Filings TTC
Schedule 2.8 Material Overbillings TTC
Schedule 2.9 Required CAPEX TTC
Schedule 2.10 Law Violations TTC
Schedule 2.11 Undisclosed Liabilities TTC
Schedule 2.12 Developments TTC
Schedule 2.13 Real Estate, Leases TTC
Schedule 2.14 Tax Matters TTC
Schedule 2.15 Insurance TTC
Schedule 2.16 Contracts TTC
Schedule 2.17 Litigation TTC
Schedule 2.18 Environmental Matters TTC
Schedule 2.21 Employee Benefits TTC
Schedule 2.23 Brokers/Finders TTC
Schedule 2.26 Certain Employment Matters TTC
Schedule 2.27 Affiliate Contracts TTC
Schedule 4.3 Capitalization of Acquisition Sub MJD
Schedule 5.12 Employment Agreements TTC
-48-
<PAGE>
EXHIBIT 10.25
AGREEMENT AND PLAN OF MERGER
Dated as of
December 31, 1997
By and among
MJD VENTURES, INC.
ELLENSBURG ACQUISITION CORP.
AND
ELLENSBURG TELEPHONE COMPANY
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT made as of this 31st day of December, 1997 by and among
ELLENSBURG TELEPHONE COMPANY, a Washington corporation (the "COMPANY"), MJD
VENTURES, INC., a Delaware corporation ("PARENT") and ELLENSBURG ACQUISITION
CORP., a Washington corporation ("ACQUISITION SUB").
WITNESSETH
WHEREAS, the respective Boards of Directors of Parent, Acquisition Sub
and the Company have approved the merger of Acquisition Sub with and into the
Company (the "MERGER"), upon the terms and subject to the conditions set forth
herein and in the articles of merger annexed as EXHIBIT A (the "ARTICLES OF
MERGER"), as a result of which Acquisition Sub will be merged into the Company
and the shareholders of the Company (other than shareholders who perfect
appraisal rights) will be entitled to receive the consideration provided in this
Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and of the representations, warranties, covenants and
agreements hereinafter contained, Parent, Acquisition Sub and the Company agree
as follows:
SECTION 1. THE MERGER
----------
1.1 Surviving Corporation. In accordance with the provisions of
---------------------
this Agreement, the Articles of Merger, and the Washington business corporation
act ("WBCA"), at the Effective Date (as defined in Section 1.6), Acquisition Sub
shall be merged with and into the Company, and the Company shall be the
surviving corporation in the Merger (hereinafter sometimes called the "SURVIVING
CORPORATION"). At the Effective Date, the separate existence of Acquisition Sub
shall cease.
1.2 Articles of Incorporation. As of the Effective Date, the
-------------------------
Articles of Incorporation of the Company immediately prior to the Effective Date
shall be the Articles of Incorporation of the Surviving Corporation, until
thereafter amended as otherwise provided by law or in such Articles of
Incorporation.
<PAGE>
1.3 Bylaws. The Bylaws of the Company as in effect at the
------
Effective Date shall be the Bylaws of the Surviving Corporation, until
thereafter amended or repealed as provided by law.
1.4 Directors. The directors of Acquisition Sub at the Effective
---------
Date (whose names are set forth on SCHEDULE 1.4) shall, from and after the
Effective Date, be the directors of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified in the manner provided in the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
1.5 Officers. The officers of Acquisition Sub at the Effective
--------
Date (whose names are set forth on SCHEDULE 1.4) shall, from and after the
Effective Date, be the officers of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified in the manner provided in the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
1.6 Effective Date. The Merger shall become effective at the time
--------------
of filing of the Articles of Merger with the Secretary of State of the State of
Washington in accordance with Section 23B.11.050 of the WBCA. The Articles of
Merger shall be filed with the Secretary of State of the State of Washington on
the Closing Date (as defined in Section 8.1 hereof). The date when the Merger
becomes effective is herein referred to as the "EFFECTIVE DATE".
1.7 Additional Actions. If, at any time after the Effective Date,
------------------
the Surviving Corporation determines that any deeds, bills of sale, assignments,
assurances or any other acts or things are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, its
right, title or interest in, to or under any of the rights, properties or assets
of the Company or its Subsidiaries acquired or to be acquired by reason of, or
as a result of, the Merger, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors shall
be authorized to execute and deliver, in the name and on behalf of the Company
and its Subsidiaries, all such deeds, bills of sale, assignments and assurances
and to do, in the name
-2-
<PAGE>
and on behalf of the Company and its Subsidiaries, all such other acts and
things necessary or desirable to vest, perfect or confirm any and all right,
title or interest in, to or under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
1.8 Conversion of Company Common Stock.
----------------------------------
(a) Each share of the Company's common stock, par value $10.00
per share (the "COMPANY COMMON STOCK"), actually issued and outstanding at the
Effective Date shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive from the Parent
consideration, payable (subject to Section 1.12) as set forth on SCHEDULE 1.8
hereto (the "MERGER CONSIDERATION"). The Merger Consideration consists of
$86,250,000 in cash, subject to pre-closing adjustment as provided in Section
1.13(a) and to post-closing adjustment as provided in Section 1.13(b).
(b) Any share of Company Common Stock held by Parent or in the
Company's treasury at the Effective Date shall, by virtue of the Merger, be
canceled without payment of any consideration therefor and without any
conversion thereof.
1.9 Conversion of Acquisition Sub Common Stock. Each share of
------------------------------------------
common stock, par value $10.00 per share, of Acquisition Sub (the "ACQUISITION
SUB COMMON STOCK") issued and outstanding at the Effective Date shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for one fully paid and nonassessable share of
common stock, par value $10.00 per share, of the Surviving Corporation (the
"SURVIVING CORPORATION COMMON STOCK"). From and after the Effective Date, each
outstanding certificate theretofore representing shares of Acquisition Sub
Common Stock shall be deemed for all purposes to evidence ownership of, and to
represent the number of shares of, Surviving Corporation Common Stock into which
such shares of Acquisition Sub Common Stock shall have been converted.
1.10 [Intentionally Omitted].
---------------------
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<PAGE>
1.11 Surrender of Shares.
-------------------
(a) Subject to Sections 1.11(b) and 1.12, at the Closing,
Parent shall deliver the Merger Consideration to the Shareholder Representative.
(b) Subject to Section 1.12, upon surrender to Parent of a
certificate representing each of the shares of Company Common Stock (each, a
"CERTIFICATE") or an affidavit of loss stating that the holder of the
Certificate has lost such Certificate, together with an indemnity agreement
providing for indemnification of the Company, Parent and Surviving Corporation
for any loss, damage or other expense resulting from a third party having a
claim to such Certificate or the shares of stock underlying such Certificate
("AFFIDAVIT"), the holder of such Certificate or Affidavit shall be entitled to
receive in exchange for each share of Company Common Stock represented by such
Certificate or subject to the Affidavit, as the case may be, the portion of the
Merger Consideration indicated on SCHEDULE 1.8, and such Certificate shall
forthwith be canceled (if a Certificate is presented) and the records of the
Company shall be modified accordingly upon receipt by the holder of such
Certificate or Affidavit, as the case may be, of the indicated portion of the
Merger Consideration; such surrender of Certificates and Affidavits to Parent
shall be made at Closing by the Shareholder Representative. No interest will be
paid or accrued on any portion of the Merger Consideration payable upon the
surrender of such Certificates or Affidavit.
(c) If payment is to be made to a person other than the person
in whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition of payment of the Merger Consideration that the Certificate
so surrendered be properly endorsed or accompanied by appropriate stock powers,
in either case signed exactly as the name of the record holder appears on such
Certificate, with signature guaranteed, and is otherwise in proper form for
transfer, and that the Person requesting such payment shall pay any transfer or
other taxes required by law as a result of such payment to a Person other than
the record holder of the Certificate surrendered, or shall establish to Parent's
satisfaction that such tax has been paid or is not applicable.
(d) After the Effective Date, there shall be no further
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company Common Stock,
-4-
<PAGE>
which are outstanding at the Effective Date. If, after the Effective Date,
Certificates are presented to the Surviving Corporation for transfer, they shall
be canceled and there shall be issued to the transferee in exchange for each
share of Company Common Stock the portion of the Merger Consideration indicated
on SCHEDULE 1.8.
(e) The consideration payable upon the surrender for exchange
of Certificates in accordance with the terms of this Section 1 shall be deemed
to have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock theretofore represented by such Certificates, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Date. If, after the Effective
Date, Certificates are presented to the Surviving Corporation or the Escrow
Agent for any reason, they shall be canceled and exchanged as provided in this
Section 1.
1.12 Escrow Fund. In order to secure the Company's obligations to
-----------
indemnify Parent and Acquisition Sub under this Agreement and to make any
adjustments to the Merger Consideration in accordance with Section 1.13(b),
Three Million Dollars ($3,000,000) of the Merger Consideration (the "ESCROW
FUND") shall be withheld from the Closing Date Payment and deposited by Parent
with an escrow agent (the "ESCROW AGENT") and shall not be delivered to the
holders of any surrendered Certificate. The Escrow Fund shall be the exclusive
source of funding for such obligations and adjustments. Such Escrow Fund shall
be delivered to the appropriate party in accordance with the terms of an Escrow
Agreement substantially in the form of EXHIBIT B hereto (the "ESCROW
AGREEMENT").
1.13 Adjustments.
-----------
(a) At least ten (10) business days prior to the Closing Date,
the Company shall prepare, in accordance with GAAP, consistently applied, and
deliver to Parent, the most recently available month-end balance sheet of the
Company and its Subsidiaries (the "PRE-CLOSING BALANCE SHEET") (the date of such
balance sheet shall not be more than 60 days prior to the Closing Date). The
Merger Consideration shall be increased or decreased, as the case may be, by the
amount which total current assets (including cash, accounts receivable, prepaid
assets and inventory) are greater or less than total amount current liabilities
-5-
<PAGE>
(including accounts payable, customer deposits and excise taxes) (such
difference shall be referred to hereinafter as the "WORKING CAPITAL ADJUSTMENT")
as determined in accordance with GAAP and as reflected on the Pre-Closing
Balance Sheet. The Pre-Closing Balance Sheet shall reflect accrued liabilities
(i) of approximately $1,150,000.00, relating to the brokerage fees and expenses
payable by the Company to Falkenberg (as defined in Section 2.21) in connection
with the transactions contemplated hereby, (ii) of approximately $200,000.00,
relating to legal fees payable by the Company in connection with the
transactions contemplated hereby, (iii) of approximately $45,000.00, relating to
real estate transfer taxes payable by the Company in connection with the
transactions contemplated hereby and (iv) for the environmental testing and
remediation costs referred to in Section 5.14 hereof. The amount payable by
Parent on the Closing Date shall be equal to $86,250,000, as adjusted by the
Working Capital Adjustment reflected on the Pre-Closing Balance Sheet; such
amount shall be referred to herein as the "CLOSING DATE PAYMENT".
(b) Within ninety (90) days after the Closing Date, Parent
shall prepare, in accordance with GAAP, consistently applied, and deliver to the
Shareholder Representative, a balance sheet of the Company and its Subsidiaries
(the "EFFECTIVE DATE BALANCE SHEET") as of the Effective Date. The parties shall
have the right to dispute the Effective Date Balance Sheet as provided in
Section 1.13(c) hereof. The Merger Consideration shall be increased or
decreased, as the case may be, by the amount of the Working Capital Adjustment
as determined in accordance with GAAP and as reflected on the Effective Date
Balance Sheet. The amount of the Merger Consideration, as adjusted pursuant to
Section 1.13(b) or Section 1.13(c), shall be referred to herein as the "ADJUSTED
PURCHASE PRICE". The Adjusted Purchase Price will not reflect (i) any changes in
net property, plant and equipment or (ii) any changes, including without
limitation, termination, in the status of the Seattle Major Trading Area
Partition Agreement dated July 31, 1995, between GTE Macro Communications
Corporation and Elltel Wireless, Inc. and related agreements, but will reflect
(i) the effect of any National Exchange Carrier Association "true-ups" not
reflected in the working capital of the Company as of the Effective Date, and
(ii) liabilities which shall be reflected in the Working Capital Adjustment to
account for (A) the actual brokerage fees and expenses payable to Falkenberg in
connection with the transactions contemplated hereby, (B) the actual legal
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<PAGE>
fees payable by the Company in connection with the transactions contemplated
hereby, (C) the actual real estate transfer taxes payable by the Company in
connection with the transactions contemplated hereby and (D) the actual
environmental testing and remediation costs payable by the Company in connection
with the transactions contemplated hereby.
(c) The Shareholder Representative shall have until thirty (30)
days after the delivery of the Effective Date Balance Sheet to review such
statement and propose any adjustments thereto. All adjustments proposed by the
Shareholder Representative shall be set out in detail in a written statement
delivered to Parent (an "ADJUSTMENT STATEMENT") and shall be incorporated into
the Effective Date Balance Sheet unless Parent shall object in writing to such
proposed adjustment within fifteen (15) days after delivery by the Shareholder
Representative to Parent of such Adjustment Statement. If Parent does object in
writing within fifteen (15) days to any such proposed adjustment (the proposed
adjustment or adjustments to which Parent objects, hereinafter the "CONTESTED
ADJUSTMENTS" and Parent's objection notice, hereinafter, a "CONTESTED ADJUSTMENT
NOTICE"), then Parent and the Shareholder Representative shall use reasonable
efforts to resolve their dispute regarding the Contested Adjustments, but if a
final resolution thereof is not obtained within forty-five (45) days after
Parent delivers to the Shareholder Representative the relevant Contested
Adjustment Notice, the Shareholder Representative and Parent shall promptly
retain Arthur Andersen & Co. (the "INDEPENDENT ACCOUNTANT") to resolve any
remaining disputes concerning the Contested Adjustments. Within fifteen (15)
days after the Independent Accountant is retained, Parent and the Shareholder
Representative shall each submit to the Independent Accountant in writing their
respective positions with respect to the Contested Adjustments, together with
such supporting documentation as they deem necessary or as the Independent
Accountant requests, and Parent and the Shareholder Representative shall cause
the Independent Accountant to, within forty-five (45) days after the Independent
Accountant is retained, render its decision based on the positions and
supplementary supporting documentation submitted to the Independent Accountant
by Parent and the Shareholder Representative as to the Contested Adjustments,
which decision shall be final and binding on, and nonappealable by, Parent and
the Shareholder Representative. The fees and expenses of the Independent
Accountant incurred in connection with the procedure set forth in this Section
1.13(c) shall be borne
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<PAGE>
equally by Parent and the Selling Shareholders, respectively. The decision of
the Independent Accountant shall also include a certificate (the "SETTLEMENT
AMOUNT CERTIFICATE") of the Independent Accountant setting forth the final
amount of the Working Capital Adjustment and the Adjusted Purchase Price as of
the date of the Effective Date Balance Sheet, and the amount, if any, which the
Shareholder Representative shall cause to be paid to Parent or the Parent shall
cause to be paid to the Shareholder Representative, as the case may be, in
respect thereof pursuant to the provisions of this Agreement with respect to the
Effective Date Balance Sheet. The Effective Date Balance Sheet shall be deemed
to include all proposed adjustments not disputed by the Shareholder
Representative and those adjustments accepted or made by the decision of the
Independent Accountant in resolving the Contested Adjustments.
(d) There shall be a "SETTLEMENT DATE" after the calculation
of the Working Capital Adjustment and the Adjusted Purchase Price, as the case
may be, as soon as possible after the Effective Date but in any event within 135
days after the Effective Date, which shall mean the following, as applicable:
(i) If the Shareholder Representative has not timely
delivered an Adjustment Statement to Parent, then forty (40) days after the
day the Shareholder Representative receives the Effective Date Balance
Sheet.
(ii) To the extent that the Shareholder Representative timely
delivers an Adjustment Statement to Parent and if Parent has not timely
delivered a Contested Adjustment Notice, then twenty (20) days after the
day Parent receives the Adjustment Statement.
(iii) If Parent and the Shareholder Representative have any
disputes regarding Contested Adjustments and they resolve those disputes,
then seven (7) days after such resolution.
(iv) Ten (10) days after the Independent Accountant delivers
the Settlement Amount Certificate, if applicable.
(v) Such other day as shall be agreed between Parent and the
Shareholder Representative.
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<PAGE>
(e) On the Settlement Date, (i) if the amount of the Closing
Date Payment exceeds the amount of the Adjusted Purchase Price, the Shareholder
Representative shall cause to be paid to Parent the difference between the
Closing Date Payment and the Adjusted Purchase Price (such payment to be made,
at the option of Parent, (A) by wire transfer of immediately available funds
from a source other than the Escrow Fund or (B) by wire transfer of immediately
available funds from the Escrow Fund), (ii) if the amount of the Adjusted
Purchase Price exceeds the amount of the Closing Date Payment, Parent shall
cause to be paid to the Shareholder Representative by wire transfer of
immediately available funds, or such other consideration as may be agreed by
Parent and Shareholder Representative, the difference between the Adjusted
Purchase Price and the Closing Date Payment.
SECTION 2. REPRESENTATIONS AND WARRANTIES
------------------------------
The Company hereby represents and warrants to Parent and Acquisition
Sub as follows:
2.1 Organization and Corporate Power. Each of the Company and its
--------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation as specified in SCHEDULE
2.1 attached hereto, (b) except as provided in SCHEDULE 2.1, is qualified to do
business as a foreign corporation in each jurisdiction in which such
qualification is required, except where failure to so qualify would not have a
material adverse effect on the Company and its Subsidiaries, taken as a whole,
and (c) has all required corporate power and authority to own its property and
to carry on its business as presently conducted or contemplated. Each of the
Company and its Subsidiaries has all required corporate power and authority to
enter into and perform this Agreement and the Related Documents, and generally
to carry out the transactions contemplated hereby and by the Related Documents.
The copies of the charter and Bylaws of each of the Company and each of its
Subsidiaries, as amended to date, which have been furnished to counsel for
Parent are correct and complete at the date hereof. Except as provided in
SCHEDULE 2.1, neither the Company nor any of its Subsidiaries is in violation of
any term of its charter or Bylaws, or any material agreement, instrument,
judgment, decree, order, statute, rule or government regulation applicable to
it, if such violation could have a material
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<PAGE>
adverse effect on the Company and its Subsidiaries, taken as a whole.
2.2 Authorization and No Contravention. Subject to the receipt of
----------------------------------
the approval of the Company's shareholders, the execution and delivery of, and
performance by the Company of its obligations under, this Agreement and the
Related Documents have been duly authorized by all corporate action of the
Company, and except as may otherwise be specifically provided in this Agreement,
and subject to the receipt of the approval of the Company's shareholders, each
of this Agreement and the Related Documents constitutes the legal, valid and
binding obligation of the Company, enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally, and general principles
of equity and the availability of equitable remedies. The Company's execution
and delivery of this Agreement and the Related Documents, and its respective
performance of the transactions contemplated hereby and thereby, will not: (i)
except as set forth on SCHEDULE 2.2, violate, conflict with or result in a
default under any contract, instrument, agreement, indenture, obligation or
commitment to which the Company or any of its Subsidiaries is a party or by
which it or its assets are bound, or any charter provision or by-law of the
Company or any of its Subsidiaries, or the creation of any lien, charge or
encumbrance of any nature upon any of the properties or assets of the Company or
any of its Subsidiaries, except pursuant to this Agreement and the agreements
contemplated hereby; (ii) violate or result in a violation of, or constitute a
default under, any provision of any law, statute, ordinance, regulation or rule,
or any decree, judgment or order of, or any restriction imposed by, any court or
other federal, state or local governmental agency; or (iii) except as set forth
on SCHEDULE 2.2, require any notice to, filing with, or consent or approval of
any governmental authority or other third party (including, without limitation,
the WUTC).
2.3 Capitalization; Shareholders; Subsidiaries. The authorized and
------------------------------------------
issued capital stock of the Company and each of its Subsidiaries is as set forth
in SCHEDULE 2.3. All of the presently issued shares of capital stock of the
Company and each of its Subsidiaries have been duly and validly authorized and
issued in accordance, in all material respects, with all applicable federal and
state securities laws and are fully paid and non-assessable. Neither the
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<PAGE>
Company nor any of its Subsidiaries has issued any other shares of its capital
stock and there are no outstanding warrants, options or other rights to purchase
or acquire any of such shares, nor any outstanding securities convertible into
such shares or outstanding warrants, options or other rights to acquire any such
convertible securities. There are no preemptive rights with respect to the
issuance or sale by the Company, or any of its Subsidiaries of the Company's or
such Subsidiary's capital stock. Except as disclosed in SCHEDULE 2.3, there are
no restrictions on the transfer of the Company's capital stock other than those
arising from federal and state securities laws or under this Agreement. The
outstanding shares of capital stock of the Company and its Subsidiaries are held
of record by the persons identified in SCHEDULE 2.3 in the amounts indicated
therein. Except as set forth in SCHEDULE 2.3, the Company has no Subsidiaries
and neither the Company nor any of its Subsidiaries has any investments in, or
loans or advances to, any other corporation, trust, partnership or business
entity and is not a party to any joint venture. All of the outstanding capital
stock of each of the Company's subsidiaries is owned directly or indirectly by
the Company free and clear of all liens of any nature.
2.4 Financial Statements. Attached hereto as SCHEDULE 2.4 are the
--------------------
Company's consolidated audited statements of income, cash flows and
Shareholders' equity and the related balance sheets for the fiscal years ended
December 31, 1994, December 31, 1995 and December 31, 1996, consolidated
unaudited statements of income, cash flows and shareholders' equity and the
related balance sheet for the fiscal period ended September 30, 1997 (such
interim balance sheet is herein referred to as the "BASE BALANCE SHEET"). Except
as set forth in SCHEDULE 2.4, neither the Company nor any of its Subsidiaries
has any material contingent obligations, liabilities or material forward or
long-term commitments. There are no amounts outstanding under either (i) the
Revolving Line of Credit Application and Agreement dated March 11, 1996, between
the Company and Rural Telephone Finance Cooperative or (ii) the Loan Commitment
and Letter of Agreement dated September 30, 1996, between the Company and US
Bank of Washington, National Association. The foregoing financial statements
have been prepared (i) to the extent required, in accordance with the rules and
regulations of the WUTC and the FCC and (ii) in accordance with generally
accepted accounting principles applied on a consistent basis, except that the
interim financial statements have, in accordance with generally accepted
accounting principles, been prepared without footnote disclosures and year-end
audit adjustments, which will not,
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<PAGE>
in any event, be material to the Company and its Subsidiaries, taken as a whole.
All of such financial statements present fairly in all material respects the
financial condition of the Company and its Subsidiaries as of the date thereof.
No event has occurred since such dates which would cause such financial
statements not to present fairly in all material respects the financial
condition of the Company and its Subsidiaries as of the date thereof.
2.5 Business; Franchises and Regulations. Except as set forth in
------------------------------------
SCHEDULE 2.5, the Company and each of its Subsidiaries has ownership of and/or
the right to use (i) all franchises, permits, licenses (other than FCC Licenses)
required by applicable law or regulation, and (ii) all patent, copyright,
trademark, or other rights and privileges, in the case of both (i) and (ii) used
in or necessary for their respective businesses as presently conducted or
contemplated by the Company or its Subsidiaries to be conducted or required or
necessary to permit it to own its properties and to conduct its business as
presently conducted or contemplated by the Company or its Subsidiaries to be
conducted and neither their present nor contemplated activities infringe any
such patent, copyright, trademark or other proprietary rights of others.
SCHEDULE 2.5 correctly sets forth all of the franchises, authorizations, permits
and licenses (other than FCC Licenses) which are held by the Company and its
Subsidiaries (the "COMPANY FRANCHISES") and correctly sets forth the issuer and
termination date of each Company Franchise. Each Company Franchise was duly and
validly issued by the issuer thereof pursuant to procedures which complied with
all requirements of applicable law. Each Company Franchise or other right held
by the Company or any of its Subsidiaries is in full force and effect, free of
any lien, charge or encumbrance of any nature, and the Company and each of its
Subsidiaries are in compliance with the terms thereof with no known conflict
with the valid rights of others which could affect or impair in any manner the
business, assets or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole except as set forth in SCHEDULE 2.5. No event has
occurred which permits, or after notice or lapse of time or both would permit,
the revocation or termination of any Company Franchise so as to adversely affect
in any manner the business or assets or condition, financial or otherwise, of
the Company and its Subsidiaries, taken as a whole, except as set forth in
SCHEDULE 2.5.
Except as described on SCHEDULE 2.10, the Company has timely and
properly made all filings and reports
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<PAGE>
required by the WUTC, the FCC and all other regulatory entities having
jurisdiction over the Company.
2.6 Tariffs; FCC Licenses.
---------------------
(a) The regulatory tariffs applicable to the Company and its
Subsidiaries stand in full force and effect in accordance with their terms, and
there is no outstanding notice of cancellation or termination or, to the
Company's knowledge, any threatened cancellation or termination in connection
therewith. Except as otherwise disclosed on SCHEDULE 2.6(A), neither the
Company nor any of its Subsidiaries is subject to any restrictions or conditions
applicable to its regulatory tariffs that limit or would limit the operations of
the Company or any of its Subsidiaries (other than restrictions or conditions
generally applicable to tariffs of that type). Each such tariff has been duly
and validly approved by the appropriate regulatory agency. Except as otherwise
disclosed on SCHEDULE 2.6(A), neither the Company nor any of its Subsidiaries is
in material violation under the terms and conditions of any such tariff, and
there is no basis for any claim of material violation by the Company or any of
its Subsidiaries under any such tariff. Except as provided in SCHEDULE 2.6(A),
there are no applications by the Company or any of its Subsidiaries, nor any
complaints or petitions by others, or proceedings pending or threatened, before
the WUTC relating to the Company or any of its Subsidiaries, or their respective
operations or regulatory tariffs. To the knowledge of the Company, there are no
material violations by subscribers or others under any such tariff. A true and
correct copy of each tariff applicable to the Company or any of its Subsidiaries
has been delivered to Parent.
(b) Listed on SCHEDULE 2.6(B) are the FCC Licenses held by the
Company or any of its Subsidiaries. Except as disclosed on SCHEDULE 2.6(B), each
such FCC License is valid and in full force and effect in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
the Company's knowledge, any threatened cancellation or termination in
connection therewith nor are any of such FCC Licenses subject to any
restrictions or conditions that limit the operations of the Company or any of
its Subsidiaries (other than restrictions or conditions generally applicable to
licenses of that type).
2.7 Rate Base. Neither the Company nor any of its Subsidiaries has
---------
any material amount of inventory, plant or equipment that has been disallowed
from rate base or
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<PAGE>
excluded from the revenue calculations for any pool, and neither the Company nor
any of its Subsidiaries has received notification that the FCC or any state
regulatory authority or pool administrator proposes to exclude any material
assets from rate base or revenue calculations for the pools.
2.8 Overbillings; Refunds. Except as set forth on SCHEDULE 2.8,
---------------------
neither the Company nor any of its Subsidiaries has any liabilities for any
customer overbillings or prospective refunds of overearnings.
2.9 Capital Improvements Required by State Authorities. Except as
--------------------------------------------------
set forth on SCHEDULE 2.9, neither the Company nor any of its Subsidiaries is
required by any state regulatory body to make any changes, upgrades or
enhancements with respect to its physical plant, and neither the Company nor any
of its Subsidiaries has reason to believe that any such changes, upgrades or
enhancements will be so required in the foreseeable future.
2.10 Compliance with Law. Except as set forth in SCHEDULE 2.10,
-------------------
neither the Company nor any of its Subsidiaries is in violation of any statute,
law, ordinance, regulation, rule or order of any foreign, federal, state or
local government or any governmental department or agency (including, without
limitation, the WUTC and the FCC), or any judgment, decree or order of any
court, applicable to its business or operations except where any such violation
would not have a material adverse effect on the Company and its Subsidiaries,
taken as a whole; and the conduct of the Company's and each of its Subsidiaries'
respective businesses is in conformity with all federal, state and local energy,
public utility, health, workplace or worker safety and health, including but not
limited to OSHA, and environmental requirements and all other federal, state and
local governmental regulatory requirements (including, without limitation,
requirements of the WUTC and the FCC) except where any such non-conformity
individually or in the aggregate, and taking into account the passage of time
and accumulation of penalties and other obligations, would not have a material
adverse effect on the Company or any of its Subsidiaries. The Company and its
Subsidiaries have all permits, licenses and franchises from, and have made all
necessary filings with, all governmental agencies, including the WUTC and the
FCC, required to conduct their businesses as now being conducted.
2.11 Absence of Undisclosed Liabilities. Except as otherwise
----------------------------------
specifically disclosed in the Base Balance Sheet or as set forth in SCHEDULE
2.4, neither the Company
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<PAGE>
nor any of its Subsidiaries has any accrued or contingent liability or
liabilities arising out of any transaction or state of facts existing prior to
the date hereof, accrued, to become due, contingent, or otherwise.
2.12 Absence of Certain Developments. Except as specifically
-------------------------------
disclosed in SCHEDULE 2.12, since December 31, 1996 there has been (i) no
material adverse change in the assets, liabilities, properties, business,
prospects or condition (financial or otherwise) of the Company or any of its
Subsidiaries, (ii) no declaration, setting aside or payment of any dividend or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of the Company or any of its
Subsidiaries, (iii) no waiver of any valuable right of the Company or any of its
Subsidiaries or the cancellation of any debt or claim held by the Company or any
of its Subsidiaries, (iv) no loan by the Company or any of its Subsidiaries to
any officer, director, employee or Shareholder of the Company or any of its
Subsidiaries, or any agreement or commitment therefor, (v) other than pursuant
to the current contractual obligations set forth on SCHEDULE 2.12, no increase,
direct or indirect, in the compensation paid or payable to any officer,
director, employee or agent of the Company or any of its Subsidiaries, (vi) no
material loss, destruction or damage to any property of the Company or any of
its Subsidiaries, whether or not insured, (vii) no strikes, work stoppages,
union organizing or recognition efforts involving the Company or any of its
Subsidiaries and no material change in the personnel of the Company or any of
its Subsidiaries or the terms and conditions of any employment contracts to
which any of them are parties, and (viii) no acquisition or disposition of any
assets (or any contract or arrangement therefor) nor any other transaction by
the Company or any of its Subsidiaries otherwise than in the ordinary course of
business.
2.13 Title to Properties.
-------------------
(a) Except as specifically disclosed on SCHEDULE 2.13, the
Company and each of its Subsidiaries has good and marketable title to all of its
properties and assets, free and clear of all mortgages, liens, restrictions or
encumbrances, except in such cases as would not have a material adverse effect
on the use of such properties or assets by the Company. All owned or leased real
estate of the Company and its Subsidiaries is listed on SCHEDULE 2.13. A true
copy of each lease to which the Company or any of its Subsidiaries is a party,
is listed on SCHEDULE 2.13 and has been delivered by the Company to Parent, is
in full force
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<PAGE>
and effect and affords the Company or the Subsidiary, as the case may be,
peaceful and undisturbed possession of the subject matter of such lease. No
material default or event of default on the part of the Company or any of its
Subsidiaries or on the part of the lessor, exists under any lease, and neither
the Company nor any of its Subsidiaries has received any notice of default under
any such lease or any indication that the owner of the leased property intends
to terminate such lease. Except as specifically disclosed on SCHEDULE 2.13, the
Company holds all easements, rights-of-way and other rights (collectively,
"EASEMENTS") necessary to own, operate and maintain its physical plant
(including all telephone lines) and the Company is not in breach of, or default
under, any such Easement and there are not any materially burdensome limitations
or obligations on the Company under any such Easement. All Easements held by
the Company are listed on SCHEDULE 2.13, each such Easement is valid, binding
and enforceable in favor of the Company, and neither the Company, nor to the
best knowledge of the Company, any other party to such Easement, is in violation
of such Easement.
(b) Neither the Company nor any of its Subsidiaries is in
violation of any zoning, land-use, building or safety law, ordinance, regulation
or requirement or other law or regulation applicable to the operation of its
owned or leased properties, nor has it received any notice of violation with
which it has not complied, in any case in which the consequences of such
violation if asserted by the applicable regulatory authority would be materially
adverse with respect to the Company or such Subsidiary. All real property
occupied pursuant to leases, and substantially all tangible personal property
owned or leased by the Company and its Subsidiaries taken as a whole and
required for the purpose of carrying on its business and operations, is in good
operating condition and repair, reasonable wear and tear excepted, and no
material portion of any such real or personal property has suffered any damage
by fire or other casualty which has not heretofore been completely repaired and
restored to its original condition if and to the extent necessary or useful in
the continued operation of its business.
2.14 Tax Matters.
-----------
(a) Each of the Company and its Subsidiaries has filed all Tax
reports and returns that it was required to file. All such reports and returns
were correct and complete in all respects. All Taxes owed by any of the Company
and its Subsidiaries (whether or not shown on
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<PAGE>
any report or return) have been paid. Except as disclosed on SCHEDULE 2.14(A),
none of the Company or its Subsidiaries currently is the beneficiary of any
extension of time within which to file any report or return. Except as disclosed
on SCHEDULE 2.14(A), no claim has ever been made by an authority in a
jurisdiction where any of the Company or its Subsidiaries does not file reports
and returns that it is or may be subject to taxation by that jurisdiction.
There are no security interests on any of the assets of the Company and its
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.
(b) Except as disclosed in SCHEDULE 2.14(B), each of the
Company and its Subsidiaries has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, Shareholder or other third party.
(c) There is reasonable basis to believe that no authority will
assess any additional Taxes for any period for which returns have been filed.
Except as disclosed in SCHEDULE 2.14(C), there is no dispute or claim concerning
any Tax liability of any of the Company or its Subsidiaries either (i) claimed
or raised by any authority in writing or (ii) as to which any of the directors
and officers (and employees responsible for Tax matters) of the Company and its
Subsidiaries has knowledge based upon personal contact with any agent of such
authority. All federal, state, local, and foreign income tax returns filed with
respect to the Company and/or any of the Subsidiaries for taxable periods ended
on or after December 31, 1994, December 31, 1995 and December 31, 1996 are set
forth on SCHEDULE 2.14(C), and SCHEDULE 2.14(C) indicates those returns that
have been audited or currently are the subject of an audit. The Company has
delivered to the Parent correct and complete copies of all federal income Tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by any of the Company and its Subsidiaries since December 31, 1994.
(d) None of the Company and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency. Neither the Company nor any of
its Subsidiaries has entered into a closing agreement pursuant to Section 7121
of the Internal Revenue Code of 1986, as amended (the "CODE").
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<PAGE>
(e) The unpaid Taxes of the Company and its Subsidiaries (i)
did not, as of September 30, 1997, exceed the reserve for Tax liability recorded
as a current liability on the face of the Base Balance Sheet and (ii) do not
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Company and its
Subsidiaries in filing their Tax returns.
(f) None of the Company and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations. None of
the Company and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code Section
280G. None of the Company and its Subsidiaries has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). Each of the
Company and its Subsidiaries has disclosed on its federal income Tax returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. Except as set forth
on SCHEDULE 2.14(F), none of the Company and its Subsidiaries is a party to any
Tax allocation or sharing agreement. None of the Company and its Subsidiaries
(i) has been a member of an Affiliated Group filing a consolidated federal
income Tax return (other than a group the common parent of which was the
Company) or (ii) has any liability for the Taxes of any Person (other than any
of the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(g) SCHEDULE 2.14(G) sets forth the following information with
respect to each of the Company and its Subsidiaries as of the most recent
practicable date: (i) the basis of the Company and its Subsidiaries in their
respective assets; (ii) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company or any of its Subsidiaries and (iii) the
amount of any deferred gain or loss allocable to the Company or any of its
Subsidiaries arising out of any Deferred Intercompany Transaction.
2.15 Insurance. The Company has in force all policies of insurance
---------
described in SCHEDULE 2.15, in the amounts and covering the risks described
therein. Neither
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<PAGE>
the Company nor any of its Subsidiaries has ever been refused any insurance
coverage for which it has applied.
2.16 Contracts and Commitments. Except as set forth in SCHEDULE
-------------------------
2.16, neither the Company nor any of its Subsidiaries (a) is a party to any
contract, obligation or commitment which involves a potential commitment or
aggregate payments in excess of $25,000, or which is otherwise material and not
entered into in the ordinary course of business, or (b) has any employment
contracts; stock redemption or purchase agreements; financing agreements; or
agreements with officers, directors, employees or shareholders of the Company or
any of its Subsidiaries or persons or organizations related to or affiliated
with any such persons. Except as disclosed in SCHEDULE 2.16, neither the
Company nor any of its Subsidiaries is in default under any contract, obligation
or commitment, and to the best knowledge of the Company, there is no state of
facts which upon notice or lapse of time or both would constitute such a
default, the consequences of which default if asserted by the other contracting
party would be materially adverse with respect to the Company and its
Subsidiaries, taken as a whole. To the best of the Company's knowledge, except
as set forth in SCHEDULE 2.16, neither the Company nor any of its Subsidiaries
is a party to any contract or arrangement which is likely to have a material
adverse effect on the assets, liabilities, properties, business, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries, taken
as a whole. Neither the Company nor any of its Subsidiaries has entered into
any government contracts or subcontracts that remain in full force and effect.
2.17 Litigation. Except as set forth in SCHEDULE 2.17, there is no
----------
investigation, action, suit or proceeding at law or in equity or by or before
any governmental instrumentality or other agency (including, without limitation,
the WUTC or the FCC) now pending or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries, or, to the best
knowledge of the Company, any director, officer or key employee of the Company
or any of its Subsidiaries which has a reasonable possibility of calling into
question the validity, or hindering the enforceability or performance, of this
Agreement or any action taken or to be taken pursuant hereto or any of the other
agreements and transactions contemplated hereby, or which might, if adversely
determined, have a material adverse effect on the Company and its Subsidiaries,
taken as a whole, or their respective business prospects; nor, to the best
knowledge of the
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<PAGE>
Company, has there occurred any event or does there exist any condition on the
basis of which any such litigation, proceeding or investigation might properly
be instituted.
2.18 Environmental Matters. Except as set forth in SCHEDULE 2.18:
---------------------
(a) No hazardous wastes, hazardous substances, or hazardous
materials have ever been or are being generated, used, stored, treated, or
otherwise managed on any real property owned or leased by the Company or any of
its Subsidiaries (the "PROPERTIES") by the Company or any of its Subsidiaries,
or to the best knowledge of the Company, any other persons, except in compliance
with applicable law and regulations, and then only in the ordinary course of
business as then conducted and only in such amounts as will not have a material
adverse effect on the business, operations, prospects or assets of the Company
or any of its Subsidiaries. No hazardous wastes, hazardous substances, hazardous
materials, oil, or petroleum products have ever been, are being, are intended to
be, or are threatened to be spilled, released, discharged, disposed, placed, or
otherwise caused to become located in the soil or water in, under, or upon any
of the Properties by the Company or any of its Subsidiaries, or to the best
knowledge of the Company, any other persons. For purposes of this paragraph and
paragraph (b) below, "hazardous wastes", "hazardous substances", "hazardous
materials", "oil", and "petroleum products" shall have the meanings set forth in
the federal Resources Conservation and Recovery Act, the federal Comprehensive
Environmental Response Compensation and Liability Act, the federal Hazardous
Materials Transportation Act, the federal Clean Water Act, and corresponding
state and local laws and ordinances, as such acts, laws, or ordinances may be
amended through the date hereof, or as defined in any federal, state, or local
regulation adopted under such acts, laws, or ordinances.
(b) The Company and its Subsidiaries have no liability
(contingent or otherwise) under, have never violated, and are presently in
compliance in all respects with all federal, state, and local environmental
laws, regulations, ordinances, and other requirements including, but not limited
to, all laws, regulations, ordinances, and other requirements relating to the
spilling, release, discharge, storage, treatment, disposal, management, control,
and reporting of pollutants, contaminants, hazardous wastes, hazardous
materials, hazardous substances, oil, petroleum products, and other materials
which may pose a risk to human health or the environment. The Company and
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<PAGE>
each of its Subsidiaries have not disposed or treated, or sent for disposal or
treatment, any solid waste, pollutants, contaminants, hazardous wastes,
hazardous materials, hazardous substances, oil or petroleum products except in
the instances and to the facilities listed on SCHEDULE 2.18(B), and each such
facility possessed a proper permit for the storage and treatment of the material
or waste, and stored or treated such material or waste only in compliance with
all applicable legal requirements.
(c) No circumstances exist to support any, and the Company and
its Subsidiaries have not received, and have no reason to believe they will
receive any: (i) notice of violation of any federal, state, or local
environmental law, regulation, ordinance, or other requirement; or (ii) notice
of any suit, action, claim, liability (contingent or otherwise), or legal,
administrative, or other proceeding concerning environmental conditions or
matters, including but expressly not limited to notice of responsibility under
the federal Comprehensive Environmental Response, Compensation and Liability Act
or any similar state or local law, regulation, or ordinance.
2.19 Investment Company. Neither the Company nor any of its
------------------
Subsidiaries is an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
2.20 Employee Benefit Programs.
-------------------------
(a) SCHEDULE 2.20 sets forth a list of every Employee Program
(as defined in Section 2.20(g)(i)) that has been maintained by the Company and
its Subsidiaries at any time during the period ending on the date hereof.
(b) Each Employee Program which has ever been maintained by the
Company or any of its Subsidiaries and which has been intended to qualify under
Section 401(a) or 501(c)(9) of the Code has received a favorable determination
letter from the Internal Revenue Service ("IRS") regarding its qualification
under such section. Each such Employee Program has, in fact, remained qualified
under the applicable section of the Code from the effective date of the
favorable determination letter for such Employee Program through and including
the date hereof (or, if earlier, the date that all of such Employee Program's
assets were distributed). No event or omission has occurred which would cause
any such Employee Program to lose its qualification under the applicable Code
section.
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<PAGE>
(c) To the best knowledge of the Company, the Company is in
compliance with any laws applicable with respect to the Employee Programs that
have been maintained by the Company or any of its Subsidiaries within the last
three years. With respect to any Employee Program maintained by the Company
within the last three years, any Subsidiary or any affiliate thereof, there has
been no "prohibited transaction" as defined in Section 406 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Code Section
4975, or material breach of any duty under ERISA or other applicable law or any
agreement which could subject the Company or any of its Subsidiaries thereof to
material liability either directly or indirectly (including, without limitation,
through any obligation of indemnification or contribution) for any damages,
penalties, or taxes, or any other loss or expense. No litigation or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or, to the best
knowledge of the Company, threatened with respect to any such Employee Program.
(d) Neither the Company, any of its Subsidiaries nor any
affiliate thereof has incurred any liability under Title IV of ERISA which has
not been paid in full prior to the date hereof. There is no "accumulated funding
deficiency" (whether or not waived) with respect to any Employee Program
maintained by the Company or any Subsidiary thereof and subject to Code Section
412 or ERISA Section 302. With respect to any Employee Program maintained by the
Company, any of its Subsidiaries or any affiliate thereof and subject to Title
IV of ERISA there (i) has been no "reportable event," within the meaning of
Section 4043 of ERISA (for which the notice requirement is not waived under 29
C.F.R, Part 2615) and (ii) no event or condition which presents a material risk
of plan termination. All payments and/or contributions required to have been
made (under the provisions of any agreements or other governing documents or
applicable law) with respect to all Employee Programs maintained by the Company
or any of its Subsidiaries, for all periods prior to the date hereof, either
have been made or have been accrued (and all such unpaid but accrued amounts are
described on SCHEDULE 2.20). Except as described in SCHEDULE 2.20, no Employee
Program maintained by the Company, any of its Subsidiaries or any affiliate
thereof and subject to title IV of ERISA has ever had any "unfunded benefit
liabilities" within the meaning of Section 4001(a)(18) of ERISA, as of the date
hereof. Except as described in SCHEDULE 2.20 or as set forth in EXHIBIT C, none
of the Employee Programs maintained by the Company or
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<PAGE>
any Subsidiary thereof has ever provided or promised health care or non-pension
benefits to former employees (other than as required by Part 6 of subtitle B of
title I of ERISA).
(e) With respect to each Employee Program maintained by the
Company or any of its Subsidiaries within the three years preceding the date
hereof, complete and correct copies of the following documents (if applicable to
such Employee Program) have previously been delivered to Parent: (i) all
documents embodying or governing such Employee Program, as they may have been
amended to the date hereof; (ii) the most recent IRS determination letter with
respect to such Employee Program and any applications for determination
subsequently filed with the IRS; (iii) the three most recently filed IRS Forms
5500, with all applicable schedules attached thereto; (iv) the three most recent
actuarial valuation reports completed with respect to such Employee Program; (v)
the summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; and
(vi) any insurance policy (including any fiduciary liability insurance policy)
related to such Employee Program.
(f) Except as disclosed in SCHEDULE 2.20 hereto, (i) no
collective bargaining agreement or other contract, written or oral, with any
trade or labor union or association or organization of employees however
denominated is in effect as of the date hereof with respect to the Company or
any of its Subsidiaries and any union, or the Company or any of its Subsidiaries
and their employees, and (ii) none of the Company, any of its Subsidiaries nor
any affiliate has ever maintained or participated in any multiemployer plan, as
defined in Section 3(37) of ERISA.
(g) For purposes of this section:
(i) "EMPLOYEE PROGRAM" means (A) all employee benefit plans
within the meaning of Section 3(3) of ERISA (including, but not limited to,
employee benefit plans such as foreign or excess benefit plans which are
not subject to ERISA); and (B) all stock option plans, bonus, incentive
award or profit sharing plans, severance pay policies or agreements,
deferred compensation agreements, supplemental income arrangements, and all
other employee benefit plans, agreements, and arrangements not described in
(A) above.
-23-
<PAGE>
(ii) An entity "MAINTAINS" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program,
or has any obligation (by agreement or under applicable law) to contribute
to or provide benefits under such Employee Program, or if such Employee
Program provides benefits to or otherwise covers employees of such entity
(or their spouses, dependents, or beneficiaries).
(iii) An entity is an "AFFILIATE" of the Company or any of its
Subsidiaries if it would have ever been considered a single employer with
the Company or such Subsidiary under Section 4001(b) of ERISA or part of
the same "controlled group" as the Company or such Subsidiary for purposes
of 302(d)(8)(C) of ERISA.
2.21 Brokers or Finders. Other than Falkenberg Capital Corporation
------------------
("FALKENBERG"), none of the Company or any Subsidiary thereof has engaged the
services of any brokers or finders in connection with the execution of this
Agreement. All amounts owed to Falkenberg shall be paid by the Company.
2.22 Corporate Records. (a) The minute books of the Company and its
-----------------
Subsidiaries contain true and complete records in all material respects of all
meetings of, or written consents in lieu of meetings executed by, their
respective boards of directors (and all committees thereof) and shareholders;
(b) all material actions and transactions taken or entered into by the Company
or any of its Subsidiaries, or otherwise requiring action by their respective
boards of directors or shareholders, have been duly authorized or ratified as
necessary and are evidenced in such minute books; (c) except as set forth on
SCHEDULE 2.22(C), the stock certificate books and stock records of the Company
and its Subsidiaries are true and complete in all material respects; and (d) the
signatures appearing in such minute books, stock certificate books and stock
records are the genuine signatures of the persons purporting to have signed
them.
2.23 Books of Account. The books of account of the Company and its
----------------
Subsidiaries have been maintained in accordance with normal business practices,
and accurately and fairly reflect all of the properties, assets, liabilities,
transactions and appropriate accruals of the Company and each of its
Subsidiaries.
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<PAGE>
2.24 Certain Employment Matters.
--------------------------
(a) SCHEDULE 2.24(A) contains a true and complete list of
names and current hourly wage, monthly salary or other compensation of all
directors, officers, management employees, consultants or managers of the
Company, with a summary of existing bonus programs and arrangements, additional
compensation and other benefits (whether current or deferred), if any, paid or
payable to each such person for services rendered in the fiscal year ended
December 31, 1996, or, determined as of the date hereof, to be rendered in the
fiscal year ended December 31, 1997. SCHEDULE 2.24(A) contains a true and
complete listing and summary description of all employment, deferred
compensation, non-competition, confidential information and consulting
agreements between the Company or any Subsidiary thereof and its directors,
officers, management employees, consultants and managers.
(b) Except as set forth in SCHEDULE 2.24(B), the Company and
its Subsidiaries have complied in all material respects with all applicable laws
relating to the payment and withholding of taxes, including income and social
security taxes, and has withheld (and paid over to the appropriate authorities)
all amounts required by local, state or federal law or by other agreement to be
withheld from the wages or salaries of its employees. Neither the Company nor
any Subsidiary thereof has any liability or obligation for any arrears of wages
or benefits or any taxes or penalties for failure to comply with any of the
foregoing.
(c) Except as set forth on SCHEDULE 2.24(C), the Company and
its Subsidiaries are not parties to any contract with any labor organization,
nor have they agreed to recognize any union or other collective bargaining unit,
nor has any union or other collective bargaining unit been certified as
representing any of their respective employees. Neither the Company nor any
Subsidiary thereof has knowledge of any union organizing drive, union election
or demand for recognition with respect to their respective employees. Except as
set forth on SCHEDULE 2.24(C), neither the Company nor any Subsidiary thereof
has, within the last three years, experienced any strike, work stoppage,
grievance proceeding, claim of unfair labor practices or other significant labor
difficulty of any nature, nor are any material claims pending or, to the best
knowledge of the Company, threatened between the Company or its Subsidiaries and
any of their respective employees.
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<PAGE>
(d) Except as set forth on SCHEDULE 2.24(D), neither the Company
nor any Subsidiary thereof has received notification that any of its current
management employees presently plan to terminate employment, whether by reason
of the transactions contemplated hereby or otherwise. Except as set forth on
SCHEDULE 2.24(D), the employment of all persons presently employed or retained
by the Company is terminable at will, and neither the Company nor any of its
Subsidiaries will be, pursuant to any current contract, arrangement or
understanding, applicable law, or otherwise, obligated to pay any severance pay
or other benefit by reason of the voluntary or involuntary termination of
employment of any present or former employee, consultant, agent or manager,
prior to, on or after the Effective Date.
2.25 Voting Agreements. Each director of the Company and each holder
-----------------
of 5% or more (other than the Trustee of the Amended and Restated
Ellensburg Telephone Company Thrift Plan) of the Company Common Stock have
executed voting agreements, in form and substance reasonably satisfactory to
Parent, providing that such director or holder will, among other things, vote in
favor of the Merger at the Special Meeting (as defined herein), not dispose of
such director's or holder's shares of Company Common Stock except pursuant to
the Merger and not take any actions inconsistent with the Closing (as defined
herein).
2.26 No Material Misstatement or Omission. No statement of fact made
------------------------------------
by or on behalf of the Company or any of its Subsidiaries in this Agreement
or in any certificate, schedule or exhibit furnished to Parent pursuant hereto,
or otherwise delivered by the Company or any of its Subsidiaries to Parent
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements contained therein or herein not
misleading. There is no fact relating to the Company or any of its
Subsidiaries, or the business, property operations, or condition (financial or
otherwise) of the Company or any of its Subsidiaries, presently known to the
Company which has not been disclosed to the Parent and which materially
adversely affects or in the future is reasonably likely to materially adversely
affect the assets, liabilities, property, business, operations, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries, taken
as a whole.
2.27 1998 Budgets. SCHEDULE 2.27 hereto contains true and correct
------------
copies of the 1998 capital and operating budgets of the Company.
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<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
Parent hereby represents and warrants to the Company as follows:
3.1 Organization and Corporate Power. Parent and each of its
--------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (b) is qualified to do
business as a foreign corporation in each jurisdiction in which such
qualification is required, except where failure to so qualify would not have a
material adverse effect on the Parent or its Subsidiaries and (c) has all
required corporate power and authority to own its property and to carry on its
business as presently conducted or contemplated. Parent has all required
corporate power and authority to enter into and perform this Agreement and the
Related Documents and generally to carry out the transactions contemplated
hereby and by the Related Documents.
3.2 Authorization and No Contravention. The execution and delivery
----------------------------------
of, and performance by the Parent of its obligations under, this Agreement and
the Related Documents and the delivery of the Merger Consideration have been
duly authorized by all requisite corporate, director and shareholder action of
Parent, and except as otherwise may be specifically provided in this Agreement,
each of this Agreement and the Related Documents constitutes the legal, valid
and binding obligation of Parent, enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally, and general principles
of equity and the availability of equitable remedies. Parent's execution and
delivery of this Agreement and the Related Documents, and its performance of the
transactions contemplated hereby and thereby, will not: (i) violate, conflict
with or result in a default under any contract, instrument, agreement,
indenture, obligation or commitment to which Parent is a party or by which it or
its assets are bound, or any charter provision or by-law of Parent, or the
creation of any lien, charge or encumbrance of any nature upon any of the
properties or assets of Parent; (ii) violate or result in a violation of, or
constitute a default under, any provision of any law, statute, ordinance,
regulation or rule, or any decree, judgment or order of, or any restriction
imposed by, any court or other federal, state or local governmental agency; or
(iii) except as set forth on SCHEDULE 3.2, require any
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<PAGE>
notice to, filing with, or consent or approval of any governmental authority or
other third party which will not, prior to the Closing, have been duly and
properly given, made or obtained.
3.3 Brokers or Finders. Neither Parent or any of its Subsidiaries
------------------
has engaged in the services of any brokers or finders in connection with the
execution of this Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUB
-------------------------------------------------
Acquisition Sub hereby represents and warrants to the Company as
follows:
4.1 Organization and Corporate Power. Acquisition Sub (a) is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, (b) is qualified to do business as a foreign
corporation in each jurisdiction in which such qualification is required, except
where failure to so qualify would not have a material adverse effect on
Acquisition Sub and (c) has all required corporate power and authority to own
its property and to carry on its business as presently conducted or
contemplated. Acquisition Sub has all required corporate power and authority to
enter into and perform this Agreement and the Related Documents and to generally
carry out the transactions contemplated hereby and by the Related Documents.
4.2 Authorization and No Contravention. The execution and delivery
----------------------------------
of, and performance by Acquisition Sub of its obligations under, this Agreement
and the Related Documents have been duly authorized by all requisite corporate
action of Acquisition Sub, and except as may otherwise be specifically provided
in this Agreement, each of this Agreement and the Related Documents constitutes
the legal, valid and binding obligation of Acquisition Sub, enforceable in
accordance with their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally, and
general principles of equity and the availability of equitable remedies.
Acquisition Sub's execution and delivery of this Agreement and the Related
Documents, and its performance of the transactions contemplated hereby and
thereby, will not: (i) violate, conflict with or result in a default under any
contract,
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<PAGE>
instrument, agreement, indenture, obligation or commitment to which Acquisition
Sub is a party or by which it or its assets are bound, or any charter provision
or by-law of Acquisition Sub or the creation of any lien, charge or encumbrance
of any nature upon any of the properties or assets of Acquisition Sub, except
pursuant to this Agreement and the agreements contemplated hereby; (ii) violate
or result in a violation of, or constitute a default under, any provision of any
law, statute, ordinance, regulation or rule, or any decree, judgment or order
of, or any restriction imposed by, any court or other federal, state or local
governmental agency; or (iii) except as set forth on SCHEDULE 4.2, require any
notice to, filing with, or consent or approval of any governmental authority or
other third party which will not, prior to the Closing, have been duly and
properly given, made or obtained.
4.3 Capitalization. The authorized and issued capital stock of
--------------
Acquisition Sub is as set forth on SCHEDULE 4.3.
4.4 Brokers or Finders. Acquisition Sub has not engaged in the
------------------
services of any brokers or finders in connection with the execution of this
Agreement.
SECTION 5. PARENT'S AND ACQUISITION SUB'S CONDITIONS OF MERGER
---------------------------------------------------
Parent's and Acquisition Sub's obligations hereunder shall be subject
to compliance by the Company with its agreements herein contained and to the
fulfillment to the Parent's and Acquisition Sub's satisfaction on or before and
at the Closing Date of the following conditions:
5.1 Certificate. The representations and warranties of the Company
-----------
contained in this Agreement, including but not limited to the representations
and warranties made in Section 2 shall be true and correct in all material
respects with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date; each of the conditions
hereafter specified in this Section shall have been satisfied in all material
respects; and on the Closing Date one or more certificates to such effect
executed by the President and the Chief Financial Officer of the Company shall
be delivered to Parent.
5.2 Delivery of Documents. The Company shall have executed and
---------------------
delivered to Parent (or shall have caused
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to be executed and delivered to Parent by the appropriate persons) the
following:
(a) Certified copies of resolutions of the Board of Directors and the
Shareholders of the Company and its Subsidiaries authorizing the execution and
delivery of this Agreement and the Related Documents;
(b) A copy of the Company's and each of its Subsidiaries' corporate
charter certified as of a recent date by the appropriate Secretary of State;
(c) A copy of the Bylaws of each of the Company and each of its
Subsidiaries certified, in each case, by the secretary of the pertinent
corporation;
(d) A certificate issued as of a recent date by the appropriate
Secretary of State of the state of incorporation of the Company and each of its
Subsidiaries certifying that the Company or such Subsidiary, as the case may be,
is in good standing in such state;
(e) True and correct copies of all consents, instruments and other
documents specified in SCHEDULE 2.2 attached hereto which have not otherwise
been made available for review by Parent;
(f) All other certificates and other documents reasonably requested by
Parent. The form and substance of all such certificates and other documents
hereunder shall be reasonably satisfactory in all respects to Parent and its
counsel;
(g) The Escrow Agreement; and
(h) A certificate of the President of the Company certifying
the appointment of the Shareholder Representative.
5.3 Opinion of Company's Counsel. Parent shall have received the
----------------------------
favorable written opinion of counsel for the Company dated the Closing Date, in
form and substance reasonably acceptable to Parent.
5.4 Opinion of Special WUTC Counsel. To the extent required by any
-------------------------------
lender, Parent shall have received the favorable written opinion of special
communications counsel for the Company, dated the Closing Date, with respect to
WUTC and related matters.
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5.5 Opinion of Special FCC Counsel. Parent shall have received the
------------------------------
favorable written opinion of special FCC counsel for the Company, dated the
Closing Date, with respect to FCC and related matters.
5.6 Compliance with Agreements. The Company shall have performed
--------------------------
and complied with all agreements, covenants and conditions contained herein, in
any other document contemplated hereby and all other Related Documents which are
required to be performed or complied with by the Company on or before the
Closing Date.
5.7 All Proceedings Satisfactory. All corporate and other
----------------------------
proceedings taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to Parent, and
Parent shall receive such copies thereof and other materials (certified, if
requested) as they may reasonably request in connection therewith.
5.8 Directors and Officers. Parent shall have received duly and
----------------------
validly obtained resignations of all directors and officers of the Company and
each of its Subsidiaries whose resignation is requested by Parent, to be
effective as of the Effective Date.
5.9 Regulatory Matters.
------------------
(a) All required waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or been
terminated and the Company shall have paid 50% of (i) any filing fee imposed
under such Act in connection with the transactions contemplated by this
Agreement and the Related Documents, and (ii) any fees and expenses incurred in
connection with obtaining WUTC and FCC approval of the transactions contemplated
by this Agreement and the Related Documents.
(b) The WUTC and the FCC shall, to the extent required by law,
have approved the consummation of the transactions contemplated hereby
(including the transfer of any cable system franchises) and such approvals
shall: (i) be free of any terms, conditions or restrictions that are reasonably
unacceptable to Parent and (ii) have become Final Orders.
(c) The approval of any other governmental entity required for
the consummation of the transactions contemplated hereby shall have been
obtained including,
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without limitation, the approval of any local or municipal governmental entity
necessary or appropriate in connection with the transfer of control of the
Company Franchises.
5.10 Litigation. There shall be no investigation, action, suit or
----------
proceeding at law or in equity or by or before any governmental instrumentality
or other agency pending or threatened against the Company or any of its
Subsidiaries, or, to the best knowledge of the Company, any director, officer or
key employee of the Company or any of its Subsidiaries which would have a
reasonable possibility of calling into question the validity, or hinder the
consummation, enforceability or performance, as the case may be, of the Closing,
this Agreement, any action taken or to be taken pursuant hereto or any of the
other agreements and transactions contemplated hereby.
5.11 Adverse Changes. From the date hereof, through and including
---------------
the Effective Date, and without regard to matters related to approvals required
by Section 5.9 hereof or actions undertaken pursuant to this Agreement, there
shall have been (i) no material adverse change in the assets and properties of
the Company, the business operations, liabilities, profits or financial
condition of the Company; (ii) no material damage to the assets and properties
of the Company caused by fire, flood, casualty, act of God or the public enemy
or other cause, the loss of any of which is not adequately covered by insurance;
or(iii) no further Federal or state regulation or deregulation, or changes in
laws applicable to Federal or state deregulation of the Company which have, or
are reasonably expected to have, a material adverse effect on the assets and
properties, the business operations, liabilities, profits or financial condition
of the Company.
5.12 Dissenting Shareholders. Dissenters' rights shall not have
-----------------------
been exercised pursuant to the WBCA with respect to any of the shares of Company
Common Stock issued and outstanding as of the date hereof.
5.13 Special Meeting. The Company shall have called and held the
---------------
Special Meetings (as defined herein), at which at least 66-2/3% of the voting
power of the Company shall have been cast in favor of the Merger.
5.14 Environmental Matters. The Company shall have taken, or shall
---------------------
have caused its Subsidiaries to take, the following steps, in each instance in
compliance with all applicable laws and regulations:
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(a) UST Compliance-Storage Building at 304 N. Pine, Ellensburg.
(i) The Company shall have engaged a qualified consultant
(who shall be reasonably accetable to Parent) to undertake a ground penetrating
radar test to determine whether there is an underground storage tank ("UST") at
this location.
(ii) In the event a UST exists at this location, the
Company shall have engaged a technically qualified consultant (who shall be
reasonably acceptable to Parent) to conduct soil and groundwater sampling and
analysis, and shall have, or shall have caused its Subsidiaries to remove the
UST. In the event contamination is present at this site, the Company shall have
engaged a technically qualified consultant to remediate the contamination to the
extent necessary to be in compliance with all applicable laws and regulations
and shall have either completed and paid for such testing and remediation or
accrued the expense expected to be incurred in effecting such testing and
remediation (such accrual to be approved by Parent, such approval not to be
unreasonably withheld).
(b) Remediation at Ellensburg Service Center/Pole Yard located
at 208 W. 3/rd/ Street, Ellensburg.
(i) The Company shall have removed, or have caused its
Subsidiaries to remove, the hydraulic lift located at this site, and shall have
engaged a technically qualified consultant (who shall be reasonably acceptable
to Parent) to conduct such testing and remediation of soil and groundwater in
the vicinity of the hydraulic lift as required by all applicable laws and
regulations.
(ii) The Company shall have engaged a technically qualified
consultant (who shall be reasonably acceptable to Parent) to conduct soil
sampling and analysis at the Ellensburg Pole Yard for TPH, PAH and phenols, to
determine that no contamination currently is in place as a result of the visible
stains in the Pole Yard that would require remediation be conducted to comply
with applicable laws and regulations. In the event contamination is present, the
Company shall have engaged a technically qualified consultant to remediate the
contamination to the extent necessary to be in compliance with all applicable
laws and regulations and shall have either completed and paid for such testing
and remediation or accrued the expense expected to be incurred in effecting such
testing and remediation
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(such accrual to be approved by Parent, such approval not to be unreasonably
withheld).
(iii) The Company shall have engaged a technically qualified
consultant (who shall be reasonably acceptable to Parent) to conduct soil and
groundwater sampling and analysis as close as possible to the adjacent
properties (but on the Company's property) to the east of the Company's property
where there was found to be former repair operations and service stations, to
determine that no contamination currently is in place on the Company's property
as a result of the use of the adjacent properties that would require remediation
to be conducted by the Company to comply with applicable laws and regulations.
In the event contamination is present, the Company shall have engaged a
technically qualified consultant to remediate the contamination on the Company's
property to the extent necessary to be in compliance with all applicable laws
and regulations and shall have either completed and paid for such testing and
remediation or accrued the expense expected to be incurred in effecting such
testing and remediation (such accrual to be approved by Parent, such approval
not to be unreasonably withheld). In addition, in the event contamination is
present, the Company shall make all notifications required by law to the owners
of the adjacent properties and/or the appropriate governmental authorities and
shall use commercially reasonable efforts to obtain from such governmental
authority documentation reasonably satisfactory to Parent that no further action
is required with respect to such properties or that any required action is the
responsibility of the owners of the adjacent properties.
(c) Remediation at the Kittitas Switch Exchange located at 211
North Main, Kittitas.
(i) The Company shall have engaged, or shall have caused
its Subsidiaries to engage a technically qualified consultant (who shall be
reasonably acceptable to Parent) to conduct soil and groundwater sampling and
analysis as close as possible (but on the Company's property) to the site
adjacent to the Kittitas Switch Exchange currently being utilized as a auto
parts/farm equipment facility to determine that no contamination currently is in
place on the Company's property that would require remediation be conducted by
the Company to comply with applicable laws and regulations, as a result of the
visible soil staining on the property adjacent to the Company's property. In the
event contamination is present, the Company shall have engaged a technically
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qualified consultant to remediate the contamination on the Company's property to
the extent necessary to be in compliance with all applicable laws and
regulations and shall have either completed and paid for such testing and
remediation or accrued the expense expected to be incurred in effecting such
testing and remediation (such accrual to be approved by Parent, such approval
not to be unreasonably withheld). In addition, in the event contamination is
present, the Company shall make all notifications required by law to the owners
of the adjacent properties and/or the appropriate governmental authorities and
shall use commercially reasonable efforts to obtain from such governmental
authority documentation reasonably satisfactory to Parent that no further action
is required with respect to such properties or that any required action is the
responsibility of the owners of the adjacent properties.
(d) Remediation at the Kittitas Pole Yard located at 219 North
Main, Kittitas.
(i) The Company shall have engaged a technically qualified
consultant (who shall be reasonably acceptable to Parent) to conduct soil
sampling and analysis at the Kittitas Pole Yard for TPH, PAH and phenols, to
determine that no contamination currently is in place as a result of the visible
soil staining at this location that would require remediation be conducted to
comply with applicable laws and regulations. In the event contamination is
present, the Company shall have engaged a technically qualified consultant to
remediate the contamination to the extent necessary to be in compliance with all
applicable laws and regulations and shall have either completed and paid for
such testing and remediation or accrued the expense expected to be incurred in
effecting such testing and remediation (such accrual to be approved by Parent,
such approval not to be unreasonably withheld).
(e) Remediation at the Selah Pole Yard located at East Naches &
RR, Selah.
(i) The Company shall have engaged a technically qualified
consultant (who shall be reasonably acceptable to Parent) to conduct soil
sampling and analysis at the Selah Pole Yard for TPH, PAH and phenols, to
determine that no contamination currently is in place as a result of the visible
soil staining on this property that would require remediation be conducted to
comply with applicable laws and regulations. In the event contamination is
present, the Company shall have engaged a technically
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<PAGE>
qualified consultant to remediate the contamination to the extent necessary to
be compliance with all applicable laws and regulations and shall have either
completed and paid for such testing and remediation or accrued the expense
expected to be incurred in effecting such testing and remediation (such accrual
to be approved by Parent, such approval not to be unreasonably withheld).
(f) Asbestos Surveys at the Storage Building located at 304
North Pine and the Leased Retail Building located at 306 North Pine.
(i) The Company shall have engaged a licensed inspector
(reasonably acceptable to Parent) and the licensed inspector shall have
conducted asbestos surveys at the above properties to determine whether there
are ACMs on the properties that would require remediation be conducted to comply
with applicable laws and regulations. In the event ACMs are present, the Company
shall have engaged a licensed asbestos contractor to abate the asbestos to the
extent necessary to be in compliance with all applicable laws and regulations
and shall have either completed and paid for such testing and remediation or
accrued the expense expected to be incurred in effecting such testing and
remediation (such accrual to be approved by Parent, such approval not to be
unreasonably withheld).
(g) The Company shall have provided copies of all analytic
data, reports, correspondence, or other documents hereunder to Parent and shall
have provided evidence reasonably satisfactory to Parent that the conditions set
forth in this Section 5.14 have been satisfied.
5.15 Stock Certificates. The Company shall have cancelled stock
------------------
certificate number 5995 and shall have issued a stock certificate in replacement
of stock certificate number 5278, as more fully described on SCHEDULE 2.22(C).
SECTION 6. COMPANY'S CONDITIONS OF MERGER
------------------------------
The Company's obligation hereunder shall be subject to compliance by
the Parent and Acquisition Sub with their agreements herein contained and to the
fulfillment to the Company's satisfaction on or before and at the Closing Date
of the following conditions:
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<PAGE>
6.1 Certificate. The representations and warranties of the Parent
-----------
and Acquisition Sub contained in this Agreement, including but not limited to
the representations and warranties made in Sections 3 and 4 shall be true and
correct in all material respects with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date; each
of the conditions hereafter specified in this Section 6 shall have been
satisfied; and on the Closing Date one or more certificates to such effect
executed by the Senior Vice President and the Chief Financial Officer of the
Parent and Acquisition Sub shall be delivered to the Company.
6.2 Compliance with Agreements. Parent and Acquisition Sub shall
--------------------------
have performed and complied with all agreements, covenants and conditions
contained herein, in any other document contemplated hereby and all other
Related Documents which are required to be performed or complied with by Parent
and Acquisition Sub on or before the Closing Date.
6.3 All Proceedings Satisfactory. All corporate and other proceedings
----------------------------
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the Company
and Company shall receive such copies thereof and other materials (certified, if
requested) as they may reasonably request in connection therewith.
6.4 Regulatory Matters.
------------------
(a) All required waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or been
terminated and Parent shall have paid 50% of (i) any filing fee imposed under
such Act in connection with the transactions contemplated by this Agreement and
the Related Documents, and (ii) any fees and expenses incurred in connection
with obtaining WUTC approval of the transactions contemplated by this Agreement
and the Related Documents.
(b) The WUTC and the FCC shall to the extent required by law,
have approved, the consummation of the transactions contemplated hereby and such
approvals shall: (i) be free of any terms, conditions or restrictions that are
reasonably unacceptable to the Company and (ii) have become Final Orders.
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<PAGE>
6.5 Litigation. There shall be no investigation, action, suit or
----------
proceeding at law or in equity or by or before any governmental instrumentality
or other agency pending or threatened against Parent or Acquisition Sub, or, to
the best knowledge of Parent and Acquisition Sub, any director, officer or key
employee of Parent or Acquisition Sub, which would have a reasonable possibility
of calling into question the validity, or hinder the consummation,
enforceability or performance, as the case may be, of the Closing, this
Agreement, any action taken or to be taken pursuant hereto or any of the other
agreements and transactions contemplated hereby.
6.6 Delivery of Documents. Parent and Acquisition Sub shall have
---------------------
executed and delivered to the Company (or shall have caused to be executed and
delivered to the Company by the appropriate persons) the following:
(a) Certified copies of resolutions of the Board of Directors of
each of Parent and Acquisition Sub and the sole shareholder of Acquisition Sub,
authorizing the execution and delivery of this Agreement and the Related
Documents;
(b) A certificate issued as of a recent date by the appropriate
Secretary of State of the state of incorporation of each of Parent and
Acquisition Sub certifying that each of Parent and Acquisition Sub is in good
standing in such states;
(c) True and correct copies of all consents, instruments and
other documents specified in SCHEDULES 3.2 and 4.2 attached hereto that have not
otherwise been made available for review by the Company;
(d) A copy of each of Parent's and Acquisition Sub's corporate
charter certified as of a recent date by the appropriate Secretary of State;
(e) A copy of the Bylaws of each of Parent and Acquisition Sub
certified, in each case, by the secretary of the pertinent corporation;
(f) All other certificates and other documents reasonably
requested by the Company. The form and substance of all such certificates and
other documents hereunder shall be reasonably satisfactory in all respects to
the Company and its counsel; and
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<PAGE>
(g) The Escrow Agreement.
6.7 Opinion of Parent's Counsel. The Company shall have received
---------------------------
the favorable written opinion of counsel for Parent dated the Closing Date, in
form and substance reasonably acceptable to the Company.
SECTION 7. COVENANTS
---------
Until the Closing Date (unless provided otherwise herein), each of the
Parent, Acquisition Sub and the Company agree that they shall act, or refrain
from acting where so required, to comply with the following:
7.1 Regular Course of Business.
--------------------------
(a) Generally. The Company shall operate its business consistent
---------
with past management practices, shall maintain all of its properties in
customary repair, order and condition, shall maintain (except for expiration due
to lapse of time or cancellation by another party pursuant to the terms thereof)
in the ordinary course of business all leases and contracts in effect without
change except as expressly provided herein and shall comply with the provisions
of all laws, regulations and orders of Governmental Authorities and all Company
Franchises applicable to the Company and the conduct of its business. Except as
set forth on SCHEDULE 7.1(A), the Company shall comply, without modification,
with all contracts and commitments relating to capital expenditures as set forth
on SCHEDULE 2.9. The Company shall maintain its financial and accounting
records in a manner consistent with that employed at December 31, 1996.
(b) Compensation. Without the prior written consent of the
------------
Parent and except as may be reasonably necessary to carry out the 1998 Budgets,
the Company shall not hire or fire any employee (except in a manner consistent
with past practice) and shall not grant any increase in the compensation of any
board member, officer or employee holding a position as senior or more senior
than department manager, except as required by prior agreement or with the prior
written consent of Parent.
(c) Insurance. The Company shall maintain in full force and
---------
effect its insurance policies with the coverage and in the amounts set forth on
SCHEDULE 2.13.
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<PAGE>
(d) Claims. The Company shall promptly notify the Parent of any
------
actions, claims, complaints, lawsuits or investigations that may be commenced
against it.
(e) Supplement. From time to time prior to the Closing Date, the
----------
Company shall promptly notify the Parent of any changes with respect to the
information set forth in this Agreement or the Schedules hereto and of any
matters hereafter arising which, if in existence at the date hereof, would have
been required to be set forth in this Agreement or the Schedules hereto;
provided that such notification shall not constitute an amendment to this
- --------
Agreement or any of such Schedules unless expressly agreed in writing by Parent.
7.2 Amendments; Sales and Acquisitions. No change or amendment shall
----------------------------------
be made to the charter or Bylaws of the Company. The Company shall not merge
into or consolidate with any other Person, sell or acquire any assets (except in
the ordinary course of business) or acquire or make any investment in any
Person, or otherwise change the character of its business.
7.3 Capital Changes. The Company shall not issue, sell, purchase,
---------------
acquire or redeem any shares of its capital stock of any class or any of its
debt or issue or sell any securities convertible into, or options, warrants or
other rights to subscribe for, any shares of its capital stock. The Company
shall not pledge or otherwise encumber any shares of its capital stock.
7.4 Dividends. The Company shall not declare, pay or set aside for
---------
payment any dividend or other distribution in respect of its capital stock,
other than regular quarterly dividends, which dividends may not exceed an
aggregate amount of $500,000 for any fiscal quarter.
7.5 Capital Expenditures. Except to the extent provided for in the
--------------------
1998 Budgets, without the prior written consent of Parent, the Company shall not
make any capital expenditures in excess of $25,000 in the aggregate, or
commitments with respect thereto, except as provided in SCHEDULE 2.9. The
Company shall not make or accept any loan or advance to or from any of its
Affiliates.
7.6 Borrowing. Except to the extent provided for in the 1998
---------
Budgets, without the prior written consent of the Parent, the Company shall not
incur, assume or guarantee any indebtedness or obligation not reflected on
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the Base Balance Sheet, except for amounts not to exceed twenty-five thousand
dollars ($25,000) in the ordinary course of business.
7.7 Property. The Company shall not sell, transfer, or dispose of
--------
any of its assets and properties, or allow any of its assets and properties to
become subject to a Lien, except in the ordinary course of business.
7.8 Other Commitments. Except as set forth in this Agreement or
-----------------
permitted in writing by the Parent, the Company shall not enter into any
transaction, make any commitment or incur any obligation other than in the
ordinary course of business.
7.9 Interim Financial Information. The Company shall supply the
-----------------------------
Parent with a copy of its internal unaudited monthly financial statements within
thirty (30) days after the end of each month.
7.10 Consents and Authorizations.
---------------------------
(a) The Parent and the Company shall, promptly after the date
hereof, cooperatively commence to obtain, and shall use their best efforts to
obtain prior to the Closing Date, WUTC and FCC approval of the transaction
contemplated hereby with respect to the authorizations listed in SCHEDULE
2.6(B). The Parent and the Company shall also, promptly after the date hereof,
cooperatively commence to obtain, and shall use their best efforts to obtain
prior to the Closing Date, the consents, waivers and authorizations listed in
SCHEDULE 2.2, and any other consents, waivers and authorizations required to
complete the transactions contemplated hereby.
(b) The Company shall, promptly after the date hereof commence
to obtain, and shall use reasonable efforts to obtain within 60 working days of
the date hereof, the approval of its shareholders of the transaction
contemplated hereby.
7.11 Access. The Company shall afford to the Parent and its counsel,
------
accountants, agents and other authorized representatives and to any financing
sources specified by the Parent reasonable access during business hours to the
Company's personnel, plants, properties, books and records in order that the
Parent and such other Persons may have full opportunity to make such reasonable
investigations as it shall desire to make of the affairs of
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the Company. The Company shall cause its officers, employees and auditors to
furnish such additional financial and operating data and other information as
the Parent shall from time to time reasonably request.
7.12 Notice of Transfer. Each of the Parent and the Company shall
------------------
cooperate in providing any required notices to the appropriate Governmental
Authority regarding any issues of ownership or control or change thereof
(including, without limitation, any such issues relating to the Company
Franchises).
7.13 Payment of Tax. All transfer (including any real estate transfer
--------------
or gains tax), documentary (other than stock transfer), sales, use, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement shall be borne by the Company when due, and it
will file on a timely basis all necessary Tax returns and other documentation
with respect to all such transfer, documentary, sales, use, registration and
other Taxes and fees, and, if required by applicable Regulation, will, and will
cause its Affiliates to, join in the execution of any such Tax returns and other
documentation.
7.14 Agreement to Defend. In the event any claim of the nature
-------------------
specified in Section 5.10 hereof is commenced, whether before or after the
Closing Date, the parties hereto agree to cooperate and use all reasonable
efforts to defend against and respond thereto.
7.15 1998 Budgets. The Company shall promptly advise Parent of any
------------
event or circumstance which would render the 1998 Budgets or the assumptions
underlying the same no longer reasonable.
7.16 Further Assurances. On the terms and subject to the conditions
------------------
of this Agreement, the parties hereto shall use all reasonable efforts at their
own expense to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or advisable under applicable regulations
to consummate and make effective as promptly as possible the transactions
contemplated by this Agreement, and to cooperate with each other in connection
with the foregoing, including, without limitation, using all reasonable efforts
(a) to obtain all necessary waivers, consents and approvals from other parties
to loan agreements, leases, mortgages and other contracts, (b) to obtain all
necessary consents, approvals and
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authorizations as are required to be obtained under any regulations or in
connection with any Company Franchises, (c) to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby and (d) to fulfill all
conditions to the obligations of the parties under this Agreement. Each of the
parties hereto further covenants and agrees that it shall use all reasonable
efforts to prevent a threatened or pending preliminary or permanent injunction
or other order.
7.17 Consents. Without limiting the generality of Section 7.16,
--------
each of the parties hereto shall use reasonable efforts to obtain all waivers,
Company Franchises, authorizations, consents and approvals of all Persons and
Governmental Authorities necessary, proper or advisable in connection with the
consummation of the transactions contemplated by this Agreement prior to the
Closing Date.
7.18 No Solicitation or Negotiation.
------------------------------
(a) Unless and until this Agreement is terminated, the Company shall
not, and shall use its best efforts to cause its Affiliates, and the directors,
officers, employees, representatives, agents, advisors, accountants,
shareholders and attorneys of each of them, not to (i) encourage, initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to, or engage in negotiations concerning, or provide any
confidential information or data to any Person with respect to, or have any
discussions with any Person relating to, any merger, acquisition,
reorganization, consolidation, business combination, recapitalization,
liquidation, dissolution, sale of all or any significant portion of assets, sale
of shares of capital stock (including without limitation by way of tender offer
or exchange offer) or similar transactions involving the Company or any
Subsidiary other than the transactions contemplated hereby (any of the
foregoing, inquiries or proposals being referred to herein as an "ACQUISITION
PROPOSAL"), or otherwise facilitate any effort or attempt to do or seek to do
any of the foregoing and shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, (ii) engage in negotiations or
discussions concerning, or provide any nonpublic information or assistance to
any person in connection with any Acquisition Proposal, or (iii) agree to,
approve or recommend any
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Acquisition Proposal. Nothing contained in this Section 7.18 shall prevent the
Board of Directors of the Company from considering, negotiating, discussing,
approving and recommending to the shareholders of the Company a bona fide
Acquisition Proposal not solicited in violation of this Section 7.18, provided
--------
that the Board of Directors of the Company determines in good faith (after
consultation with and based upon the advice of outside counsel) that it is
required to do so in order to discharge properly its fiduciary duties to the
Company's shareholders; and provided, further, that the Company shall keep MJD
-------- -------
informed, on a reasonably current basis, as to the status and details of any
such consideration, negotiations or discussions, including prompt delivery to
Parent of any written inquiries, proposals, agreements or Acquisition Proposal.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its Subsidiaries in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company or any Subsidiary by any
person or entity that informs the Board of Directors of the Company or such
Subsidiary that it is considering making, or has made, an Acquisition Proposal.
Such notice to Parent shall be made orally and in writing, shall indicate
whether the Company is providing or intends to provide the person making the
Acquisition Proposal with access to information concerning the Company as
provided in Section 7.18(c) and, if reasonably practicable, shall be made prior
to furnishing any such information to, or entering into negotiations or
discussions with, such person.
(c) If the Board of Directors of the Company receives a request for
material nonpublic information by a person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of Directors
determines in good faith and upon the advice of outside counsel that is required
to cause the Company to act as provided in this Section 7.18(c) in order to
discharge properly the directors' fiduciary duties to the Company's
stockholders, then, provided that such person has executed a confidentiality
agreement substantially similar to the one then in effect among the Company and
Parent the Company may provide such person with access to information regarding
the Company.
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<PAGE>
(d) The Company shall immediately cease and cause to be terminated
any existing discussions or negotiations with any persons (other than Parent)
conducted heretofore with respect to any of the foregoing. The Company agrees
not to release any third party from the confidentiality provisions of any
confidentiality agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and
employees of the Company and its Subsidiaries and any investment banker or other
advisor or representative retained by the Company are aware of the restrictions
described in this Section 7.18.
(f) The Company shall not accept any Acquisition Proposal unless, at
least five days prior to such acceptance, the Company shall have delivered to
Acquisition Sub written notice of such Acquisition Proposal together with a copy
of any and all agreements to be entered into in connection with such Acquisition
Proposal.
7.19 Public Announcements. Prior to the Closing Date, no party hereto
--------------------
nor any Affiliate, representative or shareholder of such party, shall disclose
any of the terms of this Agreement to any third party, except as required by
applicable law (including pursuant to the Proxy Statement (as defined herein))
or as required to obtain the consents, waivers and authorizations listed in
SCHEDULES 2.2, 2.6, 3.2 and 4.2 and in connection with the Parent's financing of
the transactions contemplated hereby, without the other parties' prior written
consent (not to be unreasonably withheld). Prior to the Closing Date, the form,
content and timing of all press releases, public announcements or publicity
statements with respect to this Agreement and the transactions contemplated
hereby shall be subject to the prior approval of both the Company and Parent,
which approval shall not be unreasonably withheld. Prior to the Closing Date,
subject to the requirements of applicable law, no press releases, public
announcements or publicity statements shall be released by either party without
such prior mutual agreement. Notwithstanding the foregoing, no party hereto will
disclose the Merger Consideration or the manner in which the Merger
Consideration is calculated, without the prior written consent of the other
parties hereto, other than in connection with seeking consents required by
Section 7.17 or in connection with the Proxy Statement.
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7.20 Environmental Inspections. The Company agrees to cooperate
-------------------------
with any reasonable request of Parent for a site assessment or review concerning
any environmental matter, including the making available of such personnel,
documents, records or other information of the Company as Parent may reasonably
request.
7.21 Regulatory Matters. The Company will not change local rates
------------------
charged to telephone customers and will not apply for any change in the intra-
state or interstate pooling mechanism, without the written consent of Parent.
7.22 Indemnification and Insurance. Parent and the Surviving
-----------------------------
Corporation agree to indemnify and hold harmless the Company's officers and
directors against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative arising out of or pertaining to
matters existing or occurring at or prior to the Effective Date, to the fullest
extent permitted under the WBCA. The Surviving Corporation will maintain
director and officer liability insurance for acts and omissions occurring prior
to the Closing Date with coverage in amount and scope at least as favorable as
the Company's existing director and officer liability insurance for a period of
six years after the Closing Date; provided, however, if the existing director
-------- -------
and officer liability insurance expires, is terminated or canceled during such
six year period, the Surviving Corporation will use its best efforts to obtain
director and officer liability insurance in an amount and scope as great as can
be obtained for the remainder of such period for a premium not in excess of 140%
of the premium paid by the Company as of the Closing Date.
7.23 Employees; Other Benefits.
-------------------------
(a) Parent agrees that it will not terminate, except for cause (as
defined by the Company consistent with past practice), any non-temporary
employees (including part-time employees) for a period of 24 months (or in the
case of individuals in the Operator Service group, 12 months) after the Closing
Date. The Company's non-temporary employees (including part-time employees) and
the individuals in the Operator Services group are listed in SCHEDULE 7.23.
(b) Parent agrees to maintain health insurance on terms at least as
favorable as currently provided by the
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Company to existing early retirees and any employees age 55 or older who elect
early retirement on or after the Closing Date. Parent further agrees that all
employees will receive full credit for years of service for purposes of all
benefit plans offered by Parent and for computation of vacation and sick leave
benefits. All current employees and retirees of the Company will receive free
telephone service as set forth on EXHIBIT C.
(c) Parent agrees that the Shareholder Representative may enforce
the covenants contained in this Section 7.23.
7.24 Payment of Regulatory Fees. Each of the Company and Parent shall
--------------------------
pay 50% of (i) any filing fee imposed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, in connection with the transactions
contemplated by this Agreement and the Related Documents and (ii) any fees and
expenses incurred in connection with obtaining WUTC and FCC approval of the
transactions contemplated by this Agreement and the Related Documents.
7.25 Shareholder Approval. Within sixty (60) days of the date of
--------------------
this Agreement, the Company shall call a special meeting of common stockholders
of the Company to be held for the purpose of voting on the Merger (the "SPECIAL
MEETING") at which at least 66 2/3% of the voting power of the Company shall
have been cast in favor of the Merger and the transactions anticipated by this
Agreement. The proxy statement to be delivered to the Company's shareholders in
connection with the Special Meeting (the "PROXY STATEMENT") shall state, inter
-----
alia, (i) that the Board of Directors of the Company has unanimously approved
- ----
the Merger and recommends that the shareholders vote in favor of the Merger (ii)
that all of the Board members intend to vote in favor of the Merger, and (iii)
that all of the Company's shareholders who vote or intend to vote in favor of
the Merger should deliver their shares and appointment documents to the
Shareholder Representatives free and clear of all liens and encumbrances.
7.26 Financing. Parent will have financing available on the Closing
---------
Date sufficient in amount to pay the Closing Date Payment.
SECTION 8. CLOSING
-------
8.1 Time and Place.
--------------
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(a) The closing (the "CLOSING") of the transactions contemplated
hereby shall take place at the offices of Bogle,& Gates P.L.L.C., Two Union
Square, Suite 5100, 601 Union Street, Seattle, Washington 98101-2346, or such
other place as agreed to by the parties, at 9:30 a.m., local time, as soon as
possible following the satisfaction or waiver of the conditions set forth in
Section 5 and 6 hereof; provided, however, that, unless otherwise agreed by the
-------- -------
parties, in no event shall the Closing occur later than the date five months
after the date hereof unless the only conditions to Closing not satisfied as of
such date are those set forth in Sections 5.9 and 6.4, in which case the Closing
shall occur no later than eight months after the date hereof (the "CLOSING
DATE").
(b) On the Closing Date, Parent, Acquisition Sub and the Company
shall cause the Articles of Merger to be filed in accordance with the provisions
of the WBCA and shall take any and all other lawful actions and do any and all
other lawful things necessary to effect the Merger and to cause the Merger to
become effective.
SECTION 9. INDEMNIFICATION OF PARENT AND ACQUISITION SUB
---------------------------------------------
9.1 Survival. The covenants, agreements, representations and
--------
warranties of the Company contained herein or in any certificate or other
document delivered pursuant hereto shall survive any examination made by or on
behalf of Parent and Acquisition Sub, the execution and delivery of this
Agreement, the Effective Date and the consummation of the transactions called
for by this Agreement until one hundred twenty (120) days after the date of the
Surviving Corporation's first fiscal year end after the Effective Date (the
"RELEASE DATE") except that (i) all covenants and agreements set forth in this
Section 9 shall continue until all obligations hereunder have been performed and
satisfied and (ii) any covenants and agreements which are to be performed after
the Effective Date, including without limitation, the covenants of Parent set
forth in Section 7.23, shall continue until all such obligations have been fully
performed and satisfied. No claim under this Section 9 may be brought with
respect thereto after the Release Date; provided that if, prior to such date,
--------
Parent or Acquisition Sub has notified the Escrow Agent of a claim for indemnity
under this Section 9 (whether or not formal legal action shall have been
commenced based upon such
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claim), such claim shall continue to be subject to indemnification until finally
resolved.
9.2 Indemnification. The Company shall indemnify and hold harmless
---------------
Parent and Acquisition Sub, and each of their respective officers, directors,
affiliates, shareholders and representatives (each, an "INDEMNITEE") in the
manner set forth in and subject to Section 9.4, at all times from and after the
Effective Date against and in respect of any and all damages, claims, losses,
deficiencies, liabilities and expenses, including, without limitation,
reasonable legal, accounting, and other fees and other expenses (collectively,
"DAMAGES"), incurred or suffered by any such Indemnitee as a result, or that may
arise out of, any breach by the Company of any of the representations and
warranties made by the Company in this Agreement or pursuant hereto, or for any
other breach or violation of any covenant, agreement, term or condition of this
Agreement by the Company; provided, however, that the Company shall not have an
-------- -------
obligation to indemnify any Indemnitee pursuant to this Section 9 unless a claim
shall have been asserted on or prior to the Release Date.
9.3 Notice of Claims. Upon obtaining knowledge thereof, the
----------------
Indemnitee shall promptly notify the Escrow Agent and the Shareholder
Representative in writing of any Damages (including but not limited to any
Damages arising from Third-Party Claims (as defined in Section 9.5(a) hereof))
which the Indemnitee has determined has given or could give rise to a claim
under Section 9.2 (such written notice being referred to as a "NOTICE OF
CLAIM"); provided, however, that no such notice shall be required with respect
-------- -------
to actions or claims identified in any of the Schedules hereto. A Notice of
Claim shall specify in reasonable detail the nature and estimated amount of any
such claim giving rise to a right of indemnification. Any payment of Damages
set forth in such Notice of Claim shall be governed by the terms of the Escrow
Agreement.
9.4 Method of Indemnification. In the event that an Indemnitee
-------------------------
shall seek indemnification pursuant to Section 9.2, such Indemnitee may seek
recovery in an amount equal to the aggregate Damages incurred or suffered by
such Indemnitee with respect to which such Indemnitee is entitled to
indemnification pursuant to Section 9.2. Except as provided in the last two
sentences of this Section 9.4, any obligation to indemnify an Indemnitee shall
be satisfied solely from the Escrow Fund, in accordance with the terms of
withdrawal specified in the Escrow Agreement. Except as
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provided in the last two sentences of this Section 9.4, no indemnification
payment for Damages suffered or incurred by an Indemnitee shall be made to such
Indemnitee, until the amount which all Indemnitees under this Agreement would
otherwise be entitled to receive as indemnification under this Agreement
aggregates in excess of the sum of $300,000 (such sum, hereinafter, the
"THRESHOLD"), at which time each Indemnitee shall be entitled to recover from
the Escrow Fund any and all amounts for which a claim or claims for indemnity
has theretofore been made in excess of the Threshold. Upon payment of the Merger
Consideration to the Shareholder Representative by Parent or from the Escrow
Fund, none of Parent, Acquisition Sub or the Surviving Corporation shall have
any liability to the Selling Shareholders for any portion of the Merger
Consideration paid to the Shareholder Representative by Parent or deposited to
the Escrow Fund. The Shareholder Representative, on behalf of all of the Selling
Shareholders, shall indemnify and hold harmless each of Parent, Acquisition Sub
and the Surviving Corporation, without regard to the Threshold or any provision
herein relating to the Escrow Fund being the sole source of funds for
indemnification payment, for any Damages incurred by any of Parent, Acquisition
Sub or the Surviving Corporation as a result of a claim by any Selling
Shareholder for payment of any portion of the Merger Consideration previously
remitted to the Shareholder Representative by Parent or deposited to the Escrow
Fund.
9.5 Defense of Third-Party Claims.
-----------------------------
(a) If any claim or liability is asserted by a third party after
the Closing for which Parent believes indemnification may be sought under the
terms of this Section 9 (a "THIRD-PARTY CLAIM"), then Parent shall promptly
notify the Shareholder Representative in writing of such Third-Party Claim (said
notification being referred to as a "THIRD-PARTY CLAIM NOTICE"). Any Third-Party
Claim Notice shall state with reasonable specificity, in light of the then
current circumstances, the basis of the Third-Party Claim.
(b) Parent shall have fifteen (15) days after receipt by the
Shareholder Representative of such Third-Party Claim Notice to elect to
undertake, conduct and control, through counsel of its own choosing, the
settlement or defense thereof, and the Shareholder Representative shall
cooperate with Parent in connection therewith. Parent shall have the right to
contest, settle or compromise the Third-
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Party Claim in the exercise of its reasonable discretion; provided, that Parent
--------
shall notify the Shareholder Representative of any proposed compromise or
settlement of any such Third-Party Claim and shall not effect such compromise or
settlement without the prior written consent (not to be unreasonably withheld or
delayed) of the Shareholder Representative; provided, further, that Parent shall
-------- -------
not, in the defense of such claim, consent to entry of any judgment unless the
judgment provides only for the payment of monetary damages or unless Parent
obtains the written consent of the Shareholder Representative, or (if the
Company is a party to such proceeding) consent to entry of any judgment or enter
into any settlement (except with the written consent of the Shareholder
Representative) which does not include as an unconditional term thereof the
giving by the claimant to the Company of a release from all liability in respect
of such claim.
(c) If Parent elects not to undertake the defense of the Third-
Party Claim, then the Shareholder Representative may undertake, conduct and
control, through counsel approved by Parent (such approval not to be
unreasonably withheld or delayed), and at its own expense, the settlement or
defense thereof; provided, that the Shareholder Representative shall not
--------
compromise or settle any Third-Party Claim without Parent's prior written
consent (not to be unreasonably withheld or delayed); provided, further, that
-------- -------
the Shareholder Representative shall not, in the defense of such claim, consent
to entry of any judgment unless the judgment provides only for the payment of
monetary damages or unless the Shareholder Representative obtains the written
consent of Parent, or consent to entry of any judgment or enter into any
settlement (except with the written consent of Parent) which does not include as
an unconditional term thereof the giving by the claimant to the Indemnitees of a
release from all liability in respect of such claim.
SECTION 10. DEFINITIONS
-----------
Unless the context specifically requires otherwise, capitalized terms
used in this Agreement shall have the meaning specified below:
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504(a), or similar group defined under a similar provision of
state, local or foreign law.
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"DEFINED INTERCOMPANY TRANSACTION" shall have the meaning set forth in
Treasury Regulation Section 1.1502-13.
"FCC" means the Federal Communications Commission (or any successor
agency, commission, bureau, department or other political subdivision of the
United States of America).
"FCC LICENSE" means any license, permit, approval or authorization
granted or issued by the FCC.
"FINAL ORDER" means an action by the FCC or the WUTC as to which: (a)
no request for stay of the action by the FCC or the WUTC, as the case may be, is
pending, no such stay is in effect, and if any time period is permitted by
statute or regulation for filing any request for such a stay, such time period
has passed; (b) no petition for rehearing or reconsideration, or application for
review, of the action is pending before the FCC or the WUTC, as the case may be,
and the time permitted for filing any such petition or application has passed;
(c) the FCC or the WUTC, as the case may be, does not have the action under
reconsideration on its own motion and the time in which such reconsideration is
permitted has passed; and (d) no appeal to a court, or request for stay by a
court, of the FCC's or WUTC's action, as the case may be, is pending or in
effect, and the deadline for filing any such appeal or request has passed.
"GAAP" means generally accepted accounting principles in effect from
time to time.
"GOVERNMENTAL AUTHORITY" means any governmental agency, body or
instrumentality (whether federal, state, local or foreign).
"LIEN" means any interest in property securing an obligation owed to,
or claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, shareholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting
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property. For the purposes of this Agreement the Company or a Subsidiary shall
be deemed to be the owner of any property which it has acquired or holds subject
to a conditional sale agreement, financing lease or other arrangement pursuant
to which title to the property has been retained by or vested in some other
Person for security purposes and such retention or vesting shall be deemed to be
a "Lien".
"OSHA" means the Occupational Safety and Health Act of 1978, as
amended from time to time.
"PERSON" means any individual, corporation, partnership, joint
venture, trust or unincorporated organization or any government or any agency or
political subdivision thereof.
"RELATED DOCUMENTS" means the Articles of Merger and any and all other
instruments and documents related to this Agreement.
"SELLING SHAREHOLDERS" shall have the meaning ascribed to it in the
Escrow Agreement.
"SHAREHOLDER REPRESENTATIVE" means George F. Kachlein III or another
person appointed by the shareholders of the Company.
"SHAREHOLDER REPRESENTATIVE APPOINTMENT" means the appointment and
power of attorney to be executed by each of the shareholders of the Company
naming George F. Kachlein, III as Shareholder Representative and empowering him
or his successor to carry out the duties and responsibilities of the Shareholder
Representative.
"SUBSIDIARY" of any Person means any corporation or other entity of
which more than 50% of the outstanding voting securities are at the time owned,
directly or indirectly, by such Person.
"TAX" means any federal, state, local, or foreign income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative minimum, estimated or
other tax, including any interest, penalty or addition thereto, whether disputed
or not.
"TAXING AUTHORITY" means any domestic, foreign, federal, national,
state, provincial, county or municipal or
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other local government, any subdivision, agency, commission or authority
thereof, or any quasi-governmental body exercising any taxing authority or any
other authority exercising any Tax regulatory authority.
"WUTC" means the Washington Utilities and Transportation Commission.
The following terms shall have the meanings assigned to them in the
provisions of this Agreement referred to below:
Acquisition Proposal - Section 7.18(a)
Acquisition Sub Common Stock - Section 1.9
Acquisition Sub - Preamble
Adjusted Purchase Price - Section 1.13(b)
Adjustment Statement - Section 1.13(c)
Affidavit - Section 1.11(b)
Affiliate - Section 2.20(g)(iii)
Alternative Transaction - Section 11.1(a)(vii)
Articles of Merger - Preamble
Base Balance Sheet - Section 2.4
Certificate - Section 1.11(b)
Closing - Section 8.1
Closing Date - Section 8.1
Code - Section 2.14(d)
Company Common Stock - Section 1.8(a)
Company - Preamble
Company Franchises - Section 2.5
Contested Adjustments - Section 1.13(c)
Contested Adjustment Notice - Section 1.13(c)
CPR - Section 11.16
Damages - Section 9.2
Easements - Section 2.13(a)
Effective Date - Section 1.6
Effective Date Balance Sheet - Section 1.13(b)
Employee Program - Section 2.20(g)(i)
Escrow Agent - Section 1.12
Escrow Agreement - Section 1.12
Escrow Fund - Section 1.12
ERISA - Section 2.20(c)
Falkenberg - Section 2.21
Indemnitee - Section 9.2
Independent Accountant - Section 1.13(c)
IRS - Section 2.22(b)
maintains - Section 2.20(g)(ii)
Merger - Recitals
Merger Consideration - Section 1.8(a)
Notice of Claim - Section 9.3
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Parent - Preamble
Pre-Closing Balance Sheet - Section 1.13(a)
Properties - Section 2.18(a)
Proxy Statement - Section 7.25
Release Date - Section 9.1
Special Meeting - Section 7.25
Surviving Corporation - Section 1.1
Surviving Corporation Common Stock - Section 1.9
Settlement Amount Certificate - Section 1.13(c)
Settlement Date - Section 1.13(d)
Threshold - Section 9.4
Third-Party Claim - Section 9.5(a)
Third-Party Claim Notice - Section 9.5(a)
Third Party - Section 11.1(a)(vii)
WBCA - Section 1.1
Working Capital Adjustment - Section 1.13(a)
SECTION 11. GENERAL
-------
11.1 Termination.
-----------
(a) This Agreement may be terminated at any time prior to the
Closing:
(i) by mutual written consent of the parties hereto;
(ii) by written notice by either the Company, on the one
hand, or the Parent and Acquisition Sub, on the other hand, if there has been a
material misrepresentation or breach of warranty or breach of covenant on the
part of the other parties in the representations and warranties or covenants set
forth in this Agreement;
(iii) by written notice by either the Company or Parent if
the Closing has not occurred by the date five months after the date hereof or,
if the only conditions to Closing not satisfied as of such date are those set
forth in Sections 5.9 and 6.4, by the date eight months after the date hereof;
provided that neither the Company nor Parent will be entitled to terminate this
- --------
Agreement pursuant to this subsection if its willful breach of this Agreement
has prevented the consummation of the transactions contemplated hereby; or
(iv) by Parent or the Company, if: (A) the Board of
Directors of the Company shall have recommended
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to the shareholders of the Company an Alternative Transaction (as defined
below); (B) a tender offer or exchange offer for 15% or more of the outstanding
shares of the Company Common Stock is commenced (other than by Parent) and the
Board of Directors of the Company recommends that the shareholders of the
Company tender their shares in such tender or exchange offer; provided that the
--------
Company shall not be entitled to exercise any termination rights under clause
(A) or (B) of this Section 11.1(a)(iv) unless (x) any action of the Board of
Directors of the Company referred to in either such clause is required to be
taken by the Board of Directors in order to properly discharge its fiduciary
duties to its shareholders and (y) the Company has complied with its obligations
in Section 7.18;
(v) by Parent, if the Board of Directors of the Company
shall withdraw, modify or change its approval or recommendation of this
Agreement or if within fifteen days of the Company receiving an Acquisition
Proposal, the Company shall not have (A) rejected such Acquisition Proposal and
(B) ceased and caused to be terminated any discussions or negotiations with any
persons (other than Parent) theretofore conducted with respect to such
Acquisition Proposal;
(vi) by either the Company or Parent, if there has been a
material breach of any representation, warranty, covenant or agreement on the
part of the other set forth in this Agreement, which breach has not been cured
within 30 days following receipt by the breaching party of written notice of
such breach, in any case such that the conditions set forth in Sections 5 and 6,
as the case may be, would be incapable of being satisfied by the date eight
months after the date hereof (provided that the right to terminate this
--------
Agreement under this Section 11.1(a)(vi) shall not be available to any party who
is itself in material breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement, such that the conditions
set forth in Sections 5 or 6, as the case may be, would be incapable of being
satisfied by the date eight months after the date hereof; or
(vii) by the Company or Parent if at the Special Meeting at
least 66-2/3% of the voting power of the Company shall not have been cast in
favor of the Merger and the transactions contemplated by this Agreement.
As used herein, "ALTERNATIVE TRANSACTION" means (i) any transaction or
series of transactions pursuant to
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which any person (or group of persons) other than Parent or its Subsidiaries (a
"THIRD PARTY") acquires or would acquire more than 15% of the outstanding
shares, whether from the Company or pursuant to a tender offer or exchange offer
or otherwise, (ii) any acquisition or proposed acquisition of the Company or any
of its Subsidiaries by a merger, consolidation or other business combination
(including any so-called "merger of equals" and whether or not the Company or
any of its Subsidiaries is the entity surviving any such merger or business
combination), (iii) any reorganization, recapitalization, liquidation or
dissolution of the Company or any of its Subsidiaries (other than the
liquidation or dissolution of a wholly-owned subsidiary of the Company or any of
its Subsidiaries) or (iv) any other transaction pursuant to which any Third
Party acquires or would acquire control of assets (including for this purpose
the outstanding equity securities of Subsidiaries of the Company and any entity
surviving any merger or business combination with any Subsidiaries having a fair
market value equal to more than 15% of the fair market value of all the assets
of the Company and its Subsidiaries, taken as a whole, immediately prior to such
transaction.
11.2 Effect of Termination.
---------------------
(a) Except as provided in Section 9.1, in the event of the
termination of this Agreement pursuant to Section 11.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto or any of its affiliates, directors, officers or stockholders, subject to
the provisions of Section 11.2(b) or Section 11.2(d), and nothing herein shall
relieve any party from liability for any breach hereof occurring prior to
termination.
(b) Notwithstanding anything to the contrary contained in this
Agreement, in the event that this Agreement is terminated by (i) Parent pursuant
to (A) Section 11.1(a)(iv), (B) Section 11.1(a)(v), or (C) Section 11.1(a)(vi)
as a result of a material breach of a covenant or agreement by the Company, or
(ii) pursuant to Section 11.1(a)(vii), the Company shall pay to Parent, an
amount equal to $2,500,000 plus all documented fees and expenses incurred by
Parent in connection with or related to the authorization, preparation,
regulation, execution and performance of this Agreement and the transactions
contemplated hereby (including, without limitation, all fees and expenses of
counsel, accountants, experts, consultants, banks and other financial
institutions).
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(c) Any payment required to be made pursuant to Section 11.2(b)
shall be made to Parent or its designee not later than two business days after
delivery by Parent or its designee to the Company of notice of demand for
payment and shall be made by wire transfer of immediately available funds to an
account designated by Parent or its designee in the notice of demand for payment
delivered pursuant to this Section 11.2.
(d) The indemnification provisions set forth in Section 9 and
the remedies provided in this Section 11.2 are the sole and exclusive remedies
available to Parent and Acquisition Sub hereunder or in connection with the
Merger. Neither Section 9 nor this Section 11.2, however, affects or eliminates
any statutory, contract or common law remedy the Company or the Selling
Shareholders may have for misrepresentation, breach of warranty or breach of
covenant by Parent or Acquisition Sub before or after the Closing or if the
Closing does not occur. The amount of any damages recoverable by the Company or
the Selling Shareholders pursuant to this Section 11.2(d) shall not exceed
$3,000,000.
11.3 AMENDMENTS, WAIVERS AND CONSENTS. FOR THE PURPOSES OF THE
--------------------------------
AGREEMENT AND ALL AGREEMENTS, DOCUMENTS, AND INSTRUMENTS EXECUTED PURSUANT
HERETO, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH HEREIN OR THEREIN, NO COURSE
OF DEALING BETWEEN THE COMPANY, THE PARENT AND ACQUISITION SUB AND NO DELAY ON
THE PART OF ANY PARTY HERETO IN EXERCISING ANY RIGHTS HEREUNDER OR THEREUNDER
SHALL OPERATE AS A WAIVER OF THE RIGHTS HEREOF AND THEREOF. NO COVENANT OR
OTHER PROVISION HEREOF OR THEREOF MAY BE WAIVED OTHERWISE THAN BY A WRITTEN
INSTRUMENT SIGNED BY THE PARTY SO WAIVING SUCH COVENANT OR OTHER PROVISION.
11.4 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
--------------------------------------
DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF WASHINGTON.
11.5 Section Headings. The descriptive headings in this Agreement have
----------------
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
11.6 Notices and Demands. Any notice or demand which, by any provision
-------------------
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or
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provided to be given shall be deemed to have been sufficiently given or served
and received for all purposes three days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested, by
express delivery providing receipt of delivery, or by facsimile, to the
following addresses:
If to Parent to:
MJD Ventures, Inc.
Morehead Place
521 East Morehead Street
Suite 250
Charlotte, NC 28202
Attention: Eugene B. Johnson
Telephone: (704) 344-8150
Facsimile: (704) 344-8121
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022
Attention: Neil A. Torpey, Esq.
Telephone: (212) 318-6000
Facsimile: (212) 319-4090
If to the Company to:
Ellensburg Telephone Company
305 North Ruby
P.O. Box 308
Ellensburg, WA 98926
Attention: George F. Kachlein III
Telephone: (509) 925-1425
Facsimile: (509) 962-8540
With a copy to:
Bogle & Gates P.L.L.C.
Two Union Square
Suite 5100
601 Union Street
Seattle, WA 9810-2346
Attention: Irwin L. Treiger, Esq.
Telephone: (206) 682-5151
Facsimile: (206) 621-2660
or at any other address designated by any party to this Agreement to each of the
other parties in writing.
-59-
<PAGE>
11.7 Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which when so executed and delivered shall
be taken to be an original; but such counterparts shall together constitute but
one and the same document.
11.8 Severability; Complete Agreement. Whenever possible, each
--------------------------------
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be deemed prohibited if or invalid under such applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
and such prohibition or invalidity shall not invalidate the remainder of such
provision or the other provisions or this Agreement
THIS AGREEMENT AND THE RELATED DOCUMENTS ARE INTENDED BY THE PARTIES
HERETO TO BE A COMPLETE AND FINAL EXPRESSION OF THEIR AGREEMENT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL AGREEMENT. THE
PARTIES ACKNOWLEDGE AND AGREE THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN
THEM WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT.
11.9 Expenses.
--------
(a) Unless otherwise provided for in this Agreement, each of
the Parent, the Company and Acquisition Sub shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement.
(b) Any expenses payable by the shareholders of the Company in
connection with the transactions contemplated hereby with respect to periods
immediately prior to or on the Effective Date shall be paid by the Surviving
Corporation to the extent of accruals made therefor on the Pre-Closing Balance
Sheet and, if such funds are insufficient, from the Escrow Fund upon request by
the Shareholder Representative or demand by the Parent.
11.10 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto, either in whole or in part, without the prior written
consent of the other parties hereto; provided that Parent may assign this
-60-
<PAGE>
Agreement or any of the rights, interests or obligations hereunder to an
affiliate without the prior written consent of the Company.
11.11 Accounting Terms. All accounting terms used herein which are
----------------
not expressly defined in this Agreement shall have the meanings given to them in
accordance with GAAP.
11.12 Parties. Nothing in this Agreement is intended to confer any
-------
rights or remedies under or by reason of this Agreement on any persons or
entities other than the parties hereto and their respective successors and
permitted assigns. Without limiting the foregoing, no third Person shall be a
beneficiary of any provision of this Agreement.
11.13 Liability of the Shareholder Representative. The Shareholder
-------------------------------------------
Representative shall not be personally liable to Parent, Acquisition Sub or the
Company, for or in respect of any loss, claim, damage, liability or expense
resulting from or arising out of any act or failure to act by the Shareholder
Representative in connection with this Agreement, other than for any loss,
claim, damage, liability or expense which shall be finally adjudicated to be the
result of gross negligence or willful bad faith on the part of the Shareholder
Representative.
11.14 JURY WAIVER. EACH OF THE PARENT, COMPANY, AND ACQUISITION SUB
-----------
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, SUIT, OR COUNTERCLAIM ON
ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT
AND THE RELATED DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.
11.15 Schedules. The Parties hereto acknowledge and agree that the
---------
restatement or partial restatement in the schedules attached hereto of any
representation, warranty or other portion of this Agreement shall not in any way
be deemed to limit or eliminate the requirement for full disclosure on the
schedule relating to such representation, warranty or other portion of this
Agreement.
11.16 Dispute Resolution. Any controversy or claim arising out of or
------------------
relating to this Agreement not resolved by mutual agreement of Parent and the
Company prior to the Closing or of Surviving Corporation and Shareholder
Representative after the Closing, shall in the first instance be referred to
mediation in Seattle, Washington under the presently effective Center for Public
Resources
-61-
<PAGE>
("CPR") Model Procedure for Mediation of Business Disputes. The party desiring
mediation shall give written notice to the other party. Thereupon, the parties
shall select a mediator from the CPR Panel of Neutrals within ten (10) days. If
the parties cannot agree, they will at the end of such ten (10) day period
request that CPR select a mediator within five (5) days. Upon the selection of a
mediator, either by the parties or by CPR, the parties will within ten (10)
days, commence mediation, and the mediator will attempt with the parties to
resolve the dispute within an additional twenty (20) days. If any dispute
submitted by the parties to mediation is not resolved through mediation within
60 days of the initiation of mediation, or if a party refuses to submit the
dispute to mediation within 15 days of a request for mediation by the other
party, the dispute shall, upon demand by either party, be finally settled by
arbitration conducted expeditiously in accordance with the CPR Rules for Non-
Administered Arbitration of Business Disputes by a sole arbitrator selected from
the CPR Panel of Neutrals. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. (S) 1-16, and judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof. The
place of arbitration shall be Seattle, Washington. The arbitrator is not
empowered to award damages in excess of compensatory damages, and each party
hereby waives any damages in excess of compensatory damages. The arbitrator
shall be empowered to impose the costs (including, but not limited to, the fees
of the arbitrator and the fees and expenses of counsel) upon the non-prevailing
party or as the arbitrator may otherwise determine.
-62-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
ELLENSBURG TELEPHONE COMPANY
By:_______________________________
George F. Kachlein III
President and Chairman
MJD VENTURES, INC.
By:_______________________________
Eugene B. Johnson
Senior Vice-President
ELLENSBURG ACQUISITION CORP.
By:______________________________
Eugene B. Johnson
Senior Vice President
FOR PURPOSES OF SECTION 9.4 ONLY:
_________________________________
George F. Kachlein III
Shareholder Representative
-63-
<PAGE>
EXHIBIT A
ARTICLES OF MERGER
OF
ELLENSBURG ACQUISITION CORP.
INTO
ELLENSBURG TELEPHONE COMPANY
PURSUANT TO SECTION 23B.11.050 OF
THE WASHINGTON BUSINESS CORPORATION ACT
************************************************************
THE UNDERSIGNED CORPORATION, organized and existing under and by
virtue of the Washington business corporation act does hereby certify that:
1. The name, state of incorporation and date of filing of the
articles of incorporation of each of the constituent corporations of the merger
are as follows:
<TABLE>
<CAPTION>
Date
Articles Filed
State of with the
Name Incorporation State
---- ------------- -----
<S> <C> <C>
Ellensburg Washington _________, ____
Acquisition Corp.
Ellensburg Telephone Washington _________, ____
Company
</TABLE>
2. An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by unanimous written consent of the
respective Board of Directors of each of the aforesaid constituent corporations
in accordance with the requirements of Section 23B.11.030 of the Washington
business corporation act.
3. The name of the surviving corporation of the merger is Ellensburg
Telephone Company, which will continue its existence as said surviving
corporation under its present name upon the effective date of said merger
pursuant to the provisions of the Washington business corporation act.
<PAGE>
4. The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is attached hereto as Exhibit 1.
5. The Agreement and Plan of Merger was duly approved by the
shareholders of each of the constituent corporations in accordance with Section
11.030 of the Washington business corporation act.
6. A copy of the Agreement and Plan of Merger will be furnished by
the surviving corporation, on request and without cost, to any Shareholder of
any constituent corporation.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned has subscribed this certificate on
the date set forth below and hereby affirms that the statements contained herein
are true and correct.
________________, 199_
ELLENSBURG TELEPHONE
COMPANY
By:___________________________
Name: _______________________
Title: _______________________
ATTESTED TO:
By:___________________________
Name: _______________________
Title: _______________________
-3-
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
<PAGE>
EXHIBIT C
LETTER RE: TELEPHONE BENEFITS
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. THE MERGER.......................................................................... 1
1.1 Surviving Corporation............................................................... 1
1.2 Articles of Incorporation........................................................... 1
1.3 Bylaws.............................................................................. 2
1.4 Directors........................................................................... 2
1.5 Officers............................................................................ 2
1.6 Effective Date...................................................................... 2
1.7 Additional Actions.................................................................. 2
1.8 Conversion of Company Common Stock.................................................. 3
1.9 Conversion of Acquisition Sub Common Stock.......................................... 3
1.10 [Intentionally Omitted.............................................................. 3
1.11 Surrender of Shares................................................................. 4
1.12 Escrow Fund......................................................................... 5
1.13 Adjustments......................................................................... 5
SECTION 2. REPRESENTATIONS AND WARRANTIES...................................................... 9
2.1 Organization and Corporate Power.................................................... 9
2.2 Authorization and No Contravention.................................................. 10
2.3 Capitalization; Shareholders; Subsidiaries.......................................... 10
2.4 Financial Statements................................................................ 11
2.5 Business; Franchises and Regulations................................................ 12
2.6 Tariffs; FCC Licenses............................................................... 13
2.7 Rate Base........................................................................... 13
2.8 Overbillings; Refunds............................................................... 14
2.9 Capital Improvements Required by State
Authorities......................................................................... 14
2.10 Compliance with Law................................................................. 14
2.11 Absence of Undisclosed Liabilities.................................................. 14
2.12 Absence of Certain Developments..................................................... 15
2.13 Title to Properties................................................................. 15
2.14 Tax Matters......................................................................... 16
2.15 Insurance........................................................................... 18
2.16 Contracts and Commitments........................................................... 19
2.17 Litigation.......................................................................... 19
2.18 Environmental Matters............................................................... 20
2.19 Investment Company.................................................................. 21
2.20 Employee Benefit Programs........................................................... 21
2.21 Brokers or Finders.................................................................. 24
2.22 Corporate Records................................................................... 24
2.23 Books of Account.................................................................... 25
2.24 Certain Employment Matters.......................................................... 25
2.25 Voting Agreements................................................................... 26
2.26 No Material Misstatement or Omission................................................ 26
2.27 1998 Budgets........................................................................ 27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT........................................... 27
3.1 Organization and Corporate Power................................................... 27
3.2 Authorization and No Contravention................................................. 27
3.3 Brokers or Finders................................................................. 28
SECTION 4. REPRESENTATIONS AND WARRANTIES OF ACQUISITION
SUB................................................................................ 28
4.1 Organization and Corporate Power................................................... 28
4.2 Authorization and No Contravention................................................. 29
4.3 Capitalization..................................................................... 29
4.4 Brokers or Finders................................................................. 29
SECTION 5. PARENT'S AND ACQUISITION SUB'S CONDITIONS OF
MERGER............................................................................. 30
5.1 Certificate........................................................................ 30
5.2 Delivery of Documents.............................................................. 30
5.3 Opinion of Company's Counsel....................................................... 31
5.4 Opinion of Special WUTC Counsel.................................................... 31
5.5 Opinion of Special FCC Counsel..................................................... 31
5.6 Compliance with Agreements......................................................... 31
5.7 All Proceedings Satisfactory....................................................... 31
5.8 Directors and Officers............................................................. 31
5.9 Regulatory Matters................................................................. 32
5.10 Litigation......................................................................... 32
5.11 Adverse Changes.................................................................... 32
5.12 Dissenting Shareholders............................................................ 33
5.13 Special Meeting.................................................................... 33
5.15 Stock Certificates................................................................. 37
SECTION 6. COMPANY'S CONDITIONS OF MERGER..................................................... 37
6.1 Certificate........................................................................ 37
6.2 Compliance with Agreements......................................................... 37
6.3 All Proceedings Satisfactory....................................................... 37
6.4 Regulatory Matters................................................................. 38
6.5 Litigation......................................................................... 38
6.6 Delivery of Documents.............................................................. 38
6.7 Opinion of Parent's Counsel........................................................ 39
SECTION 7. COVENANTS.......................................................................... 39
7.1 Regular Course of Business......................................................... 39
7.2 Amendments; Sales and Acquisitions................................................. 40
7.3 Capital Changes.................................................................... 40
7.4 Dividends.......................................................................... 41
7.5 Capital Expenditures............................................................... 41
7.6 Borrowing.......................................................................... 41
7.7 Property........................................................................... 41
7.8 Other Commitments.................................................................. 41
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.9 Interim Financial Information....................................................... 41
7.10 Consents and Authorizations......................................................... 41
7.11 Access.............................................................................. 42
7.12 Notice of Transfer.................................................................. 42
7.13 Payment of Tax...................................................................... 42
7.14 Agreement to Defend................................................................. 42
7.15 1998 Budgets........................................................................ 43
7.16 Further Assurances.................................................................. 43
7.17 Consents............................................................................ 43
7.18 No Solicitation or Negotiation...................................................... 43
7.19 Public Announcements................................................................ 45
7.20 Environmental Inspections........................................................... 46
7.21 Regulatory Matters.................................................................. 46
7.22 Indemnification and Insurance....................................................... 46
7.23 Employees; Other Benefits........................................................... 47
7.24 Payment of Regulatory Fees.......................................................... 47
7.25 Shareholder Approval................................................................ 47
7.26 Financing........................................................................... 48
SECTION 8. CLOSING............................................................................. 48
8.1 Time and Place...................................................................... 48
SECTION 9. INDEMNIFICATION OF PARENT AND ACQUISITION SUB....................................... 49
9.1 Survival............................................................................ 49
9.2 Indemnification..................................................................... 49
9.3 Notice of Claims.................................................................... 50
9.4 Method of Indemnification........................................................... 50
9.5 Defense of Third-Party Claims....................................................... 51
SECTION 10. DEFINITIONS......................................................................... 52
SECTION 11. GENERAL............................................................................. 56
11.1 Termination......................................................................... 56
11.2 Effect of Termination............................................................... 58
11.3 AMENDMENTS, WAIVERS AND CONSENTS.................................................... 59
11.4 GOVERNING LAW; CONSENT TO JURISDICTION.............................................. 59
11.5 Section Headings.................................................................... 59
11.6 Notices and Demands................................................................. 59
11.7 Counterparts........................................................................ 60
11.8 Severability; Complete Agreement.................................................... 60
11.9 Expenses............................................................................ 61
11.10 Assignment.......................................................................... 61
11.11 Accounting Terms.................................................................... 61
11.12 Parties............................................................................. 61
11.13 Liability of the Shareholder Representative......................................... 62
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.14 JURY WAIVER......................................................................... 62
11.15 Schedules........................................................................... 62
11.16 Dispute Resolution.................................................................. 62
</TABLE>
-iv-
<PAGE>
EXHIBIT 10.26
AGREEMENT AND PLAN OF MERGER
Dated as of
March 12, 1998
By and among
MJD COMMUNICATIONS, INC.
CHOUTEAU ACQUISITION CORP.,
CHOUTEAU TELEPHONE COMPANY
AND
CERTAIN SHAREHOLDERS OF
CHOUTEAU TELEPHONE COMPANY
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT made as of this 12th day of March, 1998 by and among
CHOUTEAU TELEPHONE COMPANY, an Oklahoma corporation (the "COMPANY"), MJD
COMMUNICATIONS, INC., a Delaware corporation ("PARENT"), CHOUTEAU ACQUISITION
CORP., an Oklahoma corporation ("ACQUISITION SUB") and Robert J. Tutty and
Patricia J. Bates (the "PRINCIPAL SELLING SHAREHOLDERS").
WITNESSETH
WHEREAS, the respective Boards of Directors of Parent, Acquisition Sub
and the Company have approved the merger of Acquisition Sub with and into the
Company (the "MERGER"), upon the terms and subject to the conditions set forth
herein and in the certificate of merger annexed as EXHIBIT A (the "CERTIFICATE
OF MERGER"), as a result of which Acquisition Sub will be merged with and into
the Company and the shareholders of the Company (other than shareholders who
perfect appraisal rights) (the "SELLING SHAREHOLDERS") will be entitled to
receive the consideration provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and of the representations, warranties, covenants and
agreements hereinafter contained, Parent, Acquisition Sub and the Company agree
as follows:
SECTION 1. THE MERGER
----------
1.1 Surviving Corporation. In accordance with the provisions of
---------------------
this Agreement, the Certificate of Merger and the General Corporation Act of the
State of Oklahoma ("OGCA"), at the Effective Date (as defined in Section 1.6),
Acquisition Sub shall be merged with and into the Company, and the Company shall
be the surviving corporation in the Merger (hereinafter sometimes called the
"SURVIVING CORPORATION"). At the Effective Date, the separate existence of
Acquisition Sub shall cease.
1.2 Certificate of Incorporation. As of the Effective Date, the
----------------------------
Certificate of Incorporation of the Company immediately prior to the Effective
Date shall be the Certificate of Incorporation of the Surviving Corporation,
<PAGE>
until thereafter amended as otherwise provided by law or in such Certificate of
Incorporation.
1.3 By-laws. The By-laws of the Company as in effect at the
-------
Effective Date shall be the By-laws of the Surviving Corporation, until
thereafter amended or repealed as provided by law.
1.4 Directors. The directors of Acquisition Sub at the Effective
---------
Date (whose names are set forth on SCHEDULE 1.4) shall, from and after the
Effective Date, be the directors of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and By-laws of the Surviving Corporation, or as otherwise provided
by law.
1.5 Officers. The officers of Acquisition Sub at the Effective
--------
Date (whose names are set forth on SCHEDULE 1.4) shall, from and after the
Effective Date, be the officers of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and By-laws of the Surviving Corporation, or as otherwise provided
by law.
1.6 Effective Date. The Merger shall become effective at the time
--------------
of filing of the Certificate of Merger with the Secretary of State of the State
of Oklahoma in accordance with Section 1081 of the OGCA. The Certificate of
Merger shall be filed with the Secretary of State of the State of Oklahoma on
the Closing Date (as defined in Section 8.1 hereof). The date when the Merger
becomes effective is herein referred to as the "EFFECTIVE DATE".
1.7 Additional Actions. If, at any time after the Effective Date,
------------------
the Surviving Corporation determines that any deeds, bills of sale, assignments,
assurances or any other acts or things are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, its
right, title or interest in, to or under any of the rights, properties or assets
of the Company or its Subsidiaries acquired or to be acquired by reason of, or
as a result of, the Merger, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors shall
be authorized to execute and deliver, in the name and on behalf of the Company
and its Subsidiaries, all such deeds, bills of sale, assignments and assurances
and to do, in the name and on behalf
-2-
<PAGE>
of the Company and its Subsidiaries, all such other acts and things necessary or
desirable to vest, perfect or confirm any and all right, title or interest in,
to or under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out the purposes of this Agreement.
1.8 Conversion of Company Common Stock.
----------------------------------
(a) Each share of the Company's voting common stock, par value
$1.00 per share (the "VOTING COMMON STOCK")and nonvoting common stock, par value
$1.00 per share(the "NONVOTING COMMON STOCK" and together with the Voting Common
Stock, the "COMPANY COMMON STOCK"), actually issued and outstanding at the
Effective Date (except for Dissenting Shares, as defined in Section 1.10) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive from Parent consideration,
payable as set forth on SCHEDULE 1.8 hereto (the "MERGER CONSIDERATION"). The
Merger Consideration consists of $11,550,000 in cash and $7,000,000 in 7% seven-
year notes (the "NOTES"). The Notes will be issued in the form attached hereto
as EXHIBIT B.
(b) Any share of Company Common Stock or other equity security
of the Company held by Parent or in the Company's treasury at the Effective Date
shall, by virtue of the Merger, be canceled without payment of any consideration
therefor and without any conversion thereof.
1.9 Conversion of Acquisition Sub Common Stock. Each share of
------------------------------------------
common stock, par value $.01 per share, of Acquisition Sub (the "ACQUISITION SUB
COMMON STOCK") issued and outstanding at the Effective Date shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for one fully paid and nonassessable share of
voting common stock, par value $1.00 per share, of the Surviving Corporation
(the "SURVIVING CORPORATION COMMON STOCK"). From and after the Effective Date,
each outstanding certificate theretofore representing shares of Acquisition Sub
Common Stock shall be deemed for all purposes to evidence ownership of, and to
represent the number of shares of, Surviving Corporation Common Stock into which
such shares of Acquisition Sub Common Stock shall have been converted.
1.10 Dissenting Shares.
-----------------
-3-
<PAGE>
(a) Notwithstanding anything in this Agreement to the contrary,
shares of Company Common Stock issued and outstanding on the Effective Date
which are held of record by shareholders who shall not have voted such shares in
favor of the Merger and who shall have properly exercised rights to demand
payment of the fair value of such shares in accordance with Section 1091 of the
OGCA ("DISSENTING SHARES") shall not be converted into the right to receive any
portion of the Merger Consideration specified in Section 1.8, but the holders
thereof instead shall be entitled to payment of the fair value of such shares in
accordance with the provisions of 1091 of the OGCA (the "DISSENTING
CONSIDERATION"); provided, however, that (i) if such a holder fails to file a
-------- -------
notice of election to dissent in accordance with Section 1091 of the OGCA or,
after filing such notice of election, subsequently delivers an effective written
withdrawal of such notice or fails to establish his entitlement to appraisal
rights as provided in Section 1091 of the OGCA, if he or she be so required, or
(ii) if a court shall determine that such holder is not entitled to receive
payment for his shares or such holder shall otherwise lose his or her appraisal
rights, then in either of such cases, each share of Company Common Stock held of
record by such holder or holders shall automatically be converted into and
represent only the right to receive the portion of the Merger Consideration
indicated on SCHEDULE 1.8, upon the surrender of the certificate or certificates
representing such Dissenting Shares. The Company shall give Parent prompt
notice of any demands received by the Company for payment of the fair value of
such shares, and Parent shall have the right to participate in all the
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment (except
to the extent that any such payment is made pursuant to a court order) with
respect to, or settle or offer to settle, any such demands.
(b) To the extent any shareholder exercises its rights pursuant
to this Section 1.10, and as a result of such exercise such shareholder is to
receive consideration in addition to the Merger Consideration set forth on
SCHEDULE 1.8, any and all such additional consideration shall be paid to such
shareholder by the Principal Selling Shareholders and none of Parent,
Acquisition Sub or the Company shall have any liability therefor.
-4-
<PAGE>
1.11 Surrender of Shares.
-------------------
(a) Subject to Section 1.11(b), at the Closing, Parent shall
deliver the Merger Consideration to the Principal Selling Shareholders.
(b) Upon surrender to Parent of a certificate representing each
of the shares of Company Common Stock (each, a "CERTIFICATE") or an affidavit of
loss stating that the holder of the Certificate has lost such Certificate,
together with an indemnity agreement providing for indemnification of the
Company, Parent and Surviving Corporation for any loss, damage or other expense
resulting from a third party having a claim to such Certificate or the shares of
stock underlying such Certificate ("AFFIDAVIT"), the holder of such Certificate
or Affidavit shall be entitled to receive in exchange for each share of Company
Common Stock represented by such Certificate or subject to the Affidavit, as the
case may be, the portion of the Merger Consideration indicated on SCHEDULE 1.8,
and such Certificate shall forthwith be canceled (if a Certificate is presented)
and the records of the Company shall be modified accordingly upon receipt by the
holder of such Certificate or Affidavit, as the case may be, of the indicated
portion of the Merger Consideration; such surrender of Certificates and
Affidavits to Parent shall be made at Closing by the Principal Selling
Shareholders. No interest will be paid or accrued on any portion of the Merger
Consideration payable upon the surrender of such Certificates or Affidavit.
(c) If payment is to be made to a person other than the person
in whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition of payment of the Merger Consideration that the Certificate
so surrendered be properly endorsed or accompanied by appropriate stock powers,
in either case signed exactly as the name of the record holder appears on such
Certificate, with signature guaranteed, and is otherwise in proper form for
transfer, and that the Person requesting such payment shall pay any transfer or
other taxes required by law as a result of such payment to a Person other than
the record holder of the Certificate surrendered, or shall establish to Parent's
satisfaction that such tax has been paid or is not applicable.
(d) After the Effective Date, there shall be no further
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company Common Stock which are outstanding at the Effective Date. The
-5-
<PAGE>
consideration payable upon the surrender for exchange of Certificates in
accordance with the terms of this Section 1 shall be deemed to have been paid in
full satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such Certificates. If, after the Effective Date,
Certificates are presented to the Surviving Corporation for transfer, they shall
be canceled and there shall be issued to the transferee in exchange for each
share of Company Common Stock the portion of the Merger Consideration indicated
on SCHEDULE 1.8.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
---------------------------------------------------------------
SELLING SHAREHOLDERS
--------------------
The Company and the Principal Selling Shareholders hereby represent
and warrant to Parent and Acquisition Sub as follows:
2.1 Organization and Corporate Power. Each of the Company and its
--------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation as specified in SCHEDULE
2.1 attached hereto, (b) except as provided in SCHEDULE 2.1, is qualified to do
business as a foreign corporation in each jurisdiction in which such
qualification is required, except where failure to so qualify would not have a
material adverse effect on the Company and its Subsidiaries, taken as a whole,
and (c) has all required corporate power and authority to own its property and
to carry on its business as presently conducted or contemplated. Subject to the
receipt of required OCC and FCC approvals (if any are required), each of the
Company and its Subsidiaries has all required corporate power and authority to
enter into and perform this Agreement and the Related Documents, and generally
to carry out the transactions contemplated hereby and by the Related Documents.
The copies of the charter and by-laws of the Company and each of its
Subsidiaries, as amended to date, which have been furnished to counsel for
Parent are correct and complete at the date hereof. Except as provided in
SCHEDULE 2.1, neither the Company nor any of its Subsidiaries is in violation of
any term of its charter or by-laws, or any agreement, instrument, judgment,
decree, order, statute, rule or government regulation applicable to it, which
such violation could have a material adverse effect on the Company and its
Subsidiaries, taken as a whole.
-6-
<PAGE>
2.2 Authorization and No Contravention. Subject to the receipt of
----------------------------------
the approval of the Company's shareholders in accordance with Section 1081 of
Oklahoma Corporation Act, the execution and delivery of, and performance by the
Company of its obligations under, this Agreement and the Related Documents have
been duly authorized by all corporate action of the Company, and except as may
otherwise be specifically provided in this Agreement, and subject to the receipt
of the approval of the Company's shareholders, each of this Agreement and the
Related Documents constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and general principles of equity and
the availability of equitable remedies. The Company's execution and delivery of
this Agreement and the Related Documents, and its respective performance of the
transactions contemplated hereby and thereby, will not: (i) except as set forth
on SCHEDULE 2.2, violate, conflict with or result in a default under any
contract, instrument, agreement, indenture, obligation or commitment to which
the Company or any of its Subsidiaries is a party or by which it or its assets
are bound, or any charter provision or by-law of the Company or any of its
Subsidiaries, or the creation of any lien, charge or encumbrance of any nature
upon any of the properties or assets of the Company or any of its Subsidiaries;
(ii) violate or result in a violation of, or constitute a default under, any
provision of any law, statute, ordinance, regulation or rule, or any decree,
judgment or order of, or any restriction imposed by, any court or other federal,
state or local governmental agency; or (iii) except as set forth on SCHEDULE
2.2, require any notice to, filing with, or consent or approval of any
governmental authority or other third party. In addition, the allocation of the
Merger Consideration as set forth on SCHEDULE 1.8 is not inconsistent with any
agreement to which any of the Company, any of its Subsidiaries or any of the
Selling Shareholders is a party.
2.3 Capitalization; Shareholders; Subsidiaries. The authorized and
------------------------------------------
issued capital stock of the Company and each of its Subsidiaries is as set forth
in SCHEDULE 2.3. All of the presently issued shares of capital stock of the
Company and each of its Subsidiaries have been duly and validly authorized and
issued in accordance, in all material respects, with all applicable federal and
state securities
-7-
<PAGE>
laws and are fully paid and non-assessable. Neither the Company nor any of its
Subsidiaries has issued any other shares of its capital stock and there are no
outstanding warrants, options or other rights to purchase or acquire any of such
shares, nor any outstanding securities convertible into such shares or
outstanding warrants, options or other rights to acquire any such convertible
securities. There are no preemptive rights with respect to the issuance or sale
by the Company, or any of its Subsidiaries of the Company's or such Subsidiary's
capital stock. Except as disclosed in SCHEDULE 2.3, there are no restrictions on
the transfer of the Company's capital stock other than those arising from
federal and state securities laws or under this Agreement. The outstanding
shares of capital stock of the Company and its Subsidiaries are held of record
by the persons identified in SCHEDULE 2.3 in the amounts indicated therein.
Except as set forth in SCHEDULE 2.3, the Company has no Subsidiaries and neither
the Company nor any of its Subsidiaries has any investments in, or loans or
advances to, any other corporation, trust, partnership or business entity and is
not a party to any joint venture. All of the outstanding capital stock of each
of the Company's subsidiaries is owned directly or indirectly by the Company
free and clear of all liens of any nature.
2.4 Financial Statements. Attached hereto as SCHEDULE 2.4 are the
--------------------
Company's (i) consolidated and consolidating audited statements of income, cash
flows and shareholders' equity and the related balance sheets for the fiscal
years ended December 31, 1994, December 31, 1995 and December 31, 1996 and (ii)
consolidated and consolidating unaudited statements of income, cash flows and
shareholders' equity and the related balance sheet for the fiscal year ended
December 31, 1997 (the December 31, 1997 balance sheet is herein referred to as
the "COMPANY BALANCE SHEET"). Except as set forth in the Company Balance Sheet,
neither the Company nor any of its Subsidiaries has any material contingent
obligations, liabilities or material forward or long-term commitments. The
foregoing financial statements have been prepared (i) to the extent required, in
accordance with the rules and regulations of the OCC and the FCC and (ii) in
accordance with generally accepted accounting principles applied on a consistent
basis. All of such financial statements fairly present the financial condition
and results of operations of the Company and its Subsidiaries as of the date
thereof, and are true and correct as of the date thereof in all material
respects. No event has occurred since such dates which would cause such
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<PAGE>
financial statements not to be true and correct in all material respects as of
the date thereof.
2.5 Business; Franchises and Regulations. Except as set forth in
------------------------------------
SCHEDULE 2.5, the Company and each of its Subsidiaries has ownership of and/or
the right to use (i) all franchises, permits, licenses (other than FCC Licenses)
required by applicable law or regulation, and (ii) all patent, copyright,
trademark, or other rights and privileges, in the case of both (i) and (ii) used
or useful in their respective businesses as presently conducted or contemplated
to be conducted or required or necessary to permit it to own its properties and
to conduct its business as presently conducted or contemplated to be conducted
and neither their present nor contemplated activities infringe any such patent,
copyright, trademark or other proprietary rights of others. SCHEDULE 2.5
correctly sets forth all of the franchises, authorizations, permits and licenses
(other than FCC Licenses) which are held by the Company and its Subsidiaries
(the "COMPANY FRANCHISES") and correctly sets forth the issuer and termination
date of each Company Franchise. Each Company Franchise was duly and validly
issued by the issuer thereof pursuant to procedures which complied with all
requirements of applicable law. Each Company Franchise or other right held by
the Company or any of its Subsidiaries is in full force and effect, free of any
lien, charge or encumbrance of any nature, and the Company and each of its
Subsidiaries are in compliance with the terms thereof with no known conflict
with the valid rights of others which could affect or impair in any manner the
business, assets or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole to any material extent except as set forth in
SCHEDULE 2.5. No event has occurred which permits, or after notice or lapse of
time or both would permit, the revocation or termination of any Company
Franchise so as to adversely affect in any manner the business or assets or
condition, financial or otherwise, of the Company and its Subsidiaries, taken as
a whole, to any material extent except as set forth in SCHEDULE 2.5.
Except as described on SCHEDULE 2.10, the Company has timely and
properly made all filings and reports required by the OCC, the FCC and all other
regulatory entities having jurisdiction over the Company.
-9-
<PAGE>
2.6 Tariffs: FCC Licenses.
---------------------
(a) The regulatory tariffs applicable to the Company and its
Subsidiaries stand in full force and effect in accordance with their terms, and
there is no outstanding notice of cancellation or termination or, to the
Company's knowledge, any threatened cancellation or termination in connection
therewith. Except as otherwise disclosed on SCHEDULE 2.6(A), neither the
Company nor any of its Subsidiaries is subject to any restrictions or conditions
applicable to its regulatory tariffs that limit or would limit the operations of
the Company or any of its Subsidiaries (other than restrictions or conditions
generally applicable to tariffs of that type or which would not have a material
adverse effect on the Company or any of its Subsidiaries). Each such tariff has
been duly and validly approved by the appropriate regulatory agency. Except as
otherwise disclosed on SCHEDULE 2.6(A), neither the Company nor any of its
Subsidiaries is in material violation under the terms and conditions of any such
tariff, and there is no basis for any claim of material violation by the Company
or any of its Subsidiaries under any such tariff. There are no applications by
the Company or any of its Subsidiaries, nor any complaints or petitions by
others, or proceedings pending or threatened, before the OCC relating to the
Company or any of its Subsidiaries, or their respective operations or regulatory
tariffs. To the knowledge of the Company, there are no material violations by
subscribers or others under any such tariff. A true and correct copy of each
tariff applicable to the Company or any of its Subsidiaries has been made
available to Parent.
(b) Listed on SCHEDULE 2.6(B) are the FCC Licenses held by the
Company or any of its Subsidiaries. Except as disclosed on SCHEDULE 2.6(B), each
such FCC License is valid and in full force and effect in accordance with its
terms, and there is no outstanding notice of cancellation or termination or, to
the Company's knowledge, any threatened cancellation or termination in
connection therewith nor are any of such FCC Licenses subject to any
restrictions or conditions that limit the operations of the Company or any of
its Subsidiaries (other than restrictions or conditions generally applicable to
licenses of that type).
2.7 Rate Base. Neither the Company nor any of its Subsidiaries has
---------
any material amount of inventory, plant or equipment that has been disallowed
from rate base or excluded from the revenue calculations for any pool, and
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<PAGE>
neither the Company nor any of its Subsidiaries has received notification that
the FCC or any state regulatory authority or pool administrator proposes to
exclude any material assets from rate base or revenue calculations for the
pools.
2.8 Overbillings; Refunds. Except as set forth on SCHEDULE 2.8,
---------------------
neither the Company nor any of its Subsidiaries has any liabilities for any
customer overbillings or prospective refunds of overearnings.
2.9 Capital Improvements Required by State Authorities. Except as
--------------------------------------------------
set forth on SCHEDULE 2.9, neither the Company nor any of its Subsidiaries is
required by any state regulatory body to make any changes, upgrades or
enhancements with respect to its physical plant and neither the Company nor any
of its Subsidiaries has reason to believe that any such changes, upgrades or
enhancements will be so required in the foreseeable future.
2.10 Compliance with Law. Except as set forth in SCHEDULE 2.10,
-------------------
neither the Company nor any of its Subsidiaries is in violation of any statute,
law, ordinance, regulation, rule or order of any foreign, federal, state or
local government or any governmental department or agency (including without
limitation, the OCC and the FCC), or any judgment, decree or order of any court,
applicable to its business or operations except where any such violation would
not have a material adverse effect on the Company and its Subsidiaries, taken as
a whole; and the conduct of the Company's and each of its Subsidiaries'
respective businesses is in conformity with all federal, state and local energy,
public utility, health, workplace or worker safety and health, including but
limited to OSHA, and environmental requirements and all other federal, state and
local governmental regulatory requirements (including, without limitation,
requirements of the OCC and the FCC) except where any such non-conformity
individually or in the aggregate, and taking into account the passage of time
and accumulation of penalties and other obligations, would not have a material
adverse effect on the Company or any of its Subsidiaries. The Company and its
Subsidiaries have all permits, licenses and franchises from, and have made all
necessary filings with, all governmental agencies, including the OCC and the
FCC, required to conduct their businesses as now being conducted.
2.11 Absence of Undisclosed Liabilities. Except as specifically
----------------------------------
disclosed in SCHEDULE 2.11 or the Company Balance Sheet, neither the Company nor
any of its
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<PAGE>
Subsidiaries has any accrued or contingent material liability or liabilities
arising out of any transaction or state of facts existing prior to the date
hereof, accrued, to become due, contingent, or otherwise.
2.12 Absence of Certain Developments. Except as specifically
-------------------------------
disclosed in SCHEDULE 2.12, since December 31, 1996 there has been (i) no
material adverse change in the assets, liabilities, properties, business,
prospects or condition (financial or otherwise) of the Company or any of its
Subsidiaries, (ii) no declaration, setting aside or payment of any dividend or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of the Company or any of its
Subsidiaries, (iii) no waiver of any valuable right of the Company or any of its
Subsidiaries or the cancellation of any debt or claim held by the Company or any
of its Subsidiaries, (iv) no loan by the Company or any of its Subsidiaries to
any officer, director, employee or shareholder of the Company or any of its
Subsidiaries, or any agreement or commitment therefor, (v) other than pursuant
to the current contractual obligations set forth on SCHEDULE 2.12 or as
otherwise set forth on SCHEDULE 2.12, no increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee or agent of the
Company or any of its Subsidiaries, (vi) no material loss, destruction or damage
to any property of the Company or any of its Subsidiaries, whether or not
insured, (vii) no strikes, work stoppages, union organizing or recognition
efforts involving the Company or any of its Subsidiaries and no material change
in the personnel of the Company or any of its Subsidiaries or the terms and
conditions of any employment contracts to which any of them are parties, (viii)
no investment by the Company in any equity interest of any person or any change
in any such investment held by the Company as of December 31, 1996, and (ix) no
acquisition or disposition of any material assets (or any contract or
arrangement therefor) nor any other transaction by the Company or any of its
Subsidiaries otherwise than in the ordinary course of business.
2.13 Title to Properties.
-------------------
(a) Except as specifically disclosed on SCHEDULE 2.13, the
Company and each of its Subsidiaries has good and marketable title to all of its
properties and assets, free and clear of all mortgages, liens, restrictions or
encumbrances, except in such cases as would not have a material adverse effect
on the use of such properties or
-12-
<PAGE>
assets by the Company. All owned or leased real estate of the Company and its
Subsidiaries is listed on SCHEDULE 2.13. A true copy of each lease to which the
Company or any of its Subsidiaries is a party, is listed on SCHEDULE 2.13 and
has been delivered by the Company to Parent, is in full force and effect and
affords the Company or the Subsidiary, as the case may be, peaceful and
undisturbed possession of the subject matter of such lease. No material default
or event of default on the part of the Company or any of its Subsidiaries or on
the part of the lessor, exists under any lease, and neither the Company nor any
of its Subsidiaries has received any notice of default under any such lease or
any indication that the owner of the leased property intends to terminate such
lease. Except as specifically disclosed on SCHEDULE 2.13, the Company holds all
easements, rights-of-way and other rights (collectively, "EASEMENTS") necessary
to own, operate and maintain its physical plant (including all telephone lines)
and the Company is not in breach of, or default under, any such Easement and
there are not any materially burdensome limitations or obligations on the
Company under any such Easement. All material Easements held by the Company are
listed on SCHEDULE 2.13. Each Easement held by the Company is valid, binding and
enforceable in favor of the Company and no party is in violation of such
Easement.
(b) Neither the Company nor any of its Subsidiaries is in
violation of any zoning, land-use, building or safety law, ordinance, regulation
or requirement or other law or regulation applicable to the operation of its
owned or leased properties, nor has it received any notice of violation with
which it has not complied, in any case in which the consequences of such
violation if asserted by the applicable regulatory authority would be materially
adverse with respect to the Company or such Subsidiary. All real property
occupied pursuant to leases, and substantially all tangible personal property
owned or leased by the Company and its Subsidiaries taken as a whole and
required for the purpose of carrying on its business and operations, is in good
operating condition and repair, reasonable wear and tear excepted, and no
material portion of any such real or personal property has suffered any damage
by fire or other casualty which has not heretofore been completely repaired and
restored to its original condition if and to the extent necessary or useful in
the continued operation of its business.
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<PAGE>
2.14 Tax Matters.
-----------
(a) Each of the Company and its Subsidiaries has filed all Tax
reports and returns that it was required to file. All such reports and returns
were correct and complete in all respects. All Taxes owed by any of the Company
and its Subsidiaries (whether or not shown on any report or return) have been
paid. Except as disclosed on SCHEDULE 2.14, none of the Company or its
Subsidiaries currently is the beneficiary of any extension of time within which
to file any report or return. Except as disclosed on SCHEDULE 2.14, no claim has
ever been made by an authority in a jurisdiction where any of the Company or its
Subsidiaries does not file reports and returns that it is or may be subject to
taxation by that jurisdiction. There are no security interests on any of the
assets of the Company and its Subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Tax.
(b) Except as disclosed in SCHEDULE 2.14, each of the Company
and its Subsidiaries has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, Shareholder or other third party.
(c) There is reasonable basis to believe that no authority will
assess any additional Taxes for any period for which returns have been filed.
Except as disclosed in SCHEDULE 2.14, there is no dispute or claim concerning
any Tax liability of any of the Company or its Subsidiaries either (i) claimed
or raised by any authority in writing or (ii) as to which any of the directors
and officers (and employees responsible for Tax matters) of the Company and its
Subsidiaries has knowledge based upon personal contact with any agent of such
authority. All federal, state, local, and foreign income tax returns filed with
respect to the Company and/or any of the Subsidiaries for taxable periods ended
on or after December 31, 1994, December 31, 1995 and December 31, 1996 are set
forth on SCHEDULE 2.14, and SCHEDULE 2.14 indicates those returns that have been
audited or currently are the subject of an audit. The Company has delivered to
the Parent correct and complete copies of all federal income Tax returns,
examination reports and statements of deficiencies assessed against or agreed to
by any of the Company and its Subsidiaries since December 31, 1994.
-14-
<PAGE>
(d) None of the Company and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency. Neither the Company nor any of
its Subsidiaries has entered into a closing agreement pursuant to Section 7121
of the Internal Revenue Code of 1986, as amended (the "CODE").
(e) The unpaid Taxes of the Company and its Subsidiaries (i)
did not, as of December 31, 1996 exceed the reserve for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Company's December 31,
1996 balance sheet (rather than in any notes thereto) and (ii) do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and its Subsidiaries
in filing their Tax returns.
(f) None of the Company and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations. None of
the Company and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code Section
280G. None of the Company and its Subsidiaries has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). Each of the
Company and its Subsidiaries has disclosed on its federal income Tax returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. None of the Company
and its Subsidiaries is a party to any Tax allocation or sharing agreement. None
of the Company and its Subsidiaries (i) has been a member of an Affiliated Group
filing a consolidated federal income Tax return (other than a group the common
parent of which was the Company) or (ii) has any liability for the Taxes of any
Person (other than any of the Company and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(g) SCHEDULE 2.14 sets forth the following information with
respect to each of the Company and its Subsidiaries as of the most recent
practicable date: (i) the basis of the Company and its Subsidiaries in their
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<PAGE>
respective assets; (ii) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company or any of its Subsidiaries and (iii) the
amount of any deferred gain or loss allocable to the Company or any of its
Subsidiaries arising out of any Deferred Intercompany Transaction.
2.15 Insurance. The Company has in force all policies of insurance
---------
described in SCHEDULE 2.15, in the amounts and covering the risks described
therein. Neither the Company nor any of its Subsidiaries has ever been refused
any insurance coverage for which it has applied.
2.16 Contracts and Commitments. Except as set forth in SCHEDULE
-------------------------
2.16, neither the Company nor any of its Subsidiaries (a) is a party to any
contract, obligation or commitment which involves a potential commitment or
aggregate payments in excess of $5,000, or which is otherwise material and not
entered into in the ordinary course of business, or (b) has any employment
contracts; stock redemption or purchase agreements; financing agreements; or
agreements with officers, directors, employees or shareholders of the Company or
any of its Subsidiaries or persons or organizations related to or affiliated
with any such persons. Except as disclosed in SCHEDULE 2.16, neither the
Company nor any of its Subsidiaries is in default under any contract, obligation
or commitment, and to the best knowledge of the Company, there is no state of
facts which upon notice or lapse of time or both would constitute such a
default, the consequences of which default if asserted by the other contracting
party would be materially adverse with respect to the Company and its
Subsidiaries, taken as a whole. Except as set forth in SCHEDULE 2.16, neither
the Company nor any of its Subsidiaries is a party to any contract or
arrangement which is likely to have a material adverse effect on the assets,
liabilities, properties, business, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole. Neither the
Company nor any of its Subsidiaries has entered into any government contracts or
subcontracts that remain in full force and effect.
2.17 Litigation. Except as set forth in SCHEDULE 2.17, there is no
----------
investigation, action, suit or proceeding at law or in equity or by or before
any governmental instrumentality or other agency (including, without limitation,
the OCC or the FCC) now pending or, to the best knowledge of the Company,
threatened against the
-16-
<PAGE>
Company or any of its Subsidiaries, or, to the best knowledge of the Company,
any director, officer or key employee of the Company or any of its Subsidiaries
which has a reasonable possibility of calling into question the validity, or
hindering the enforceability or performance, of this Agreement or any action
taken or to be taken pursuant hereto or any of the other agreements and
transactions contemplated hereby, or which might, if adversely determined, have
a material adverse effect on the Company and its Subsidiaries, taken as a whole,
or their respective business prospects; nor, to the best knowledge of the
Company, has there occurred any event or does there exist any condition on the
basis of which any such litigation, proceeding or investigation might properly
be instituted.
2.18 Environmental Matters. (a) No hazardous wastes, hazardous
---------------------
substances, or hazardous materials have ever been or are being generated, used,
stored, treated, or otherwise managed on any real property owned or leased by
the Company or any of its Subsidiaries (the "PROPERTIES"), except as set forth
in SCHEDULE 2.18 and in compliance with applicable law and regulations, and then
only in the ordinary course of business as then conducted and only in such
amounts as will not have a material adverse effect on the business, operations,
prospects or assets of the Company or any of its Subsidiaries. Except as set
forth in SCHEDULE 2.18, no hazardous wastes, hazardous substances, hazardous
materials, oil, or petroleum products have ever been, are being, are intended to
be, or are threatened to be spilled, released, discharged, disposed, placed, or
otherwise caused to become located in the soil or water in, under, or upon any
of the Properties by the Company or any of its Subsidiaries, or to the best
knowledge of the Company, any other persons. Except as set forth in SCHEDULE
2.18, no hazardous wastes, hazardous substances, hazardous materials, oil, or
petroleum products which may pose a risk to human health or the environment have
been shipped from any of the Properties for treatment, storage, or disposal at
any other site or facility by the Company or any of its Subsidiaries, or to the
best knowledge of the Company, any other persons. For purposes of this
paragraph and paragraph (b) below, "hazardous wastes", "hazardous substances",
"hazardous materials", "oil", and "petroleum products" shall have the meanings
set forth in the federal Resources Conservation and Recovery Act, the federal
Comprehensive Environmental Response Compensation and Liability Act, the federal
Hazardous Materials Transportation Act, the federal Clean Water Act, and
corresponding state and local laws and ordinances, as such
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<PAGE>
acts, laws, or ordinances may be amended through the date hereof, or as defined
in any federal, state, or local regulation adopted under such acts, laws, or
ordinances.
(b) Except as set forth in SCHEDULE 2.18, the Company and its
Subsidiaries have no liability (contingent or otherwise) under, have never
violated, and are presently in compliance in all respects with all federal,
state, and local environmental laws, regulations, ordinances, and other
requirements including, but not limited to, all laws, regulations, ordinances,
and other requirements relating to the spilling, release, discharge, storage,
treatment, disposal, management, control, and reporting of pollutants,
contaminants, hazardous wastes, hazardous materials, hazardous substances, oil,
petroleum products, and other materials which may pose a risk to human health or
the environment. The Company and each of its Subsidiaries have not disposed or
treated, or sent for disposal or treatment, any solid waste, pollutants,
contaminants, hazardous wastes, hazardous materials, hazardous substances, oil
or petroleum products except as set forth in SCHEDULE 2.18 and to a facility
which possessed a proper permit for the storage and treatment of the material or
waste, and then only in compliance with all applicable legal requirements.
(c) Except as set forth in SCHEDULE 2.18, no circumstances
exist to support any, and the Company and its Subsidiaries have not received,
and have no reason to believe they will receive any: (i) notice of violation of
any federal, state, or local environmental law, regulation, ordinance, or other
requirement; or (ii) notice of any suit, action, claim, liability (contingent or
otherwise), or legal, administrative, or other proceeding concerning
environmental conditions or matters, including but expressly not limited to
notice of responsibility under the federal Comprehensive Environmental Response,
Compensation and Liability Act or any similar state or local law, regulation, or
ordinance.
2.19 Investment Company. Neither the Company nor any of its
------------------
Subsidiaries is an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
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<PAGE>
2.20 Employee Benefit Programs.
-------------------------
(a) SCHEDULE 2.20 sets forth a list of every Employee Program
that has been maintained by the Company and its Subsidiaries at any time during
the past six years.
(b) Each Employee Program which has ever been maintained by the
Company or any of its Subsidiaries and which has been intended to qualify under
Section 401(a) or 501(c)(9) of the Code has received a favorable determination
letter from the Internal Revenue Service ("IRS") regarding its qualification
under such section. Each such Employee Program has, in fact, remained qualified
under the applicable section of the Code from the effective date of the
favorable determination letter for such Employee Program through and including
the date hereof (or, if earlier, the date that all of such Employee Program's
assets were distributed). No event or omission has occurred which would cause
any such Employee Program to lose its qualification under the applicable Code
section.
(c) The Company is in compliance with any laws applicable with
respect to the Employee Programs that have been maintained by the Company or any
of its Subsidiaries. With respect to any Employee Program ever maintained by the
Company, any Subsidiary or any affiliate thereof, there has been no "prohibited
transaction" as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Code Section 4975, or breach of
any duty under ERISA or other applicable law or any agreement which could
subject the Company or any of its Subsidiaries thereof to material liability
either directly or indirectly (including, without limitation, through any
obligation of indemnification or contribution) for any damages, penalties, or
taxes, or any other loss or expense. No litigation or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or, to the best
knowledge of the Company, threatened with respect to any such Employee Program.
(d) Neither the Company, any of its Subsidiaries nor any
affiliate thereof has incurred any liability under Title IV of ERISA which has
not been paid in full prior to the date hereof. There is no "accumulated funding
deficiency" (whether or not waived) with respect to any Employee Program
maintained by the Company or any Subsidiary thereof and subject to Code Section
412 or ERISA
-19-
<PAGE>
Section 302. With respect to any Employee Program maintained by the Company, any
of its Subsidiaries or any affiliate thereof and subject to Title IV of ERISA
there (i) has been no "reportable event," within the meaning of Section 4043 of
ERISA (for which the notice requirement is not waived under 29 C.F.R, Part 2615)
and (ii) no event or condition which presents a material risk of plan
termination. All payments and/or contributions required to have been made (under
the provisions of any agreements or other governing documents or applicable law)
with respect to all Employee Programs maintained by the Company or any of its
Subsidiaries, for all periods prior to the date hereof, either have been made or
have been accrued (and all such unpaid but accrued amounts are described on
SCHEDULE 2.20). Except as described in SCHEDULE 2.20, no Employee Program
maintained by the Company, any of its Subsidiaries or any affiliate thereof and
subject to title IV of ERISA has ever had any "unfunded benefit liabilities"
within the meaning of Section 4001(a)(18) of ERISA, as of the date hereof.
Except as described in SCHEDULE 2.20, none of the Employee Programs maintained
by the Company or any Subsidiary thereof has ever provided or promised health
care or non-pension benefits to former employees (other than as required by Part
6 of subtitle B of title I of ERISA).
(e) With respect to each Employee Program maintained by the Company or
any of its Subsidiaries within the three years preceding the date hereof,
complete and correct copies of the following documents (if applicable to such
Employee Program) have previously been delivered to Parent: (i) all documents
embodying or governing such Employee Program, as they may have been amended to
the date hereof; (ii) the most recent IRS determination letter with respect to
such Employee Program and any applications for determination subsequently filed
with the IRS; (iii) the three most recently filed IRS Forms 5500, with all
applicable schedules attached thereto; (iv) the three most recent actuarial
valuation reports completed with respect to such Employee Program; (v) the
summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; and
(vi) any insurance policy (including any fiduciary liability insurance policy)
related to such Employee Program.
(f) Except as disclosed in SCHEDULE 2.20 hereto, no collective
bargaining agreement or other contract, written or oral, with any trade or labor
union, employees' association or similar organization is in effect
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as of the date hereof with respect to any employee of the Company or any of its
Subsidiaries, and neither the Company, any of its Subsidiaries nor any affiliate
has ever maintained or participated in any multiemployer plan, as defined in
Section 3(37) of ERISA.
(g) For purposes of this section:
(i) "EMPLOYEE PROGRAM" means (A) all employee benefit plans
within the meaning of Section 3(3) of ERISA (including, but not limited to,
employee benefit plans such as foreign or excess benefit plans which are
not subject to ERISA); and (B) all stock option plans, bonus, incentive
award or profit sharing plans, severance pay policies or agreements,
deferred compensation agreements, supplemental income arrangements, and all
other employee benefit plans, agreements, and arrangements not described in
(A) above.
(ii) An entity "MAINTAINS" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program,
or has any obligation (by agreement or under applicable law) to contribute
to or provide benefits under such Employee Program, or if such Employee
Program provides benefits to or otherwise covers employees of such entity
(or their spouses, dependents, or beneficiaries).
(iii) An entity is an "AFFILIATE" of the Company or any of its
Subsidiaries if it would have ever been considered a single employer with
the Company or such Subsidiary under Section 4001(b) of ERISA or part of
the same "controlled group" as the Company or such Subsidiary for purposes
of 302(d)(8)(C) of ERISA.
2.21 Brokers or Finders. Other than Fred Williamson & Associates,
------------------
Inc., none of the Company or any Subsidiary thereof has engaged the services of
any brokers or finders in connection with the execution of this Agreement.
2.22 Corporate Records. (a) The minute books of the Company and its
-----------------
Subsidiaries contain true and complete records of all meetings of, or written
consents in lieu of meetings executed by, their respective boards of directors
(and all committees thereof) and shareholders; (b) all material actions and
transactions taken or entered into by
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the Company or any of its Subsidiaries, or otherwise requiring action by their
respective boards of directors or shareholders, have been duly authorized or
ratified as necessary and are evidenced in such minute books; (c) the stock
certificate books and stock records of the Company and its Subsidiaries are true
and complete; and (d) the signatures appearing in such minute books, stock
certificate books and stock records are the genuine signatures of the persons
purporting to have signed them.
2.23 Books of Account. The books of account of the Company and its
----------------
Subsidiaries have been maintained in accordance with normal business practices,
and accurately and fairly reflect all of the properties, assets, liabilities,
transactions and appropriate accruals of the Company and each of its
Subsidiaries.
2.24 Certain Employment Matters.
--------------------------
(a) SCHEDULE 2.24 contains a true and complete list of names
and current hourly wage, monthly salary or other compensation of all directors,
officers, management employees, consultants or managers of the Company, with a
summary of existing bonuses, additional compensation and other benefits (whether
current or deferred), if any, paid or payable to each such person for services
rendered in the fiscal year ended December 31, 1997, or, determined as of the
date hereof, to be rendered in the fiscal year ended December 31, 1998. SCHEDULE
2.24 contains a true and complete listing and summary description of all
employment, deferred compensation, noncompetition, confidential information and
consulting agreements between the Company or any Subsidiary thereof and its
directors, officers, management employees, consultants and managers.
(b) Except as set forth in SCHEDULE 2.24, the Company and its
Subsidiaries have complied in all material respects with all applicable laws
relating to the payment and withholding of taxes, including income and social
security taxes, and has withheld (and paid over to the appropriate authorities)
all amounts required by local, state or federal law or by other agreement to be
withheld from the wages or salaries of its employees. Neither the Company nor
any Subsidiary thereof has any liability or obligation for any arrears of wages
or benefits or any taxes or penalties for failure to comply with any of the
foregoing.
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<PAGE>
(c) Except as set forth on SCHEDULE 2.24, the Company and its
Subsidiaries are not parties to any contract with any labor organization, nor
have they agreed to recognize any union or other collective bargaining unit, nor
has any union or other collective bargaining unit been certified as representing
any of their respective employees. Neither the Company nor any Subsidiary
thereof has knowledge of any organization currently being made or threatened by
or on behalf of any labor union with respect to their respective employees.
Except as set forth on SCHEDULE 2.24, neither the Company nor any Subsidiary
thereof has, within the last three years, experienced any strike, work stoppage,
grievance proceeding, claim of unfair labor practices or other significant labor
difficulty of any nature, nor are any material claims pending or, to the best
knowledge of the Company, threatened between the Company or its Subsidiaries and
any of their respective employees.
(d) Except as set forth on SCHEDULE 2.24, neither the Company
nor any Subsidiary thereof has received notification that any of its current
management employees presently plan to terminate employment, whether by reason
of the transactions contemplated hereby or otherwise. Except as set forth on
SCHEDULE 2.24, the employment of all persons presently employed or retained by
the Company is terminable at will, and neither the Company nor any of its
Subsidiaries will be, pursuant to any current contract, arrangement or
understanding, applicable law, or otherwise, obligated to pay any severance pay
or other benefit by reason of the voluntary or involuntary termination of
employment of any present or former employee, consultant, agent or manager,
prior to, on or after the Effective Date.
2.25 Voting Agreements. Each holder of 5% or more of the Company
-----------------
Common Stock has executed voting agreements, in form and substance reasonably
satisfactory to Parent, providing that such holder will, among other things,
vote in favor of the Merger at the Special Meeting (as defined herein), not
dispose of such holder's shares of Company Common Stock except pursuant to the
Merger and not take any actions inconsistent with the Closing.
2.26 No Material Misstatement or Omission. No statement of fact
------------------------------------
made by or on behalf of the Company or any of its Subsidiaries in this Agreement
or in any certificate, schedule or exhibit furnished to Parent pursuant hereto,
or otherwise delivered by the Company or any of its Subsidiaries to Parent
contains any untrue statement of a
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material fact or omits to state any material fact necessary to make the
statements contained therein or herein, under the circumstances in which they
were made, not misleading. There is no fact relating to the Company or any of
its Subsidiaries, or the properties, business, operations, assets, liabilities,
profits, or condition (financial or otherwise) of the Company or any of its
Subsidiaries, presently known to the Company which has not been disclosed to the
Parent and which materially adversely affects or in the future is reasonably
likely to materially adversely affect the properties, business, operations,
assets, liabilities or profits, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries, taken as a whole.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
Parent hereby represents and warrants to the Company and the Selling
Shareholders as follows:
3.1 Organization and Corporate Power. Parent and each of its
--------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (b) is qualified to do
business as a foreign corporation in each jurisdiction in which such
qualification is required, except where failure to so qualify would not have a
material adverse effect on the Parent or its Subsidiaries and (c) has all
required corporate power and authority to own its property and to carry on its
business as presently conducted or contemplated. Subject to OCC and FCC
approvals (if any are required), the Parent has all required corporate power and
authority to enter into and perform this Agreement and the Related Documents and
generally to carry out the transactions contemplated hereby and by the Related
Documents.
3.2 Authorization and No Contravention. The execution and delivery
----------------------------------
of, and performance by the Parent of its obligations under, this Agreement and
the Related Documents and the delivery of the Merger Consideration have been
duly authorized by all requisite corporate, director and shareholder action of
Parent, and except as otherwise may be specifically provided in this Agreement,
each of this Agreement and the Related Documents constitutes the legal, valid
and binding obligation of Parent, enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization,
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<PAGE>
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and general principles of equity and
the availability of equitable remedies. Parent's execution and delivery of this
Agreement and the Related Documents, and its performance of the transactions
contemplated hereby and thereby, will not: (i) violate, conflict with or result
in a default under any contract, instrument, agreement, indenture, obligation or
commitment to which Parent is a party or by which it or its assets are bound, or
any charter provision or by-law of Parent, or the creation of any lien, charge
or encumbrance of any nature upon any of the properties or assets of Parent;
(ii) violate or result in a violation of, or constitute a default under, any
provision of any law, statute, ordinance, regulation or rule, or any decree,
judgment or order of, or any restriction imposed by, any court or other federal,
state or local governmental agency; or (iii) except as set forth on SCHEDULE
3.2, require any notice to, filing with, or consent or approval of any
governmental authority or other third party which will not, prior to the
closing, have been duly and properly given, made or obtained.
3.3 Brokers or Finders. Neither Parent nor any of its Subsidiaries
------------------
has engaged the services of any brokers or finders in connection with the
execution of this Agreement.
3.4 Financial Statements. Attached hereto as SCHEDULE 3.4 are
--------------------
Parent's (i) consolidated audited statements of income, cash flows and
shareholders' equity and the related balance sheet for the fiscal years ended
December 31, 1996 and 1997(such December 31, 1997 balance sheet is referred to
herein as the "PARENT'S BALANCE SHEET"). Except as set forth in Parent's
Balance Sheet or as set forth on SCHEDULE 3.4, neither Parent nor any of its
subsidiaries has any material contingent obligations, liabilities or material
forward or long-term commitments. The foregoing financial statements have been
prepared (i) to the extent required, in accordance with the rules and
regulations of the FCC and (ii) in accordance with generally accepted accounting
principles applied on a consistent basis. All of such financial statements
fairly present the financial condition and results of operations of Parent and
its Subsidiaries as of the date thereof, and are true and correct as of the date
thereof in all material respects. No event has occurred since such dates which
would cause such financial statements not to be true and correct in all material
respects as of the date thereof.
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<PAGE>
3.5 Authority to Execute and Deliver Notes. Parent is duly
--------------------------------------
authorized under its articles of incorporation and the laws of the State of its
organization and all other applicable provisions of law to execute and deliver
the Notes; and all necessary action on its part for the execution and delivery
of the Notes has been duly authorized, and the Notes, when executed and
delivered pursuant hereto, will be duly authorized, validly issued and
enforceable obligations of Parent in accordance with their terms, except to the
extent their enforceability may be limited by laws affecting creditors
generally, by the exercise of judicial discretion in accordance with general
provisions of equity or because waivers of statutory or common law rights or
remedies may be limited.
3.6 Payment of Notes. Parent will duly and punctually pay the
----------------
principal of and interest on the Notes in addition to any other amounts due
thereunder at the dates and places and in the manner provided therein, according
to the true intent and meaning thereof, and all other sums becoming due
hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING ACQUISITION SUB
--------------------------------------------------------
Parent and Acquisition Sub hereby jointly and severally represent and
warrant to the Company and the Selling Shareholders as follows:
4.1 Organization and Corporate Power. Acquisition Sub (a) is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, (b) is qualified to do business as a foreign
corporation in each jurisdiction in which such qualification is required, except
where failure to so qualify would not have a material adverse effect on
Acquisition Sub and (c) has all required corporate power and authority to own
its property and to carry on its business as presently conducted or
contemplated. Acquisition Sub has all required corporate power and authority to
enter into and perform this Agreement and the Related Documents and to generally
carry out the transactions contemplated hereby and by the Related Documents.
4.2 Authorization and No Contravention. The execution and delivery
----------------------------------
of, and performance by Acquisition Sub of its obligations under, this Agreement
and the Related Documents have been duly authorized by all requisite
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<PAGE>
corporate action of Acquisition Sub subject to the receipt of the approval of
the sole shareholder of Acquisition Sub, and except as may otherwise be
specifically provided in this Agreement, each of this Agreement and the Related
Documents constitutes the legal, valid and binding obligation of Acquisition
Sub, enforceable in accordance with its respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and general principles of equity and
the availability of equitable remedies. The execution and delivery of this
Agreement and the Related Documents by Acquisition Sub, and its performance of
the transactions contemplated hereby and thereby, will not: (i) violate,
conflict with or result in a default under any contract, instrument, agreement,
indenture, obligation or commitment to which Acquisition Sub is a party or by
which it or its assets are bound, or any charter provision or by-law of
Acquisition Sub or the creation of any lien, charge or encumbrance of any nature
upon any of the properties or assets of Acquisition Sub, except pursuant to this
Agreement and the agreements contemplated hereby; (ii) violate or result in a
violation of, or constitute a default under, any provision of any law, statute,
ordinance, regulation or rule, or any decree, judgment or order of, or any
restriction imposed by, any court or other federal, state or local governmental
agency; or (iii) except as set forth on SCHEDULE 4.2, require any notice to,
filing with, or consent or approval of any governmental authority or other third
party which will not, prior to the closing, have been duly and properly given,
made or obtained.
4.3 Capitalization. The authorized and issued capital stock of
--------------
Acquisition Sub is as set forth on SCHEDULE 4.3.
4.4 Brokers or Finders. Acquisition Sub has not engaged the
------------------
services of any brokers or finders in connection with the execution of this
Agreement.
SECTION 5. PARENT'S AND ACQUISITION SUB'S CONDITIONS OF MERGER
---------------------------------------------------
Parent's and Acquisition Sub's obligations hereunder shall be subject
to compliance by the Company with its agreements herein contained and to the
fulfillment to Parent's and Acquisition Sub's satisfaction on or before and
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<PAGE>
at the Closing Date of the following conditions:
5.1 Certificate. The representations and warranties of the Company
-----------
contained in this Agreement, including but not limited to the representations
and warranties made in Section 2, shall be true and correct in all material
respects with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date; each of the conditions
hereafter specified in this Section shall have been satisfied in all material
respects; and on the Closing Date one or more certificates to such effect
executed by the President and the Chief Financial Officer of the Company shall
be delivered to Parent.
5.2 Delivery of Documents. The Company shall have executed and
---------------------
delivered to Parent (or shall have caused to be executed and delivered to Parent
by the appropriate persons) the following:
(a) Certified copies of resolutions of the Board of Directors
and the shareholders of the Company and its Subsidiaries authorizing the
execution and delivery of this Agreement and the Related Documents;
(b) A copy of the Company's and each of its Subsidiaries'
corporate charter certified as of a recent date by the appropriate Secretary of
State;
(c) A copy of the by-laws of each of the Company and each of
its Subsidiaries certified, in each case, by the secretary of the pertinent
corporation;
(d) A certificate issued as of a recent date by the
appropriate Secretary of State of the state of incorporation of the Company and
each of its Subsidiaries certifying that the Company or such Subsidiary, as the
case may be, is in good standing in such state;
(e) True and correct copies of all consents, instruments and
other documents specified in SCHEDULE 2.2 attached hereto which have not
otherwise been made available for review by Parent; and
(f) All other certificates and other documents reasonably
requested by Parent. The form and substance of all such certificates and other
documents hereunder shall be reasonably satisfactory in all respects to Parent
and its counsel.
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<PAGE>
5.3 Opinion of Company's Counsel. Parent shall have received the
----------------------------
favorable written opinion of counsel for the Company dated the Closing Date, in
substantially the form attached hereto as EXHIBIT C.
5.4 Opinion of Special OCC Counsel. To the extent required by any
------------------------------
lender, Parent shall have received the favorable written opinion of special
communications counsel for the Company, dated the Closing Date, with respect to
OCC and related matters, in form and substance reasonably acceptable to Parent.
5.5 Opinion of Special FCC Counsel. Parent shall have received the
------------------------------
favorable written opinion of special FCC counsel for the Company, dated the
Closing Date, in form and substance reasonably acceptable to Parent.
5.6 Compliance with Agreements. The Company shall have performed
--------------------------
and complied with all agreements, covenants and conditions contained herein, in
any other document contemplated hereby and all other Related Documents which are
required to be performed or complied with by the Company on or before the
Closing Date.
5.7 All Proceedings Satisfactory. All corporate and other
----------------------------
proceedings taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to Parent, and
Parent shall receive such copies thereof and other materials (certified, if
requested) as they may reasonably request in connection therewith.
5.8 Directors and Officers. Parent shall have received duly and
----------------------
validly obtained resignations of all directors and officers of the Company and
each of its Subsidiaries whose resignation is requested by Parent, to be
effective as of the Effective Date.
5.9 Regulatory Matters.
------------------
(a) All required waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or been
terminated.
(b) The OCC and the FCC shall, if required by law, have
approved the consummation of the transactions contemplated hereby and such
approvals shall: (i) be free
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of any terms, conditions or restrictions that are reasonably unacceptable to
Parent and (ii) have become Final Orders.
(c) The approval of any other governmental entity or person
required for the consummation of the transactions contemplated hereby shall have
been obtained including, without limitation, the approval of any local or
municipal governmental entity necessary or appropriate in connection with the
transfer of control of the Company Franchises.
5.10 Litigation. There shall be no investigation, action, suit or
----------
proceeding at law or in equity or by or before any governmental instrumentality
or other agency pending or threatened against the Company or any of its
Subsidiaries, or, to the best knowledge of the Company, any director, officer or
key employee of the Company or any of its Subsidiaries which would have a
reasonable possibility of calling into question the validity, or hinder the
consummation, enforceability or performance, as the case may be, of the Closing,
this Agreement, any action taken or to be taken pursuant hereto or any of the
other agreements and transactions contemplated hereby.
5.11 Adverse Changes. From the date hereof, through and including
---------------
the Effective Date, and without regard to matters related to approvals required
by Section 5.9 hereof or actions undertaken pursuant to this Agreement, there
shall have been (i) no material adverse change in the assets and properties of
the Company, the business operations, liabilities, profits or financial
condition of the Company; (ii) no material damage to the assets and properties
of the Company caused by fire, flood, casualty, act of God or the public enemy
or other cause, the loss of any of which is not adequately covered by insurance
in Parent's sole judgment; or (iii) no further Federal or state regulation or
deregulation, or changes in laws applicable to Federal or state deregulation of
the Company which have, or are reasonably expected to have, a material adverse
effect on the properties, business operations, assets, liabilities, profits or
condition (financial or otherwise) of the Company.
5.12 Dissenting Shareholders. Dissenters' rights shall not have
-----------------------
been exercised pursuant to Section 1.10 with respect to more than five percent
(5%) of the number of shares of Company Common Stock issued and outstanding as
of the date hereof.
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<PAGE>
5.13 Special Meeting. The Company shall have called and held the
---------------
Special Meeting (as defined herein), at which at least 51% of the shares of
Company Common Stock entitled to vote thereat shall have been cast in favor of
the Merger or the Company shall have received the written consent of at least
51% of the shares of the Company in lieu of the special meeting approving the
Merger.
5.14 Amendment of CCTC Partnership Agreement. The Agreement of Limited
---------------------------------------
Partnership of Chouteau Cellular Telephone Company shall have been amended and
restated in its entirety to read as set forth on EXHIBIT D.
SECTION 6. COMPANY'S CONDITIONS OF MERGER
------------------------------
The Company's obligation hereunder shall be subject to compliance by the
Parent and Acquisition Sub with their agreements herein contained and to the
fulfillment to the Company's satisfaction on or before and at the Closing Date
of the following conditions:
6.1 Certificate. The representations and warranties of the Parent
-----------
and Acquisition Sub contained in this Agreement, including but not limited to
the representations and warranties made in Sections 3 and 4, shall be true and
correct in all material respects with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date; each
of the conditions hereafter specified in this Section 6 shall have been
satisfied; and on the Closing Date one or more certificates to such effect
executed by the Senior Vice President and the Chief Financial Officer of the
Parent and Acquisition Sub shall be delivered to the Company.
6.2 Compliance with Agreements. Parent and Acquisition Sub shall
--------------------------
have performed and complied with all agreements, covenants and conditions
contained herein, in any other document contemplated hereby and all other
Related Documents which are required to be performed or complied with by Parent
and Acquisition Sub on or before the Closing Date.
6.3 All Proceedings Satisfactory. All corporate and other
----------------------------
proceedings taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the Company
and Company shall receive such
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<PAGE>
copies thereof and other materials (certified, if requested) as they may
reasonably request in connection therewith.
6.4 Regulatory Matters.
------------------
(a) All required waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or been
terminated.
(b) The OCC and the FCC shall each have approved, to the extent
any approval is necessary, the consummation of the transactions contemplated
hereby and such approvals shall: (i) be free of any terms, conditions or
restrictions that are reasonably unacceptable to the Company and (ii) have
become Final Orders.
6.5 Litigation. There shall be no investigation, action, suit or
----------
proceeding at law or in equity or by or before any governmental instrumentality
or other agency pending or threatened against Parent or Acquisition Sub, or, to
the best knowledge of Parent and Acquisition Sub, any director, officer or key
employee of Parent or Acquisition Sub, which would have a reasonable possibility
of calling into question the validity, or hinder the consummation,
enforceability or performance, as the case may be, of the Closing, this
Agreement, any action taken or to be taken pursuant hereto or any of the other
agreements and transactions contemplated hereby.
6.6 Opinion of Parent's and Acquisition Sub's Counsel. The Company
-------------------------------------------------
and the Selling Shareholders shall have received the favorable written opinion
of counsel for each of Parent and Acquisition Sub dated the Closing Date, in
substantially the form attached hereto as EXHIBIT E.
6.7 Transfer of Store Front Assets. At the time of or prior to
------------------------------
Closing, the Subsidiary shall have transferred and assigned to a new limited
liability company to be formed by the Principal Selling Shareholders the
inventory and other assets currently owned and used by the Subsidiary in
connection with its store front operations in Pryor, Oklahoma and the leasehold
interest of the Company or the Subsidiary in such premises.
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<PAGE>
SECTION 7. COVENANTS
---------
Until the Closing Date (unless provided otherwise herein), each of the
Parent, Acquisition Sub and the Company agree that they shall act, or refrain
from acting where so required, to comply with the following:
7.1 Regular Course of Business.
--------------------------
(a) Generally. The Company shall operate its business consistent
---------
with past management practices, shall maintain all of its properties in
customary repair, order and condition, shall maintain (except for expiration due
to lapse of time or cancellation by another party pursuant to the terms thereof)
in the ordinary course of business all leases and contracts in effect without
change except as expressly provided herein and shall comply in all material
respects with the provisions of all laws, regulations and orders of Governmental
Authorities and all Company Franchises applicable to the Company and the conduct
of its business. The Company shall comply, without modification, with all
contracts and commitments relating to capital expenditures as set forth on
SCHEDULE 2.9. The Company shall maintain its financial and accounting records in
a manner consistent with that employed at December 31, 1996.
(b) Compensation. Without the prior written consent of the Parent,
------------
the Company shall not hire or fire any employee and shall not grant any increase
in the compensation of any board member, employee, consultant or independent
contractor, except customary merit, cost-of-living and promotional increases.
(c) Insurance. The Company shall maintain in full force and effect
---------
its insurance policies with the coverage and in the amounts set forth on
SCHEDULE 2.15.
(d) Claims. The Company shall promptly notify the Parent of any
------
actions, claims, complaints, lawsuits or investigations that may be commenced
against it.
(e) Supplement. From time to time prior to the Closing Date, the
----------
Company shall promptly notify the Parent of any changes with respect to the
information set forth in this Agreement or the Schedules hereto and of any
matters hereafter arising which, if in existence at the date hereof, would have
been required to be set forth in this Agreement or the Schedules hereto;
provided, that such
- --------
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<PAGE>
notification shall not constitute an amendment to this or any of such Schedules
unless expressly agreed in writing by Parent.
7.2 Amendments; Sales and Acquisitions. No change or amendment
----------------------------------
shall be made to the charter or by-laws of the Company. Except as set forth in
SCHEDULE 7.2, the Company shall not merge into or consolidate with any other
Person, sell or acquire any assets (except in the ordinary course of business)
or acquire or make any investment in any Person, or otherwise change the
character of its business.
7.3 Capital Changes. The Company shall not issue, sell, purchase,
---------------
acquire or redeem any shares of its capital stock of any class or any of its
debt or issue or sell any securities convertible into, or options, warrants or
other rights to subscribe for, any shares of its capital stock. The Company
shall not pledge or otherwise encumber any shares of its capital stock.
7.4 Dividends. The Company shall not declare, pay or set aside for
---------
payment any dividend or other distribution in respect of its capital stock.
7.5 Capital Expenditures. Without the prior written consent of
--------------------
Parent, the Company shall not make any capital expenditures in excess of $10,000
in the aggregate, or commitments with respect thereto, except as provided in
SCHEDULE 2.9. The Company shall not make or accept any loan or advance to or
from any of its Affiliates.
7.6 Borrowing. Without the prior written consent of the Parent,
---------
the Company shall not incur, assume or guarantee any indebtedness or obligation
not reflected on the Company Balance Sheet, except for amounts not to exceed ten
thousand dollars ($10,000) in the ordinary course of business.
7.7 Property. The Company shall not sell, transfer, or dispose of
--------
any of its assets and properties, or allow any of its assets and properties to
become subject to a Lien, except in the ordinary course of business. At the
time of or prior to Closing, the Subsidiary shall have transferred and assigned
to a new limited liability company to be formed by the Principal Selling
Shareholders the inventory and other assets currently owned and used by the
Subsidiary in connection with its store front operations in Pryor, Oklahoma and
the leasehold interest of the Company or the Subsidiary in such premises.
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7.8 Other Commitments. Except as set forth in this Agreement or
-----------------
permitted in writing by the Parent, the Company shall not enter into any
transaction, make any commitment or incur any obligation other than in the
ordinary course of business.
7.9 Interim Financial Information. The Company shall supply the
-----------------------------
Parent with a copy of its internal unaudited monthly financial statements within
thirty (30) days after the end of each month.
7.10 Consents and Authorizations. The Parent and the Company shall,
---------------------------
promptly after the date hereof, cooperatively commence efforts to obtain OCC
approval of the transactions contemplated hereby and the consents, waivers and
authorizations listed in SCHEDULES 2.2, including the approval of the Company's
shareholders, which approval the Company agrees to use reasonable efforts to
obtain within 30 days of the date hereof. The Parent and the Company shall
diligently pursue and use their best efforts to obtain such consents, waivers
and authorizations as promptly as practicable prior to the Closing Date.
7.11 Access. The Company shall afford to the Parent and its
------
counsel, accountants, agents and other authorized representatives and to any
financing sources specified by the Parent reasonable access during business
hours to the Company's personnel, plants, properties, books and records in order
that the Parent and such other Persons may have full opportunity to make such
reasonable investigations as it shall desire to make of the affairs of the
Company. The Company shall cause its officers, employees and auditors to
furnish such additional financial and operating data and other information as
the Parent shall from time to time reasonably request.
7.12 Notice of Transfer. Each of the Parent and the Company shall
------------------
cooperate in providing any required notices to all appropriate Governmental
Authorities regarding any issues of ownership or control or change thereof
(including, without limitation, any such issues relating to the Company
Franchises).
7.13 Payment of Tax. All transfer (including any real estate
--------------
transfer or gains tax), documentary (other than stock transfer), sales, use,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be borne by the
Company when due, and it will file on a timely basis all
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necessary Tax returns and other documentation with respect to all such transfer,
documentary, sales, use, registration and other Taxes and fees, and, if required
by applicable regulation, will, and will cause its Affiliates to, join in the
execution of any such Tax returns and other documentation.
7.14 Agreement to Defend. In the event any claim of the nature
-------------------
specified in Section 5.10 hereof is commenced, whether before or after the
Closing Date, the parties hereto agree to cooperate and use all reasonable
efforts to defend against and respond thereto.
7.15 Further Assurances. On the terms and subject to the conditions
------------------
of this Agreement, the parties hereto shall use all reasonable efforts at their
own expense to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or advisable under applicable regulations
to consummate and make effective as promptly as possible the transactions
contemplated by this Agreement, and to cooperate with each other in connection
with the foregoing, including, without limitation, using all reasonable efforts
(a) to obtain all necessary waivers, consents and approvals from other parties
to loan agreements, leases, mortgages and other contracts, (b) to obtain all
necessary consents, approvals and authorizations as are required to be obtained
under any regulations or in connection with any Company Franchises, (c) to lift
or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby and (d) to fulfill all conditions to the obligations of the parties under
this Agreement. Each of the parties hereto further covenants and agrees that it
shall use all reasonable efforts to prevent a threatened or pending preliminary
or permanent injunction or other order.
7.16 Consents. Without limiting the generality of Sections 7.10 and
--------
7.15, each of the parties hereto shall use reasonable efforts to obtain all
waivers, authorizations, consents and approvals of all Persons and Governmental
Authorities necessary, proper or advisable in connection with the consummation
of the transactions contemplated by this Agreement prior to the Closing Date.
7.17 No Solicitation or Negotiation.
------------------------------
(a) Unless and until this Agreement is terminated, the Company
shall not, and shall use its best
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efforts to cause its Affiliates, and the directors, officers, employees,
representatives, agents, advisors, accountants, shareholders and attorneys of
each of them, not to (i) encourage, initiate or solicit, directly or indirectly,
any inquiries or the making of any proposal with respect to, or engage in
negotiations concerning, or provide any confidential information or data to any
Person with respect to, or have any discussions with any Person relating to, any
merger, acquisition, reorganization, consolidation, business combination,
recapitalization, liquidation, dissolution, sale of all or any significant
portion of assets, sale of shares of capital stock (including without limitation
by way of tender offer or exchange offer) or similar transactions involving the
Company or any Subsidiary other than the transactions contemplated hereby (any
of the foregoing inquiries or proposals being referred to herein as an
"ACQUISITION PROPOSAL"), or otherwise facilitate any effort or attempt to do or
seek to do any of the foregoing and shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing, (ii) engage in
negotiations or discussions concerning, or provide any nonpublic information or
assistance to any person in connection with any Acquisition Proposal, or (iii)
agree to, approve or recommend any Acquisition Proposal. Nothing contained in
this Section 7.17 shall prevent the Board of Directors of the Company from
considering, negotiating, discussing, approving and recommending to the
shareholders of the Company a bona fide Acquisition Proposal not solicited in
violation of this Section 7.17, provided that the Board of Directors of the
--------
Company determines in good faith (after consultation with and based upon the
advice of outside counsel) that it is required to do so in order to discharge
properly its fiduciary duties to the Company's shareholders; and provided,
--------
further, that the Company shall keep Parent informed, on a reasonably current
- -------
basis, as to the status and details of any such consideration, negotiations or
discussions, including but not limited to, prompt delivery to Parent of any
written inquiries, proposals, agreements or Acquisition Proposals.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its Subsidiaries in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company or any Subsidiary by any
person or
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<PAGE>
entity that informs the Board of Directors of the Company or such Subsidiary
that it is considering making, or has made, an Acquisition Proposal. Such notice
to Parent shall be made orally and in writing, shall indicate whether the
Company is providing or intends to provide the person making the Acquisition
Proposal with access to information concerning the Company as provided in
Section 7.17(c) and, if reasonably practicable, shall be made prior to
furnishing any such information to, or entering into negotiations or discussions
with, such person.
(c) If the Board of Directors of the Company receives a request for
material nonpublic information by a person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of Directors
determines in good faith and upon the advice of outside counsel that is required
to cause the Company to act as provided in this Section 7.17(c) in order to
discharge properly the directors' fiduciary duties to the Company's
shareholders, then, provided that such person has executed a confidentiality
--------
agreement containing customary standstill, no solicitation and confidentiality
provisions, the Company may provide such person with access to information
regarding the Company.
(d) The Company shall immediately cease and cause to be terminated
any existing discussions or negotiations with any persons (other than Parent)
conducted heretofore with respect to any of the foregoing. The Company agrees
not to release any third party from the confidentiality provisions of any
confidentiality agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and
employees of the Company and its Subsidiaries and any investment banker or other
advisor or representative retained by the Company are aware of the restrictions
described in this Section 7.17.
(f) The Company shall not accept any Acquisition Proposal unless,
at least five days prior to such acceptance, the Company shall have delivered to
Acquisition Sub written notice of such Acquisition Proposal together with a copy
of any and all agreements to be entered into in connection with such Acquisition
Proposal.
7.18 Public Announcements. Prior to the Closing Date, no party
--------------------
hereto nor any Affiliate, representative or shareholder of such party, shall
disclose any of the terms
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of this Agreement to any third party, except as required by applicable law or as
required to obtain the consents, waivers and authorizations listed in SCHEDULES
2.2, 3.2 AND 4.2 and in connection with the Parent's financing of the
transactions contemplated hereby, without the other parties' prior written
consent. Prior to the Closing Date, subject to the requirements of applicable
law, the form, content and timing of all press releases, public announcements or
publicity statements with respect to this Agreement and the transactions
contemplated hereby shall be subject to the prior approval of both the Company
and Parent, which approval shall not be unreasonably withheld. Prior to the
Closing Date, subject to the requirements of applicable law, no press releases,
public announcements or publicity statements shall be released by either party
without such prior mutual agreement. Notwithstanding the foregoing, no party
hereto will disclose the Merger Consideration or the manner in which the Merger
Consideration is calculated, without the prior written consent of the other
parties hereto, other than in connection with seeking consents required by
Section 7.16.
7.19 Environmental Inspections. The Company agrees to cooperate
-------------------------
with any reasonable request of Parent for a site assessment or review concerning
any environmental matter, including the making available of such personnel,
documents, records or other information of the Company as Parent may reasonably
request.
7.20 Regulatory Matters. The Company will not change local rates
------------------
charged to telephone customers and will not apply for any change in the
intrastate or interstate pooling mechanisms, without the written consent of the
Parent.
7.21 Indemnification and Insurance. The Surviving Corporation
-----------------------------
agrees to indemnify and hold harmless the Company's officers and directors
against any costs or expenses (including reasonable attorney's fees), judgments,
fines, losses, claims, damages or liabilities incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative arising out of or pertaining to matters existing
or occurring at or prior to the Effective Date, to the fullest extent permitted
under the OGCA.
7.22 Payment of Regulatory Fees. Parent shall pay (i) any filing
--------------------------
fee imposed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, in
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connection with the transactions contemplated by this Agreement and the Related
Documents and (ii) any fees and expenses incurred in connection with obtaining
OCC and FCC approval of the transactions contemplated by this Agreement and the
Related Documents.
7.23 Shareholder Approval. Within thirty (30) days of the date of
--------------------
this Agreement, the Company shall call a special meeting of common shareholders
of the Company to be held for the purpose of voting on the Merger ("SPECIAL
MEETING") at which at least 51% of the shares of Company Common Stock entitled
to vote thereat shall have been cast in favor of the Merger and the transactions
contemplated by this Agreement or the Company shall have received the written
consent of at least 51% of the shares of the Company in lieu of the Special
Meeting approving the Merger and the transactions contemplated by this
Agreement. Any proxy statement required by applicable law to be delivered to
the Company's shareholders in connection with the Special Meeting (the "PROXY
STATEMENT") shall state, among other things, (i) that the Board of Directors of
the Company has unanimously approved the Merger and recommends that the
shareholders vote in favor of the Merger (ii) that all of the Board members
intend to vote in favor of the Merger, and (iii) that all of the Company's
shareholders should make plans to deliver their shares free and clear of all
liens and encumbrances; such Proxy Statement shall be prepared and disseminated
in accordance with applicable law.
7.24 Accountant's Consent. The Company shall use its best efforts
--------------------
to cause its independent accountants, Sartain Fishbein & Co., to give their
consent (i) to the inclusion of their report on the consolidated financial
statements of the Company and its Subsidiaries and (ii) to be named as experts
in any offering document of Parent or its affiliates as reasonably requested by
Parent.
SECTION 8. CLOSING
-------
8.1 Time and Place.
--------------
(a) The closing (the "CLOSING") of the transactions
contemplated hereby shall take place at the offices of Paul, Hastings, Janofsky
& Walker, LLP, 399 Park Avenue, New York, New York 10022, or such other place as
agreed to by the parties, at 9:30 a.m., local time, as soon as possible
following the satisfaction or waiver of the conditions set forth in Section 5
and 6 hereof; provided
--------
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however, that in no event shall the Closing occur later than August 31,
- --------
1998 (the "CLOSING DATE").
(b) On the Closing Date, Parent, Acquisition Sub and the Company
shall cause the Certificate of Merger to be filed in accordance with the
provisions of the OGCA and shall take any and all other lawful actions and do
any and all other lawful things necessary to effect the Merger and to cause the
Merger to become effective.
SECTION 9. INDEMNIFICATION OF PARENT AND ACQUISITION SUB
---------------------------------------------
9.1 Survival. The covenants, agreements, representations and
--------
warranties of the Principal Selling Shareholders contained herein or in any
certificate or other document delivered pursuant hereto shall survive any
examination made by or on behalf of Parent and Acquisition Sub, the execution
and delivery of this Agreement, the Effective Date and the consummation of the
transactions called for by this Agreement until one hundred twenty (120) days
after the first fiscal year end of the Company after the Effective Date (the
"RELEASE DATE") except that (i) all covenants and agreements set forth in this
Section 9 shall continue until all obligations hereunder have been performed and
satisfied and (ii) any covenants and agreements which are to be performed after
the Effective Date, including without limitation, the covenants of Parent set
forth in Section 7.21, shall continue until all such obligations have been fully
performed and satisfied. Except as provided herein, no claim under this Section
9 may be brought with respect thereto after the Release Date; provided that if,
--------
prior to such date, Parent or Acquisition Sub has notified the Principal Selling
Shareholders of a claim for indemnity under this Section 9 (whether or not
formal legal action shall have been commenced based upon such claim), such claim
shall continue to be subject to indemnification until finally resolved.
9.2 Indemnification. The Principal Selling Shareholders shall, pro
---------------
rata based upon the initial principal amount of the Notes issued to them
hereunder, indemnify and hold harmless Parent and Acquisition Sub, and each of
their respective officers, directors, affiliates, shareholders and
representatives (each, an "INDEMNITEE") in the manner set forth in and subject
to Section 9.4, at all times from and after the Effective Date against and in
respect of any and all damages, claims, losses,
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deficiencies, liabilities and expenses, including, without limitation,
reasonable legal, accounting, and other fees and other expenses (collectively,
"DAMAGES"), incurred or suffered by any such Indemnitee as a result, or that may
arise out of, any breach by the Company or the Principal Selling Shareholders of
any of the representations and warranties made by the Company and the Principal
Selling Shareholders in this Agreement or pursuant hereto, or for any other
breach or violation of any covenant, agreement, term or condition of this
Agreement by the Principal Selling Shareholders or the Company.
9.3 Notice of Claims. Upon obtaining knowledge thereof, the
----------------
Indemnitee shall promptly notify the Principal Selling Shareholders in writing
of any Damages (including but not limited to any Damages arising from Third-
Party Claims (as defined in Section 9.5 hereof)) which the Indemnitee has
determined has given or could give rise to a claim under Section 9.2 (such
written notice being referred to as a "NOTICE OF CLAIM"). A Notice of Claim
shall specify in reasonable detail the nature and estimated amount of any such
claim giving rise to a right of indemnification.
9.4 Method of Indemnification. In the event that an Indemnitee
-------------------------
shall seek indemnification pursuant to Section 9.2, such Indemnitee may seek
recovery in an amount equal to the aggregate Damages incurred or suffered by
such Indemnitee with respect to which such Indemnitee is entitled to
indemnification pursuant to Section 9.2. Except as provided herein, any amounts
recoverable by an Indemnitee pursuant to this Section 9 shall be deducted from
the outstanding principal balance of the Notes on a pro rata basis. Except as
provided herein, no indemnification payment for Damages suffered or incurred by
an Indemnitee shall be made to such Indemnitee, until the amount which all
Indemnitees under this Agreement would otherwise be entitled to receive as
indemnification under this Agreement aggregates in excess of the sum of $100,000
(such sum, hereinafter, the "THRESHOLD"), at which time each Indemnitee shall be
entitled to recover any and all amounts for which a claim for indemnity has
theretofore been made, in excess of the amount of the Threshold. Notwithstanding
any provision herein to the contrary, the Principal Selling Shareholders shall,
pro rata based upon the initial principal amount of the Notes issued to them
hereunder, indemnify and hold harmless each Indemnitee, without regard to the
Threshold or the Release Date, at all times from and after the Effective Date
against and in respect of any and all Damages (including without limitation, any
and all Damages resulting
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<PAGE>
from claims asserted by any Selling Shareholder or other party), incurred or
suffered by any such Indemnitee as a result of, or that may arise out of (i) the
consummation of the transactions contemplated by this Agreement; (ii) any claim
by a Selling Shareholder for any portion of the Merger Consideration previously
remitted to the Selling Shareholders by Parent, or for any amount in addition to
the Merger Consideration; (iii) any claim by any Selling Shareholder or third
party in connection with any actual or alleged tax liability of any Selling
Shareholder; or (iv) any claim by any Selling Shareholder or third party in
connection with the payment of the Merger Consideration as provided for herein,
or in connection with any withholding requirement with respect to the payment of
the Merger Consideration as provided for herein. Any amounts recoverable by any
Indemnitee pursuant to the preceding sentence shall be payable in cash to such
Indemnitee by the Principal Selling Shareholders on a pro rata basis. In the
event the Principal Selling Shareholders fail to make such payment within thirty
(30) days of a written demand therefor, such Indemnitee may, at its option,
elect to reduce the outstanding principal amount of the Notes on a pro rata
basis by the amount of such Damages.
9.5 Defense of Third-Party Claims.
-----------------------------
(a) If any claim or liability is asserted by a third party
after the Closing for which Parent believes indemnification may be sought under
the terms of this Section 9 (a "THIRD-PARTY CLAIM"), then Parent shall promptly
notify the Principal Selling Shareholders in writing of such Third-Party Claim
(said notification being referred to as a "THIRD-PARTY CLAIM NOTICE"). Any
Third-Party Claim Notice shall state with reasonable specificity, in light of
the then current circumstances, the basis of the Third-Party Claim.
(b) Parent shall have fifteen (15) days after receipt by the
Principal Selling Shareholders of such Third-Party Claim Notice to elect to
undertake, conduct and control, through counsel of its own choosing, the
settlement or defense thereof, and the Principal Selling Shareholders shall
cooperate with Parent in connection therewith. Parent shall have the right to
contest, settle or compromise the Third-Party Claim in the exercise of its
reasonable discretion; provided, that Parent shall notify the Principal Selling
--------
Shareholders of any proposed compromise or settlement of any such Third-Party
Claim and shall not effect such compromise or settlement without the prior
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written consent (not to be unreasonably withheld or delayed) of the Principal
Selling Shareholders; provided, further, that Parent shall not, in the defense
-------- -------
of such claim, consent to entry of any judgment unless the judgment provides
only for the payment of monetary damages or unless Parent obtains the written
consent of the Principal Selling Shareholders, or (if the Company is a party to
such proceeding) consent to entry of any judgment or enter into any settlement
(except with the written consent of the Principal Selling Shareholders) which
does not include as an unconditional term thereof the giving by the claimant to
the Company of a release from all liability in respect of such claim.
(c) If Parent elects not to undertake the defense of the Third-
Party Claim, then the Principal Selling Shareholders may undertake, conduct and
control, through counsel approved by Parent (such approval not to be
unreasonably withheld or delayed), and at its own expense, the settlement or
defense thereof; provided, that the Principal Selling Shareholders shall not
--------
compromise or settle any Third-Party Claim without Parent's prior written
consent (not to be unreasonably withheld or delayed); provided, further, that
-------- -------
the Principal Selling Shareholders shall not, in the defense of such claim,
consent to entry of any judgment unless the judgment provides only for the
payment of monetary damages or unless the Principal Selling Shareholders obtains
the written consent of Parent, or consent to entry of any judgment or enter into
any settlement (except with the written consent of Parent) which does not
include as an unconditional term thereof the giving by the claimant to the
Indemnitees of a release from all liability in respect of such claim.
SECTION 10. DEFINITIONS
-----------
Unless the context specifically requires otherwise, capitalized terms
used in this Agreement shall have the meaning specified below:
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504(a), or similar group defined under a similar provision of
state, local or foreign law.
"FCC" means the Federal Communications Commission (or any successor
agency, commission, bureau, department or other political subdivision of the
United States of America).
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"FCC LICENSE" means any license, permit, approval or authorization
granted or issued by the FCC.
"FINAL ORDER" means an action by the FCC or the OCC as to which: (a)
no request for stay of the action by the FCC or the OCC, as the case may be, is
pending, no such stay is in effect, and if any time period is permitted by
statute or regulation for filing any request for such a stay, such time period
has passed; (b) no petition for rehearing or reconsideration, or application for
review, of the action is pending before the FCC or the OCC, as the case may be,
and the time permitted for filing any such petition or application has passed;
(c) the FCC or the OCC, as the case may be, does not have the action under
reconsideration on its own motion and the time in which such reconsideration is
permitted has passed; and (d) no appeal to a court, or request for stay by a
court, of the FCC's or OCC's action, as the case may be, is pending or in
effect, and the deadline for filing any such appeal or request has passed.
"GAAP" means generally accepted accounting principles in effect from
time to time.
"GOVERNMENTAL AUTHORITY" means any governmental agency, body or
instrumentality (whether federal, state, local or foreign).
"LIEN" means any interest in property securing an obligation owed to,
or claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, shareholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement the Company or a Subsidiary shall be deemed to be the owner of any
property which it has acquired or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes and such
retention or vesting shall be deemed to be a "Lien".
"OCC" means the Oklahoma Corporation Commission.
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<PAGE>
"OSHA" means the Occupational Safety and Health Act of 1978, as
amended from time to time.
"PERSON" means any individual, corporation, partnership, joint
venture, trust or unincorporated organization or any government or any agency or
political subdivision thereof.
"RELATED DOCUMENTS" means the Certificate of Merger, together with all
other instruments and documents related to this Agreement as the same may be
amended from time to time.
"SUBSIDIARY" of any Person means any corporation or other entity of
which more than 50% of the outstanding voting securities are at the time owned,
directly or indirectly, by such Person.
"TAX" means any federal, state, local, or foreign income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative minimum, estimated or
other tax, including any interest, penalty or addition thereto, whether disputed
or not.
"TAXING AUTHORITY" means any domestic, foreign, federal, national,
state, provincial, county or municipal or other local government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
body exercising any taxing authority or any other authority exercising any Tax
regulatory authority.
The following terms shall have the meanings assigned to them in the
provisions of this Agreement referred to below:
AAA - Section 11.16
Acquisition Proposal - Section 7.17(a)
Acquisition Sub Common Stock - Section 1.9
Acquisition Sub - Preamble
Affidavit - Section 1.11(b)
Affiliate - Section 2.20(g)(iii)
Certificate - Section 1.11(b)
Certificate of Merger - Recitals
Closing - Section 8.1
Closing Date - Section 8.1
Code - Section 2.14(d)
Company Balance Sheet - Section 2.4
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Company Common Stock - Section 1.8(a)
Company - Preamble
Company Franchises - Section 2.5
Damages - Section 9.2
Dissenting Consideration - Section 1.10
Dissenting Shares - Section 1.10
Effective Date - Section 1.6
Easements - Section 2.13(a)
Employee Program - Section 2.20(g)(i)
ERISA - Section 2.20(c)
Indemnitee - Section 9.2
IRS - Section 2.20(b)
maintains - Section 2.20(g)(ii)
Merger - Recitals
Merger Consideration - Section 1.8(b)
Nonvoting Common Stock - Section 1.8(a)
Notes - Section 1.8(b)
Notice of Claim - Section 9.3
OGCA - Section 1.1
Parent - Preamble
Parent Balance Sheet - Section 3.4
Presiding Arbitrator - Section 11.16
Principal Selling Shareholders - Preamble
Properties - Section 2.18(a)
Proxy Statement - Section 7.23
Release Date - Section 9.1
Selling Shareholders - Recitals
Special Meeting - Section 7.23
Surviving Corporation - Section 1.1
Surviving Corporation Common Stock - Section 1.9
Threshold - Section 9.4
Third-Party Claim - Section 9.5(a)
Third-Party Claim Notice - Section 9.5(a)
Voting Common Stock - Section 1.8(a)
SECTION 11. GENERAL
-------
11.1 Termination.
-----------
(a) This Agreement may be terminated at any time prior to the
Closing:
(i) by mutual written consent of the parties hereto;
(ii) by written notice by either the Company, on the one
hand, or the Parent and Acquisition Sub, on the other hand, if there has been a
material
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misrepresentation or breach of warranty or breach of covenant on the part of the
other parties in the representations and warranties or covenants set forth in
this Agreement which breach has not been cured within 10 days following receipt
by the breaching party of written notice of such breach;
(iii) by written notice by either the Company or Parent if
the Closing has not occurred by August 31, 1998, provided that neither the
Company nor Parent will be entitled to terminate this Agreement pursuant to this
subsection if its willful breach of this Agreement has prevented the
consummation of the transactions contemplated hereby; or
(iv) by either the Company or Parent, if there has been a
material breach of any representation, warranty, covenant or agreement on the
part of the other set forth in this Agreement, which breach has not been cured
within 30 days following receipt by the breaching party of written notice of
such breach, in any case such that the conditions set forth in Sections 5 and 6,
as the case may be, would be incapable of being satisfied by August 31, 1998
(provided that the right to terminate this Agreement under this Section
--------
11.1(a)(iv) shall not be available to any party who is itself in material breach
of any of its representations, warranties, covenants or agreements set forth in
this Agreement, such that the conditions set forth in Sections 5 or 6, as the
case may be, would be incapable of being satisfied by August 31, 1998.
11.2 Effect of Termination. Except as provided in Section 9.1, in
---------------------
the event of the termination of this Agreement pursuant to Section 11.1, this
Agreement shall forthwith become void and there shall be no liability on the
part of any party hereto or any of its affiliates, directors, officers or
stockholders; provided however that nothing herein shall relieve any party from
liability for any breach hereof occurring prior to termination.
11.3 AMENDMENTS, WAIVERS AND CONSENTS. FOR THE PURPOSES OF THE
--------------------------------
AGREEMENT AND ALL AGREEMENTS, DOCUMENTS, AND INSTRUMENTS EXECUTED PURSUANT
HERETO, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH HEREIN OR THEREIN, NO COURSE
OF DEALING BETWEEN THE COMPANY, THE PARENT AND ACQUISITION SUB AND NO DELAY ON
THE PART OF ANY PARTY HERETO IN EXERCISING ANY RIGHTS HEREUNDER OR THEREUNDER
SHALL OPERATE AS A WAIVER OF THE RIGHTS HEREOF AND THEREOF. NO COVENANT OR
OTHER PROVISION HEREOF OR THEREOF MAY BE WAIVED OTHERWISE THAN BY
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<PAGE>
A WRITTEN INSTRUMENT SIGNED BY THE PARTY SO WAIVING SUCH COVENANT OR OTHER
PROVISION.
11.4 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
--------------------------------------
DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF OKLAHOMA.
11.5 Section Headings. The descriptive headings in this Agreement
----------------
have been inserted for convenience only and shall not be deemed to limit or
otherwise affect the construction of any provision hereof.
11.6 Notices and Demands. Any notice or demand which, by any
-------------------
provision of this Agreement or any agreement, document or instrument executed
pursuant hereto or thereto, except as otherwise provided therein, is required or
provided to be given shall be deemed to have been sufficiently given or served
and received for all purposes three days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested, by
express delivery providing receipt of delivery, or by facsimile, to the
following addresses:
If to Parent to:
MJD Communications, Inc.
Morehead Place
521 East Morehead Street
Suite 250
Charlotte, NC 28202
Attention: Eugene B. Johnson
Telephone: (704) 344-8150
Facsimile: (704) 344-8121
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022
Attention: Neil A. Torpey, Esq.
Telephone: (212) 318-6000
Facsimile: (212) 319-4090
-49-
<PAGE>
If to the Company to:
Chouteau Telephone Company
P.O. Box 909
Chouteau, OK 74337
Attention:
Telephone:
Facsimile:
If to the Principal Selling Shareholders:
Robert J. Tutty
P.O. Box 369
Chouteau, OK 74337
Patricia J. Bates
P.O. Box 369
Chouteau, OK 74337
With a copy to:
Conner & Winters, A Professional Corporation
3700 First Place Tower
15 East Fifth Street
Tulsa, OK 74103-4344
Attention:
Telephone: (918) 586-5711
Facsimile: (918) 586-8982
or at any other address designated by any party to this Agreement to each of the
other parties in writing.
11.7 Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which when so executed and delivered shall
be taken to be an original; but such counterparts shall together constitute but
one and the same document.
11.8 Severability; Complete Agreement. Whenever possible, each
--------------------------------
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be deemed prohibited or invalid under such applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
-50-
<PAGE>
THIS AGREEMENT AND THE RELATED DOCUMENTS ARE INTENDED BY THE PARTIES
HERETO TO BE A COMPLETE AND FINAL EXPRESSION OF THEIR AGREEMENT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL AGREEMENT. THE
PARTIES ACKNOWLEDGE AND AGREE THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN
THEM WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT.
11.9 Expenses. Unless otherwise provided for in this Agreement,
--------
each of the Parent, the Company and Acquisition Sub shall pay all costs and
expenses that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement.
11.10 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto, either in whole or in part, without the prior written
consent of the other parties hereto; provided that Parent may assign this
Agreement or any of the rights, interests or obligations hereunder to an
affiliate without the prior written consent of the Company.
11.11 Accounting Terms. All accounting terms used herein which are
----------------
not expressly defined in this Agreement shall have the meanings given to them in
accordance with GAAP.
11.12 Parties. Nothing in this Agreement is intended to confer any
-------
rights or remedies under or by reason of this Agreement on any persons or
entities other than the parties hereto and their respective successors and
permitted assigns. Without limiting the foregoing, no third Person shall be a
beneficiary of any provision of this Agreement.
11.13 JURY WAIVER. EACH OF THE PARENT, COMPANY, AND ACQUISITION SUB
-----------
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, SUIT, OR COUNTERCLAIM ON
ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT
AND THE RELATED DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.
11.14 Schedules. The Parties hereto acknowledge and agree that the
---------
restatement or partial restatement in the schedules attached hereto of any
representation, warranty or other portion of this Agreement shall not in any way
be
-51-
<PAGE>
deemed to limit or eliminate the requirement for full disclosure on the
schedule relating to such representation, warranty or other portion of this
Agreement.
11.15 Arbitration. Any controversy or claim arising out of or
-----------
relating to this Agreement not resolved by mutual agreement of Parent and the
Company shall be settled by arbitration in Tulsa, Oklahoma, or in such other
location as the parties may mutually agree, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"). In the
event of such a dispute, either party may demand arbitration by written notice
to the other and, within fifteen (15) days after receipt of such demand, each
party shall appoint an arbitrator (each, an "Appointed Arbitrator") who shall
together agree on a third Arbitrator, failing which agreement they shall request
the AAA to appoint a third and presiding arbitrator ("PRESIDING ARBITRATOR"), in
accordance with the then existing rules of the AAA or any successor organization
thereto. The parties acknowledge and agree that individuals may be designated
as Appointed Arbitrators by each respective party, whether or not such Appointed
Arbitrators are listed on the National Panel of Arbitrators as such list is
maintained by the AAA. Any award therein shall be final and binding on the
parties and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The costs of the arbitration
(including, but not limited to, fees and disbursements of counsel and the
Appointed Arbitrator, and the fees of the Presiding Arbitrator) shall be borne
by the non-prevailing party or as otherwise determined by the Presiding
Arbitrator.
-52-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
CHOUTEAU TELEPHONE COMPANY
By:_______________________________
MJD COMMUNICATIONS, INC.
By:_______________________________
Michael J. Stein
Vice President
CHOUTEAU ACQUISITION CORP.
By:______________________________
Michael J. Stein
Vice President
PRINCIPAL SELLING SHAREHOLDERS:
_______________________________
Robert J. Tutty
_______________________________
Patricia J. Bates
-53-
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
CHOUTEAU ACQUISITION CORP.
INTO
CHOUTEAU TELEPHONE COMPANY
PURSUANT TO SECTION 1081 OF THE
GENERAL CORPORATION ACT OF THE STATE OF OKLAHOMA
************************************************************
THE UNDERSIGNED CORPORATION, organized and existing under and by
virtue of the General Corporation Act of the State of Oklahoma, does hereby
certify that:
1. The name, state of incorporation and date of filing of the
certificate of incorporation of each of the constituent corporations of the
merger are as follows:
State of
Name Incorporation
---- -------------
Chouteau Acquisition Oklahoma
Corp.
Chouteau Telephone Oklahoma
Company
2. An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by unanimous written consent of the
respective Board of Directors of each of the aforesaid constituent corporations
in accordance with the requirements of Section 1081 of the General Corporation
Act of the State of Oklahoma.
3. The name of the surviving corporation of the merger is Chouteau
Telephone Company, which will continue its existence as said surviving
corporation under its present name upon the effective date of said merger
pursuant to the provisions of the General Corporation Act of the State of
Oklahoma.
<PAGE>
4. The certificate of incorporation of the surviving corporation
shall be the surviving corporation's certificate of incorporation.
5. The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is on file at the following address:
Chouteau Telephone Company
102 South McCracken
Chouteau, OK 74337
6. The Agreement and Plan of Merger was duly approved by the
shareholders of each of the constituent corporations in accordance with Section
1081 of the General Corporation Act of the State of Oklahoma.
7. A copy of the Agreement and Plan of Merger will be furnished by
the surviving corporation, on request and without cost, to any shareholder of
any constituent corporation.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned has subscribed this certificate on
the date set forth below and hereby affirms that the statements contained herein
are true and correct.
________________, 1998_
CHOUTEAU TELEPHONE
COMPANY
By:___________________________
Name: ________________________
Title: _______________________
ATTESTED TO:
By:___________________________
Name: ________________________
Title: _______________________
-3-
<PAGE>
EXHIBIT B
FORM OF NOTE
<PAGE>
EXHIBIT C
OPINION OF COMPANY COUNSEL
<PAGE>
EXHIBIT D
CCTC PARTNERSHIP AGREEMENT
<PAGE>
EXHIBIT E
OPINION OF PARENT'S AND
ACQUISITION OF SUB'S COUNSEL
-2-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. THE MERGER.................................................. 1
1.1 Surviving Corporation....................................... 1
1.2 Certificate of Incorporation................................ 1
1.3 By-laws..................................................... 2
1.4 Directors................................................... 2
1.5 Officers.................................................... 2
1.6 Effective Date.............................................. 2
1.7 Additional Actions.......................................... 2
1.8 Conversion of Company Common Stock.......................... 3
1.9 Conversion of Acquisition Sub Common Stock.................. 3
1.10 Dissenting Shares........................................... 3
1.11 Surrender of Shares......................................... 5
SECTION 2. REPRESENTATIONS AND WARRANTIES.............................. 6
2.1 Organization and Corporate Power............................ 6
2.2 Authorization and No Contravention.......................... 7
2.3 Capitalization; Shareholders; Subsidiaries.................. 7
2.4 Financial Statements........................................ 8
2.5 Business; Franchises and Regulations........................ 9
2.6 Tariffs: FCC Licenses....................................... 10
2.7 Rate Base................................................... 10
2.8 Overbillings; Refunds....................................... 11
2.9 Capital Improvements Required by State
Authorities................................................. 11
2.10 Compliance with Law......................................... 11
2.11 Absence of Undisclosed Liabilities.......................... 11
2.12 Absence of Certain Developments............................. 12
2.13 Title to Properties......................................... 12
2.14 Tax Matters................................................. 14
2.15 Insurance................................................... 16
2.16 Contracts and Commitments................................... 16
2.17 Litigation.................................................. 16
2.18 Environmental Matters....................................... 17
2.19 Investment Company.......................................... 18
2.20 Employee Benefit Programs................................... 19
2.21 Brokers or Finders.......................................... 21
2.22 Corporate Records........................................... 21
2.23 Books of Account............................................ 22
2.24 Certain Employment Matters.................................. 22
2.25 Voting Agreements........................................... 23
2.26 No Material Misstatement or Omission........................ 23
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT.................... 24
3.1 Organization and Corporate Power............................ 24
3.2 Authorization and No Contravention.......................... 24
3.3 Brokers or Finders.......................................... 25
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3.4 Financial Statements........................................ 25
3.5 Authority to Execute and Deliver Notes...................... 26
3.6 Payment of Notes............................................ 26
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING
ACQUISITION SUB............................................. 26
4.1 Organization and Corporate Power............................ 26
4.2 Authorization and No Contravention.......................... 26
4.3 Capitalization.............................................. 27
4.4 Brokers or Finders.......................................... 27
SECTION 5. PARENT'S AND ACQUISITION SUB'S CONDITIONS OF
MERGER...................................................... 27
5.1 Certificate................................................. 28
5.2 Delivery of Documents....................................... 28
5.3 Opinion of Company's Counsel................................ 29
5.4 Opinion of Special OCC Counsel.............................. 29
5.6 Compliance with Agreements.................................. 29
5.7 All Proceedings Satisfactory................................ 29
5.8 Directors and Officers...................................... 29
5.9 Regulatory Matters.......................................... 29
5.10 Litigation.................................................. 30
5.11 Adverse Changes............................................. 30
5.12 Dissenting Shareholders..................................... 30
5.13 Special Meeting............................................. 31
5.14 Amendment of CCTC Partnership Agreement..................... 31
SECTION 6. COMPANY'S CONDITIONS OF MERGER.............................. 31
6.1 Certificate................................................. 31
6.2 Compliance with Agreements.................................. 31
6.3 All Proceedings Satisfactory................................ 31
6.4 Regulatory Matters.......................................... 32
6.5 Litigation.................................................. 32
6.6 ........................................................... 32
SECTION 7. COVENANTS................................................... 32
7.1 Reular Course of Business................................... 32
7.2 Amendments; Sales and Acquisitions.......................... 33
7.3 Capital Changes............................................. 34
7.4 Dividends................................................... 34
7.5 Capital Expenditures........................................ 34
7.6 Borrowing................................................... 34
7.7 Property.................................................... 34
7.8 Other Commitments........................................... 34
7.9 Interim Financial Information............................... 34
7.10 Consents and Authorizations................................. 35
7.11 Access...................................................... 35
7.12 Notice of Transfer.......................................... 35
7.13 Payment of Tax.............................................. 35
7.14 Agreement to Defend......................................... 35
7.15 Further Assurances.......................................... 36
7.16 Consents.................................................... 36
7.17 No Solicitation or Negotiation.............................. 36
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
7.18 Public Announcements....................................... 38
7.19 Environmental Inspections.................................. 39
7.20 Regulatory Matters......................................... 39
7.21 Indemnification and Insurance.............................. 39
7.22 Payment of Regulatory Fees................................. 39
7.23 Shareholder Approval....................................... 39
7.24 Accountant's Consent....................................... 40
SECTION 8. CLOSING.................................................... 40
8.1 Time and Place............................................. 40
SECTION 9. INDEMNIFICATION OF PARENT AND ACQUISITION SUB.............. 41
9.1 Survival................................................... 41
9.2 Indemnification............................................ 41
9.3 Notice of Claims........................................... 42
9.4 Method of Indemnification.................................. 42
9.5 Defense of Third-Party Claims.............................. 43
SECTION 10. DEFINITIONS................................................ 44
SECTION 11. GENERAL.................................................... 47
11.1 Termination................................................ 47
11.2 Effect of Termination...................................... 48
11.3 AMENDMENTS, WAIVERS AND CONSENTS........................... 48
11.4 GOVERNING LAW; CONSENT TO JURISDICTION..................... 48
11.5 Section Headings........................................... 48
11.6 Notices and Demands........................................ 49
11.7 Counterparts............................................... 50
11.8 Severability; Complete Agreement........................... 50
11.9 Expenses................................................... 51
11.10 Assignment................................................. 51
11.11 Accounting Terms........................................... 51
11.12 Parties.................................................... 51
11.13 JURY WAIVER................................................ 51
11.14 Schedules.................................................. 51
11.15 Arbitration................................................ 52
</TABLE>
-iii-
<PAGE>
EXHIBIT 10.27
AGREEMENT
This AGREEMENT (this "Agreement") is made and entered into as of this
31st day of July, 1997 by and between ST ENTERPRISES, LTD., a Delaware
corporation (the "Company"), and JOHN P. DUDA, an employee of the Company (the
"Executive").
RECITALS:
WHEREAS, the Company and the Executive desire to set forth herein the
terms and conditions of certain severance arrangements for the Executive.
NOW, THEREFORE, in consideration of the mutual promises, agreements
and mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending legally to be bound, hereby agree as follows:
1. Termination Upon a Change of Control. In the event that the
------------------------------------
Company terminates the Executive's employment with the Company upon a Change of
Control (as defined below), the Executive shall be entitled to receive from the
Company in a lump sum payment, an amount equal to the Executive's base salary as
of the date of termination for a period of twelve (12) months. In addition, the
Company shall maintain the Executive's long term disability and medical benefits
for a period of twelve (12) months following the date of termination. For
purposes of this Agreement, a "Change of Control" shall be deemed to have
occurred if: (a) the stockholders of the Company or MJD Communications, Inc.
("MJD") on the date hereof, and following the consummation of the transactions
contemplated by the Stock Purchase Agreement (the "Stock Purchase Agreement")
dated as of March 6, 1997 by and among MJD, MJD Partners, L.P., Carousel Capital
Partners, L.P., Kelso Investment Associates V, L.P. and Kelso Equity Partners V,
L.P., no longer own, either directly or indirectly, shares of capital stock of
the Company entitling them to 51% in the aggregate of the voting power for the
election of the directors of the Company, as a result of a merger or
consolidation of the Company, a transfer of capital stock of the Company or
otherwise, or (b) the Company or MJD sells, assigns, conveys, transfers, leases
or otherwise disposes of, in one transaction or a series of related
transactions, all or substantially all of its property or assets to any other
person or entity.
<PAGE>
2. Termination Without Cause. In the event that the Executive's
-------------------------
employment with the Company is terminated without "cause" and not as a result of
a Change of Control, the Executive shall be entitled to receive in a lump sum
payment from the Company, an amount equal to the Executive's base salary for
such period as of the date of termination for a period of six (6) months plus
all accrued and unpaid base salary and benefits as of the date of termination.
In addition, the Company shall maintain the Executive's long term disability and
medical benefits for a period of six (6) months following the date of
termination. For purposes of this Agreement, the term "cause" shall mean:
(a) misappropriating any funds or any material property of the
Company;
(b) obtaining or attempting to obtain any material personal
profit from any transaction in which the Executive has an interest which is
adverse to the interest of the Company unless the Company shall first give
its consent to such transaction;
(c) (i) neglecting or refusing to perform the duties required by
the terms of his employment, (ii) the willful taking of actions which
directly impair the Employee's ability to perform the duties required by
the terms of his employment; or (iii) taking any action detrimental to the
Company's goodwill or damaging to the Company's relationships with its
customers, suppliers or employees; provided that such neglect or refusal,
action or breach shall have continued for a period of twenty (20) days
following written notice thereof;
(d) being convicted of or pleading nolo contendere to any crime
---- ----------
or offense constituting a felony under applicable law or any crime or
offense involving fraud or moral turpitude;
(e) acting or refraining from acting in respect of any of the
duties required by the terms of his employment and the Board of Directors
of the Company determines that such action or inaction constituted gross
negligence or a willful act of malfeasance or misfeasance; or
(f) any material intentional failure to comply with applicable
laws or governmental regulations.
3. Termination for Cause. In the event that the Executive's
---------------------
employment is terminated for cause, the Executive shall not be entitled to any
benefits pursuant to this Agreement.
<PAGE>
4. Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable, this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
5. Miscellaneous.
-------------
(a) Counterparts. This Agreement may be executed in several
------------
counterparts each of which is an original. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument.
It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
(b) Contents of Agreement; Parties In Interest, Etc. This
------------------------------------------------
Agreement sets forth the entire understanding of the parties. Any previous
agreements or understandings between the parties regarding the subject
matter hereof are merged into and superseded by this Agreement. All
representations, warranties, covenants, terms, conditions and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of the Company and the Employee. Neither this Agreement
nor any rights, interests or obligations hereunder may be assigned by any
party without the prior written consent of the other party hereto.
(c) NEW YORK LAW TO GOVERN. THIS AGREEMENT SHALL BE CONSTRUED
----------------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
(d) Section Headings. The section headings herein have been
----------------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
(e) Notices. All notices, requests, demands and other
-------
communications which are required or permitted hereunder shall be
sufficient if given in writing and delivered personally or by registered or
certified mail, postage prepaid, or by facsimile transmission (with a copy
simultaneously sent by registered or certified mail, postage prepaid), as
follows (or to such other address as shall be set forth in a notice given
in the same manner):
<PAGE>
(1) If to the Company, to:
ST Enterprises, Ltd.
c/o MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Facsimile: (704) 344-8150
Attn: Eugene B. Johnson
Copies to:
Paul Hastings Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022-4697
Facsimile: (212) 319-4090
Attn: Neil A. Torpey, Esq.
(2) If to the Executive, to:
John P. Duda
6733 N. Baltusrol Lane
Charlotte, NC 28210
(f) Modification and Waiver. Any of the terms or conditions of
-----------------------
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or
amended at any time by the Company and the Executive. No supplement,
modification or amendment of this Agreement shall be binding unless
executed in writing by each of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof nor shall such waiver constitute a continuing
waiver.
(g) Third Party Beneficiaries. Except as otherwise expressly set
-------------------------
forth herein, no individual or entity shall be a third-party beneficiary of
the representations, warranties, covenants and agreements made by any party
hereto.
(h) Termination of Prior Arrangements. The parties hereto
---------------------------------
acknowledge and agree that this Agreement supersedes and terminates all
<PAGE>
existing severance agreements or arrangements between the Company or any of
its affiliates and the Executive including without limitation the severance
arrangements approved by the Compensation Committee of the Company on
August 17, 1994, without any liability thereunder from the Company, the
Buyers (as defined in the Stock Purchase Agreement) or the Subsidiaries (as
defined in the Stock Purchase Agreement).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or have caused
this Agreement to be duly executed as of the date first above written.
EXECUTIVE EMPLOYER
ST ENTERPRISES, INC.
______________________
John P. Duda
By:
Name:
Title:
<PAGE>
EXHIBIT 10.28
AGREEMENT
This AGREEMENT (this "Agreement") is made and entered into as of this
31st day of July, 1997 by and among MJD COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), MJD PARTNERS, INC., a Delaware corporation
("Partners") and EUGENE B. JOHNSON, an employee of Partners (the "Executive").
RECITALS:
WHEREAS, Executive is employed by Partners to serve as Senior Vice
President of the Company; and
WHEREAS, Partners, the Company and the Executive desire to set forth
herein the terms and conditions of certain severance arrangements for the
Executive.
NOW, THEREFORE, in consideration of the mutual promises, agreements
and mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending legally to be bound, hereby agree as follows:
1. Termination Upon a Change of Control. In the event that Partners
------------------------------------
terminates the Executive's employment as Senior Vice President of the Company
upon a Change of Control (as defined below), the Executive shall be entitled to
receive from Partners in a lump sum payment, an amount equal to the Executive's
base salary as of the date of termination for a period of (18) months. In
addition, Partners shall maintain the Executive's long term disability and
medical benefits for a period of eighteen (18) months following the date of
termination. For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if: (a) the stockholders of the Company on the date
hereof, and following the consummation of the transactions contemplated by the
Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of March 6,
1997 by and among the Company, MJD Partners, L.P., Carousel Capital Partners,
L.P., Kelso Investment Associates V, L.P. and Kelso Equity Partners V, L.P., no
longer own, either directly or indirectly, shares of capital stock of the
Company entitling them to 51% in the aggregate of the voting power for
<PAGE>
the election of the directors of the Company, as a result of a merger or
consolidation of the Company, a transfer of capital stock of the Company or
otherwise, or (b) the Company sells, assigns, conveys, transfers, leases or
otherwise disposes of, in one transaction or a series of related transactions,
all or substantially all of its property or assets to any other person or
entity.
2. Termination Without Cause. In the event that the Executive's
-------------------------
employment as Senior Vice President of the Company is terminated without "cause"
and not as a result of a Change of Control, the Executive shall be entitled to
receive in a lump sum payment from Partners, an amount equal to the Executive's
base salary as of the date of termination for a period of nine (9) months plus
all accrued and unpaid base salary and benefits as of the date of termination.
In addition, Partners shall maintain the Executive's long term disability and
medical benefits for a period of nine (9) months following the date of
termination. For purposes of this Agreement, the term "cause" shall mean:
(a) misappropriating any funds or any material property of the
Company;
(b) obtaining or attempting to obtain any material personal
profit from any transaction in which the Executive has an interest which is
adverse to the interest of the Company unless the Company shall first give
its consent to such transaction;
(c) (i) neglecting or refusing to perform the duties required by
the terms of his employment, (ii) the willful taking of actions which
directly impair the Employee's ability to perform the duties required by
the terms of his employment; or (iii) taking any action detrimental to the
Company's goodwill or damaging to the Company's relationships with its
customers, suppliers or employees; provided that such neglect or refusal,
action or breach shall have continued for a period of twenty (20) days
following written notice thereof;
(d) being convicted of or pleading nolo contendere to any crime
---- ----------
or offense constituting a felony under applicable law or any crime or
offense involving fraud or moral turpitude;
(e) acting or refraining from acting in respect of any of the
duties required by the terms of his employment and the Board of Directors
of the Company determines that such action or inaction constituted gross
negligence or a willful act of malfeasance or misfeasance; or
-2-
<PAGE>
(f) any material intentional failure to comply with applicable
laws or governmental regulations.
3. Termination for Cause. In the event that the Executive's
---------------------
employment as Senior Vice President of the Company is terminated for cause, the
Executive shall not be entitled to any benefits pursuant to this Agreement.
4. Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable, this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
5. Miscellaneous.
-------------
(a) Counterparts. This Agreement may be executed in several
------------
counterparts each of which is an original. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument.
It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
(b) Contents of Agreement; Parties-In-Interest, Etc. This
------------------------------------------------
Agreement sets forth the entire understanding of the parties. Any previous
agreements or understandings between the parties regarding the subject
matter hereof are merged into and superseded by this Agreement. All
representations, warranties, covenants, terms, conditions and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of Partners, the Company and the Employee. Neither this
Agreement nor any rights, interests or obligations hereunder may be
assigned by any party without the prior written consent of the other party
hereto.
(c) NEW YORK LAW TO GOVERN. THIS AGREEMENT SHALL BE CONSTRUED
----------------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
-3-
<PAGE>
(d) Section Headings. The section headings herein have been
----------------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
(e) Notices. All notices, requests, demands and other
-------
communications which are required or permitted hereunder shall be
sufficient if given in writing and delivered personally or by registered or
certified mail, postage prepaid, or by facsimile transmission (with a copy
simultaneously sent by registered or certified mail, postage prepaid), as
follows (or to such other address as shall be set forth in a notice given
in the same manner):
(1) If to the Company or Partners, to:
MJD Partners, Inc. or
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Facsimile: (704) 344-8150
Attn: Jack H. Thomas
Copies to:
Paul Hastings Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022-4697
Facsimile: (212) 319-4090
Attn: Neil A. Torpey, Esq.
(2) If to the Executive, to:
Eugene B. Johnson
920 Berkeley Avenue
Charlotte, North Carolina 28203
(f) Modification and Waiver. Any of the terms or conditions of
-----------------------
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or
amended at any time by Partners, the Company and the Executive. No
supplement, modification or amendment of this Agreement shall be binding
-4-
<PAGE>
unless executed in writing by each of the parties hereto. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof nor shall such waiver constitute a
continuing waiver.
(g) Third Party Beneficiaries. Except as otherwise expressly set
-------------------------
forth herein, no individual or entity shall be a third-party beneficiary of
the representations, warranties, covenants and agreements made by any party
hereto.
(h) Termination of Prior Arrangements. The parties hereto
---------------------------------
acknowledge and agree that this Agreement supersedes and terminates all
existing severance agreements or arrangements between the Company or any of
its affiliates and the Executive including without limitation the severance
arrangements approved by the Compensation Committee of the Company on
August 17, 1994.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or have caused
this Agreement to be duly executed as of the date first above written.
EXECUTIVE MJD COMMUNICATIONS, INC.
By:
____________________________ ____________________________
Eugene B. Johnson Name
Title:
MJD PARTNERS, INC.
By:
____________________________
Name:
Title:
-6-
<PAGE>
EXHIBIT 10.29
AGREEMENT
This AGREEMENT (this "Agreement") is made and entered into as of this
31st day of July, 1997 by and between MJD COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), and WALTER E. LEACH, JR., an employee of the
Company (the "Executive").
RECITALS:
WHEREAS, the Company and the Executive desire to set forth herein the
terms and conditions of certain severance arrangements for the Executive.
NOW, THEREFORE, in consideration of the mutual promises, agreements and
mutual covenants set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound, hereby agree as follows:
1. Termination Upon a Change of Control. In the event that the Company
------------------------------------
terminates the Executive's employment with the Company upon a Change of Control
(as defined below), the Executive shall be entitled to receive from the Company
in a lump sum payment, an amount equal to the Executive's base salary for such
period as of the date of termination for a period of twelve (12) months. In
addition, the Company shall maintain the Executive's long term disability and
medical benefits for a period of twelve (12) months following the date of
termination. For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if: (a) the stockholders of the Company on the date
hereof, and following the consummation of the transactions contemplated by the
Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of March 6,
1997 by and among the Company, MJD Partners, L.P., Carousel Capital Partners,
L.P., Kelso Investment Associates V, L.P. and Kelso Equity Partners V, L.P., no
longer own, either directly or indirectly, shares of capital stock of the
Company entitling them to 51% in the aggregate of the voting power for the
election of the directors of the Company, as a result of a merger or
consolidation of the Company, a transfer of capital stock of the Company or
otherwise, or (b) the Company sells, assigns, conveys, transfers, leases or
otherwise disposes of, in one transaction or a series of related transactions,
all or substantially all of its property or assets to any other person or
entity.
<PAGE>
2. Termination Without Cause. In the event that the Executive's
-------------------------
employment with the Company is terminated without "cause" and not as a result of
a Change of Control, the Executive shall be entitled to receive in a lump sum
payment from the Company, an amount equal to the Executive's base salary as of
the date of termination for a period of six (6) months plus all accrued and
unpaid base salary and benefits as of the date of termination. In addition, the
Company shall maintain the Executive's long term disability and medical benefits
for a period of six (6) months following the date of termination. For purposes
of this Agreement, the term "cause" shall mean:
(a) misappropriating any funds or any material property of the
Company;
(b) obtaining or attempting to obtain any material personal profit
from any transaction in which the Executive has an interest which is
adverse to the interest of the Company unless the Company shall first give
its consent to such transaction;
(c) (i) neglecting or refusing to perform the duties required by the
terms of his employment, (ii) the willful taking of actions which directly
impair the Employee's ability to perform the duties required by the terms
of his employment; or (iii) taking any action detrimental to the Company's
goodwill or damaging to the Company's relationships with its customers,
suppliers or employees; provided that such neglect or refusal, action or
breach shall have continued for a period of twenty (20) days following
written notice thereof;
(d) being convicted of or pleading nolo contendere to any crime or
---- ----------
offense constituting a felony under applicable law or any crime or offense
involving fraud or moral turpitude;
(e) acting or refraining from acting in respect of any of the duties
required by the terms of his employment and the Board of Directors of the
Company determines that such action or inaction constituted gross
negligence or a willful act of malfeasance or misfeasance; or
(f) any material intentional failure to comply with applicable laws
or governmental regulations.
3. Termination for Cause. In the event that the Executive's employment
---------------------
is terminated for cause, the Executive shall not be entitled to any benefits
pursuant to this Agreement
<PAGE>
4. Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable, this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
5. Miscellaneous.
-------------
(a) Counterparts. This Agreement may be executed in several
------------
counterparts each of which is an original. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument.
It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
(b) Contents of Agreement; Parties In Interest, Etc. This Agreement
------------------------------------------------
sets forth the entire understanding of the parties. Any previous
agreements or understandings between the parties regarding the subject
matter hereof are merged into and superseded by this Agreement. All
representations, warranties, covenants, terms, conditions and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of the Company and the Employee. Neither this Agreement
nor any rights, interests or obligations hereunder may be assigned by any
party without the prior written consent of the other party hereto.
(c) NEW YORK LAW TO GOVERN. THIS AGREEMENT SHALL BE CONSTRUED AND
----------------------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
(d) Section Headings. The section headings herein have been
----------------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
(e) Notices. All notices, requests, demands and other
-------
communications which are required or permitted hereunder shall be
sufficient if given in writing and delivered personally or by registered or
certified mail, postage prepaid, or by facsimile transmission (with a copy
simultaneously sent by registered or certified mail, postage prepaid), as
follows (or to such other address as shall be set forth in a notice given
in the same manner):
<PAGE>
(1) If to the Company, to:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Facsimile: (704) 344-8150
Attn: Eugene B. Johnson
Copies to:
Paul Hastings Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022-4697
Facsimile: (212) 319-4090
Attn: Neil A. Torpey, Esq.
(2) If to the Executive, to:
Walter E. Leach, Jr.
6419 Sharon Hills Road
Charlotte, North Carolina 28210
(f) Modification and Waiver. Any of the terms or conditions of
-----------------------
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or
amended at any time by the Company and the Executive. No supplement,
modification or amendment of this Agreement shall be binding unless
executed in writing by each of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof nor shall such waiver constitute a continuing
waiver.
(g) Third Party Beneficiaries. Except as otherwise expressly set
-------------------------
forth herein, no individual or entity shall be a third-party beneficiary of
the representations, warranties, covenants and agreements made by any party
hereto.
(h) Termination of Prior Arrangements. The parties hereto
---------------------------------
acknowledge and agree that this Agreement supersedes and terminates all
existing severance agreements or arrangements including, without
limitation,
<PAGE>
the severance arrangements between the Company or any of its affiliates and
the Executive approved by the Compensation Committee of the Company on
August 17, 1994, without any liability thereunder from the Company, the
Buyers (as defined in the Stock Purchase Agreement) or the Subsidiaries (as
defined in the Stock Purchase Agreement).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or have
caused this Agreement to be duly executed as of the date first above written.
EXECUTIVE EMPLOYER
MJD COMMUNICATIONS, INC.
___________________
Walter E. Leach, Jr.
By:
Name:
Title:
<PAGE>
EXHIBIT 10.30
AGREEMENT
This AGREEMENT (this "Agreement") is made and entered into as of this
31st day of July, 1997 by and among MJD COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), MJD PARTNERS, INC. ("Partners") and JACK H. THOMAS,
an employee of Partners (the "Executive").
RECITALS:
WHEREAS, Executive is employed by Partners to serve as President and
Chief Executive Officer of the Company; and
WHEREAS, Partners, the Company and the Executive desire to set forth
herein the terms and conditions of certain severance arrangements for the
Executive.
NOW, THEREFORE, in consideration of the mutual promises, agreements
and mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending legally to be bound, hereby agree as follows:
1. Termination Upon a Change of Control. In the event that Partners
------------------------------------
terminates the Executive's employment as President and Chief Executive Officer
of the Company upon a Change of Control (as defined below), the Executive shall
be entitled to receive from Partners in a lump sum payment, an amount equal to
the Executive's base salary as of the date of termination for a period of
twenty-four (24) months. In addition, Partners shall maintain the Executive's
long term disability and medical benefits for a period of twenty-four (24)
months following the date of termination. For purposes of this Agreement, a
"Change of Control" shall be deemed to have occurred if: (a) the stockholders of
the Company on the date hereof, and following the consummation of the
transactions contemplated by the Stock Purchase Agreement (the "Stock Purchase
Agreement") dated as of March 6, 1997 by and among the Company, MJD Partners,
L.P., Carousel Capital Partners, L.P., Kelso Investment Associates V, L.P. and
Kelso Equity Partners V, L.P., no longer own, either directly or indirectly,
shares of capital stock of the Company entitling them to 51% in the aggregate of
the voting power for the election of the directors of the Company, as a
<PAGE>
result of a merger or consolidation of the Company, a transfer of capital stock
of the Company or otherwise, or (b) the Company sells, assigns, conveys,
transfers, leases or otherwise disposes of, in one transaction or a series of
related transactions, all or substantially all of its property or assets to any
other person or entity.
2. Termination Without for Cause. In the event that the Executive's
-----------------------------
employment as President and Chief Executive Officer of the Company is terminated
without "cause" and not as a result of a Change of Control, the Executive shall
be entitled to receive in a lump sum payment from Partners, an amount equal to
the Executive's base salary as of the date of termination for a period of twelve
(12) months plus all accrued and unpaid base salary and benefits as of the date
of termination. In addition, Partners shall maintain the Executive's long term
disability and medical benefits for a period of twelve (12) months following the
date of termination. For purposes of this Agreement, the term "cause" shall
mean:
(a) misappropriating any funds or any material property of the
Company;
(b) obtaining or attempting to obtain any material personal
profit from any transaction in which the Executive has an interest which is
adverse to the interest of the Company unless the Company shall first give
its consent to such transaction;
(c) (i) neglecting or refusing to perform the duties required by
the terms of his employment, (ii) the willful taking of actions which
directly impair the Employee's ability to perform the duties required by
the terms of his employment; or (iii) taking any action detrimental to the
Company's goodwill or damaging to the Company's relationships with its
customers, suppliers or employees; provided that such neglect or refusal,
action or breach shall have continued for a period of twenty (20) days
following written notice thereof;
(d) being convicted of or pleading nolo contendere to any crime
---- ----------
or offense constituting a felony under applicable law or any crime or
offense involving fraud or moral turpitude;
(e) acting or refraining from acting in respect of any of the
duties required by the terms of his employment and the Board of Directors
of the Company determines that such action or inaction constituted gross
negligence or a willful act of malfeasance or misfeasance; or
(f) any material intentional failure to comply with applicable
laws or governmental regulations.
<PAGE>
3. Termination for Cause. In the event that the Executive's
---------------------
employment as President and Chief Executive Officer of the Company is terminated
for cause, the Executive shall not be entitled to any benefits pursuant to this
Agreement.
4. Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable, this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
5. Miscellaneous.
-------------
(a) Counterparts. This Agreement may be executed in several
------------
counterparts each of which is an original. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument.
It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
(b) Contents of Agreement; Parties-In-Interest, Etc. This
-----------------------------------------------
Agreement sets forth the entire understanding of the parties. Any previous
agreements or understandings between the parties regarding the subject
matter hereof are merged into and superseded by this Agreement. All
representations, warranties, covenants, terms, conditions and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of Partners, the Company and the Employee. Neither this
Agreement nor any rights, interests or obligations hereunder may be
assigned by any party without the prior written consent of the other party
hereto.
(c) NEW YORK LAW TO GOVERN. THIS AGREEMENT SHALL BE CONSTRUED
----------------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
(d) Section Headings. The section headings herein have been
----------------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
(e) Notices. All notices, requests, demands and other
-------
communications which are required or permitted hereunder shall be
sufficient if
<PAGE>
given in writing and delivered personally or by registered or certified
mail, postage prepaid, or by facsimile transmission (with a copy
simultaneously sent by registered or certified mail, postage prepaid), as
follows (or to such other address as shall be set forth in a notice given
in the same manner):
(1) If to the Company or Partners, to:
MJD Partners, Inc. or
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Facsimile: (704) 344-8150
Attn: Eugene B. Johnson
Copies to:
Paul Hastings Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022-4697
Facsimile: (212) 319-4090
Attn: Neil A. Torpey, Esq.
(2) If to the Executive, to:
Jack H. Thomas
18800 Pennisula Cove Lane
Cornelius, North Carolina 28031
Facsimile: (704) 333-1200
(f) Modification and Waiver. Any of the terms or conditions of
-----------------------
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or
amended at any time by Partners, the Company and the Executive. No
supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by each of the parties hereto. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof nor shall such waiver constitute a
continuing waiver.
<PAGE>
(g) Third Party Beneficiaries. Except as otherwise expressly set
-------------------------
forth herein, no individual or entity shall be a third-party beneficiary of
the representations, warranties, covenants and agreements made by any party
hereto.
(h) Termination of Prior Arrangements. The parties hereto
---------------------------------
acknowledge and agree that this Agreement supersedes and terminates all
existing severance agreements or arrangements between the Company or any of
its affiliates and the Executive including without limitation the severance
arrangements approved by the Compensation Committee of the Company on
August 17, 1994, without any liability thereunder from the Company, the
Buyers (as defined in the Stock Purchase Agreement) or the Subsidiaries (as
defined in the Stock Purchase Agreement).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or have caused
this Agreement to be duly executed as of the date first above written.
EXECUTIVE MJD COMMUNICATIONS, INC.
____________________ By:
Jack H. Thomas Name:
Title:
MJD PARTNERS, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT 12
Sheet 1
MJD Communications, Inc
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING
OPERATIONS BEFORE TAXES 1,235,115 1,951,149 1,119,496 3,493,681 4,366,550
PLUS: FIXED CHARGES 800,392 3,812,248 7,366,827 7,751,254 9,897,286
-------------- --------------- --------------- --------------- ---------------
EARNINGS (AS DEFINED) 2,035,507 5,763,397 8,486,323 11,244,935 14,263,836
============== =============== =============== =============== ===============
INTEREST EXPENSE 791,365 3,771,606 7,178,722 7,533,563 9,587,604
RENT EXPENSE (INTEREST PORTION) 9,027 40,642 164,657 186,741 257,341
CAPITALIZED INTEREST - - 23,448 30,950 52,341
-------------- --------------- --------------- --------------- ---------------
TOTAL FIXED CHARGES 800,392 3,812,248 7,366,827 7,751,254 9,897,286
============== =============== =============== =============== ===============
"EARNINGS" DIVIDED BY FIXED CHARGES 2.5 1.5 1.2 1.5 1.4
============== =============== =============== =============== ===============
<CAPTION>
Three Months Pro Forma
Ended -----------------------------------------------
March 31, Year Ended December 31, 1997
-------------------------------- -----------------------------------------------
Completed
Acquisitions, New
Credit Facility As Adjusted
1997 1998 and Offering for Utilities
--------------- --------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
INCOME FROM CONTINUING
OPERATIONS BEFORE TAXES 993,029 1,333,914 (5,780,432) (7,126,615)
PLUS: FIXED CHARGES 1,939,844 2,845,105 31,270,689 37,613,095
--------------- --------------- ------------------------ ---------------------
EARNINGS (AS DEFINED) 2,932,873 4,179,019 25,490,257 30,486,480
=============== =============== ======================== =====================
INTEREST EXPENSE 1,886,021 2,775,145 30,787,207 37,027,026
RENT EXPENSE (INTEREST PORTION) 53,823 69,566 394,632 485,487
CAPITALIZED INTEREST - 394 88,850 100,582
--------------- --------------- ------------------------ ---------------------
TOTAL FIXED CHARGES 1,939,844 2,845,105 31,270,689 37,613,095
=============== =============== ======================== =====================
"EARNINGS" DIVIDED BY FIXED CHARGES 1.5 1.5 0.8 0.8
=============== =============== ======================== =====================
<CAPTION>
Pro Forma
------------------------------------------------------
Three Months Ended March 31, 1998
------------------------------------------------------
Completed
Acquisitions, New
Credit Facility As Adjusted
and Offering for Utilities
--------------------------- -------------------------
<S> <C> <C>
INCOME FROM CONTINUING
OPERATIONS BEFORE TAXES (1,631,202) (2,341,826)
PLUS: FIXED CHARGES 7,758,461 9,398,641
--------------------------- -------------------------
EARNINGS (AS DEFINED) 6,127,259 7,056,815
=========================== =========================
INTEREST EXPENSE 7,645,946 9,205,901
RENT EXPENSE (INTEREST PORTION) 97,720 174,341
CAPITALIZED INTEREST 14,795 18,399
--------------------------- -------------------------
TOTAL FIXED CHARGES 7,758,461 9,398,641
=========================== =========================
"EARNINGS" DIVIDED BY FIXED CHARGES 0.8 0.8
=========================== =========================
</TABLE>
Page 1
<PAGE>
Exhibit 21
----------
LIST OF SUBSIDIARIES
--------------------
I. MJD Communications, Inc.
A. ST Enterprises, Ltd. (Kansas)
Name
----
1. Sunflower Telephone Company, Inc. (Kansas)
2. STE - NE Acquisition Corp. (dba Northland Telephone Company of
Vermont) (Delaware)
3. Northland Telephone Company of Maine, Inc. (Maine)
4. ST Paging, Inc. (Kansas)
5. ST Communications, Inc. (Kansas)
6. St Computer Resources, Inc. (Kansas)
7. ST Long Distance Inc. (Delaware)
8. St Broadcasting Company, Inc. (Kansas)
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the application of our report dated February 11, 1998 on the
financial statements of Ellensburg Telephone Company for purposes of inclusion
in the Registration Statement on Form S-4 of MJD Communications, Inc. We also
consent to the reference to our firm as experts.
Moss Adams LLP
Seattle, Washington
June 5, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 24, 1997, with respect to the financial
statements of Chautauqua & Erie Telephone Corporation included in the
Registration Statement (Form S-4, No. 333-00000) and related prospectus of MJD
Communications, Inc. for the registration of $200 million of its Senior
Subordinated Notes.
/s/ Ernst & Young LLP
June 5, 1997
Buffalo, New York
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of MJD
Communications, Inc. on Form S-4 of our report on the audit of the financial
statements of Big Sandy Telecommunications, Inc. dated February 6, 1996 and to
the reference to our Firm under the caption "Experts" in such Registration
Statement.
/s/ Kiesling Associates LLP
Madison, Wisconsin
June 5, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated February 12, 1998 (except for Notes 3, 13
and 14, which are dated May 17, 1998, February 19, 1998 and March 27, 1998,
respectively) on our audits of the consolidated financial statements of
Utilities, Inc. and Subsidiaries contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ Berry, Dunn, McNeil & Parker
Portland, Maine
June 5, 1998
<PAGE>
EXHIBIT 23.6
ACCOUNTANTS' CONSENT
The Board of Directors
Taconic Telephone Corp.:
We consent to the use of our reports included in the Registration Statement
on Form S-4 being filed by MJD Communications Inc. We also consent to the
reference to our firm as experts.
/s/ KPMG Peat Marwick LLP
Albany, New York
June 5, 1998
<PAGE>
EXHIBIT 23.6
ACCOUNTANTS' CONSENT
The Board of Directors
MJD Communications, Inc.:
We consent to the use of our reports included herein and to reference to our
Firm under the headings "Summary Consolidated Financial and Operating Data,"
"Selected Consolidated Financial and Operating Data" and "Experts" in the
Registration Statement on Form S-4.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
June 5, 1998
<PAGE>
EXHIBIT 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OFA CORPORATION
DESIGNATED TO ACT AS TRUSTEE
=====================
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
=====================
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 West 47th Street
New York, New York 10036-1532
(Address of principal (Zip Code)
executive offices)
None
(Name, address and telephone number of agent for service)
========================
MJD COMMUNICATIONS, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 13-3725229
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
521 East Morehead Street
Charlotte North Carolina 28202
(Address of principal executive offices) (Zip Code)
9 1/2% Senior Subordinated Notes due 2008
Floating Rate Callable Securities due 2008
(Title of the indenture securities)
<PAGE>
- 2 -
GENERAL
1. General Information
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No. 33-
97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. List of Exhibits
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
====
As of May 21, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 21st of
May 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By:
--------------------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
December 19, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
---------------------------
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
--------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
----------
Total Assets $3,159,978
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
----------
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
----------
Total Liabilities $2,987,921
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
----------
Total Stockholder's Equity 172,057
----------
Total Liabilities and
Stockholder's Equity $3,159,978
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 6,822,462 9,871,035
<SECURITIES> 0 0
<RECEIVABLES> 8,312,778 12,246,512
<ALLOWANCES> 49,204 0
<INVENTORY> 736,509 1,097,038
<CURRENT-ASSETS> 17,140,868 27,631,296
<PP&E> 61,206,890 88,021,413
<DEPRECIATION> 7,465,891 2,222,984
<TOTAL-ASSETS> 144,612,779 236,807,811
<CURRENT-LIABILITIES> 17,033,168 15,765,078
<BONDS> 0 0
130,164 0
0 0
<COMMON> 881 1,366
<OTHER-SE> (9,951,068) 5,059,191
<TOTAL-LIABILITY-AND-EQUITY> 144,612,779 236,807,811
<SALES> 42,972,318 13,532,661
<TOTAL-REVENUES> 42,972,318 13,532,661
<CGS> 0 0
<TOTAL-COSTS> 30,533,066 9,493,479
<OTHER-EXPENSES> 19,299 3,192
<LOSS-PROVISION> 0 12,255
<INTEREST-EXPENSE> 9,587,604 2,775,145
<INCOME-PRETAX> 4,366,550 1,333,914
<INCOME-TAX> 1,875,634 615,183
<INCOME-CONTINUING> 2,490,916 718,731
<DISCONTINUED> 0 0
<EXTRAORDINARY> 3,611,624 2,520,943
<CHANGES> 0 0
<NET-INCOME> (1,182,343) (1,826,997)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
MJD COMMUNICATIONS, INC.
OFFER TO EXCHANGE ITS
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
AND FLOATING RATE CALLABLE SECURITIES DUE 2008, SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
AND FLOATING RATE CALLABLE SECURITIES DUE 2008
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS THE OFFER IS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
By Registered, By Hand By Hand
Certified or Overnight (before 4:30 p.m.): (after 4:30 p.m.):
Mail:
United States Trust United States Trust United States Trust
Company of New York Company of New York Company of New York
Attn: Corporate Trust 111 Broadway 770 Broadway, 13th
Services New York, New York Floor
P.O. Box 843 Cooper 10276 New York, New York
Station Attention: Lower Level 10003
New York, New York Corporate Trust Window
10276
By Facsimile: Telephone Number:
(212) 780-0592 (800) 548-6565
(For Eligible Institutions Only)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED. CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL
HAVE THE SAME MEANING GIVEN THEM IN THE PROSPECTUS (AS DEFINED BELOW).
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES TENDERED
- ---------------------------------------------------------------------------------------------------------------
IF BLANK, PLEASE PRINT NAME AND ADDRESS OLD NOTES TENDERED (ATTACH ADDITIONAL LIST OF NOTES)
OF REGISTERED HOLDER
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OF
CERTIFICATE PRINCIPAL AMOUNT OF OLD NOTES TENDERED
NUMBER(S)* OLD NOTES (IF LESS THAN ALL)**
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL AMOUNT TENDERED:
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* NEED NOT BE COMPLETED BY BOOK-ENTRY HOLDERS.
** OLD NOTES MAY BE TENDERED IN WHOLE OR IN PART IN DENOMINATIONS OF $1,000
AND INTEGRAL MULTIPLIES THEREOF. ALL OLD NOTES HELD SHALL BE DEEMED
TENDERED UNLESS A LESSER NUMBER IS SPECIFIED IN THIS COLUMN.
<PAGE>
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders
of Old Notes are to be made by book-entry transfer to an account maintained by
UNITED STATES TRUST COMPANY OF NEW YORK (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer --Procedures for Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates
and all other required documents to the Exchange Agent on or prior to the
Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering Old Notes--Guaranteed Delivery" in
the Prospectus.
SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution: ______________________________________________
DTC Account No.: ____________________________________________________________
Transaction Code No.: _______________________________________________________
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): ____________________________________________
Window Ticket Number (if any): ______________________________________________
Date of Execution of Notice of Guaranteed Delivery: _________________________
Name of Institution which Guaranteed Delivery: ______________________________
IF GUARANTEED DELIVERY IS TO BE MADE BY BOOK-ENTRY TRANSFER:
Name of Tendering Institution: ______________________________________________
DTC Account No.: ____________________________________________________________
Transaction Code No.: _______________________________________________________
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _________________________________________________________________________
Address: ______________________________________________________________________
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to MJD Communications, Inc., a Delaware
corporation (the "Company"), the above described aggregate principal amount of
the Company's 9 1/2% Senior Subordinated Notes due 2008 and Floating Rate
Callable Securities due 2008 (the "Old Notes") in exchange for a like
aggregate principal amount of the Company's 9 1/2% Fixed Rate Notes due 2008,
Series B and Floating Rate Notes due 2008, Series B, respectively, (the
"Exchange Notes") which have been registered under Securities Act of 1933 (the
"Securities Act"), upon the terms and subject to the conditions set forth in
the Prospectus dated , 1998 (as the same may be amended or supplemented
from time to time, the "Prospectus"), receipt of which is acknowledged, and in
this Letter of Transmittal (which, together with the Prospectus, constitute
the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with
the Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described
in the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to be issued in exchange for such
Old Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED
HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF
THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account
maintained at DTC), without expense to the tendering holder, promptly
following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one of
the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement
3
<PAGE>
between the undersigned and the Company upon the terms and subject to the
conditions of the Exchange Offer. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Company may not be
required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such Exchange Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing Old Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Old
Notes, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please deliver Exchange Notes to the undersigned at the address shown below
the undersigned's signature.
By tendering Old Notes and executing this Letter of Transmittal, the
undersigned hereby represents and agrees that (i) the undersigned is not an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company
or any of its subsidiaries, (ii) any Exchange Notes to be received by the
undersigned are being acquired in the ordinary course of its business, (iii)
the undersigned has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
Exchange Notes to be received in the Exchange Offer, and (iv) if the
undersigned is not a Broker-Dealer, the undersigned is not engaged in, and
does not intend to engage in, a distribution (within the meaning of the
Securities Act) of such Exchange Notes. By tendering Old Notes pursuant to the
Exchange Offer and executing this Letter of Transmittal, a holder of Old Notes
which is a Broker-Dealer represents and agrees, consistent with certain
interpretive letters issued by the staff of the Division of Corporation
Finance of the Securities and Exchange Commission to third parties, that
(a) such Old Notes held by the Broker-Dealer are held only as a nominee, or
(b) such Old Notes were acquired by such Broker-Dealer for its own account as
a result of market-making activities or other trading activities and it will
deliver the Prospectus (as amended or supplemented from time to time) meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes (provided that, by so acknowledging and by delivering a
prospectus, such Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act). See "The Exchange
Offer--Resales of Exchange Notes" in the Prospectus.
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement, the Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer (as defined below)
in connection with resales of Exchange Notes received in exchange for Old
Notes, where such Old Notes were acquired by such Participating Broker-Dealer
for its own account as a result of market-making activities or other trading
activities, for a period ending 180 days after the Expiration Date (subject to
extension under certain limited circumstances described in the Prospectus) or,
if earlier, when all such Exchange Notes have been disposed of by such
Participating Broker-Dealer. However, a Participating Broker-Dealer who
intends to use the Prospectus in connection with the resale of Exchange Notes
received in exchange for Old Notes pursuant to the Exchange Offer must notify
the Company, or cause the Company to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided herein for that purpose or may be delivered to the
Exchange Agent at one of the addresses set forth in the Prospectus under "The
Exchange Offer--Exchange Agent." In that regard, each Broker-Dealer who
acquired Old Notes for its own account as a result of market-making or other
trading activities (a "Participating Broker-Dealer"), by tendering such Old
Notes and executing this Letter of Transmittal, agrees that, upon receipt of
notice from the Company of the occurrence of any event or the discovery of any
fact which makes any statement contained or incorporated by reference in the
Prospectus untrue in any material respect or which causes the Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference therein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain
other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant
to the Prospectus until the Company has amended or supplemented the Prospectus
to correct such misstatement or omission and has furnished copies of the
amended or supplemented Prospectus to the Participating Broker-Dealer or the
Company has given notice that the sale of the Exchange Notes may be resumed,
as the case may be. If the Company gives such notice to suspend the sale
4
<PAGE>
of the Exchange Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use the Prospectus
in connection with the resale of Exchange Notes by the number of days in the
period from and including the date of the giving of such notice to and
including the date when the Company shall have made available to Participating
Broker-Dealers copies of the supplemented or amended Prospectus necessary to
resume resales of the Exchange Notes or to and including the date on which the
Company has given notice that the use of the applicable Prospectus may be
resumed, as the case may be.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided
for on such Old Notes prior to the original issue date of the Exchange Notes
or, if no such interest has been paid or duly provided for, will not receive
any accrued interest on such Old Notes, and the undersigned waives the right
to receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after 1998.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
5
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the
Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-fact,
executor, administrator, trustee, guardian, officer of a corporation or
another acting in a fiduciary capacity or representative capacity, please set
forth the signer's full title. See Instruction 5.
(SIGNATURE(S) OF HOLDER(S))
Dated: _________________________, 1998
Name(s): ____________________________________________________________________
(Please Print)
Address: ____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number: _____________________________________________
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature: _______________________________________________________
Name: _______________________________________________________________________
(Please Print)
Date: _________________________________________________________________, 1998
Capacity of Title: __________________________________________________________
Name of Firm: _______________________________________________________________
Address: ____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number: _____________________________________________
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6) (SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the To be completed ONLY if the
Exchange Notes are to be issued in Exchange Notes are to be sent to
the name of someone other than the someone other than the registered
registered holder of the Old Notes holder of the Old Notes whose
whose name(s) appear(s) above: name(s) appear(s) above, or to
such registered holder(s) at an
address other than that shown
above.
Issue Exchange Notes to: Mail Exchange Notes to:
Name: Name:
---------------------------- ------------------------------
(Please Print (Please Print)
Address: Address:
----------------------------- -----------------------------
----------------------------------- -----------------------------------
(Include Zip Code) (Include Zip Code)
----------------------------------- -----------------------------------
(Taxpayer Identification or Social (Taxpayer Identification or Social
Security No.) Security No.)
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at DTC, as well as this Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at one of its
addresses set forth herein on or prior to the Expiration Date. Old Notes may
be tendered in whole or in part in the principal amount of $1,000 and integral
multiples thereof.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent on or
prior to the Expiration Date or (iii) who cannot complete the procedures for
delivery by book-entry transfer on a timely basis, may tender their Old Notes
by properly completing and duly executing a Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes--Guaranteed Delivery" in the
Prospectus. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution (as defined below); (ii) a properly completed
and duly executed Notice of Guaranteed Delivery, substantially in the form
made available by the Company, must be received by the Exchange Agent on or
prior to the Expiration Date; and (iii) the Certificates (or a book-entry
confirmation (as defined in the Prospectus)) representing all tendered Old
Notes, in proper form for transfer, together with a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent within three New York
Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in "The Exchange Offer--Procedures for
Tendering Old Notes--Guaranteed Delivery" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act
as "an eligible guarantor institution," including (as such terms are defined
therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance
of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in
DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s)
has completed either the box entitled "Special Issuance Instructions"
or the box entitled "Special Delivery Instructions" above, or
8
<PAGE>
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned "Description
of Old Notes" is inadequate, the Certificate number(s) and/or the principal
amount of Old Notes and any other required information should be listed on a
separate signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples
thereof. If less than all the Old Notes evidenced by any Certificate submitted
are to be tendered, fill in the principal amount of Old Notes which are to be
tendered in the box entitled "Principal Amount of Old Notes Tendered (if less
than all)." In such case, new Certificate(s) for the remainder of the Old
Notes that were evidenced by your old Certificate(s) will only be sent to the
holder of the Old Notes, promptly after the Expiration Date. All Old Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to
be effective on or prior to that time, a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Old Notes to be
withdrawn, the aggregate principal amount of Old Notes to be withdrawn, and
(if Certificates for Old Notes have been tendered) the name of the registered
holder of the Old Notes as set forth on the Certificate for the Old Notes, if
different from that of the person who tendered such Old Notes. If Certificates
for the Old Notes have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such Certificates for the Old
Notes, the tendering holder must submit the serial numbers shown on the
particular Certificates for the Old Notes to be withdrawn and the signature on
the notice of withdrawal must be guaranteed by an Eligible Institution, except
in the case of Old Notes tendered for the account of an Eligible Institution.
If Old Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in "The Exchange Offer--Procedures for Tendering Old
Notes," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Old Notes, in which case
a notice of withdrawal will be effective if delivered to the Exchange Agent by
written, telegraphic, telex or facsimile transmission. Withdrawals of tenders
of Old Notes may not be rescinded. Old Notes properly withdrawn will not be
deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The
Exchange Offer--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
9
<PAGE>
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons'
authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless Exchange Notes are to be issued
in the name of a person other than the registered holder(s). Signature(s) on
such Certificate(s) or bond power(s) must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Old Notes may require in accordance with
the restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be
completed. Certificates for Old Notes not exchanged will be returned by mail
or, if tendered by book-entry transfer, by crediting the account indicated
above maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the
Exchange Offer set forth in the Prospectus under "The Exchange Offer--Certain
Conditions to the Exchange Offer" or any conditions or irregularity in any
tender of Old Notes of any particular holder whether or not similar conditions
or irregularities are waived in the case of other holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
this Letter of Transmittal and the instructions hereto) will be final and
binding. No tender of Old Notes will be deemed to have been validly made until
all irregularities with respect to such tender have been cured or waived.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent, nor any other person shall be under any duty to give notification of
any irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at one of its
addresses and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent
or from your broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Old Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
10
<PAGE>
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN
is provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-
9. If the holder furnishes the Exchange Agent with its TIN within 60 days
after the date of the Substitute Form W-9, the amounts retained during the 60
day period will be remitted to the holder and no further amounts shall be
retained or withheld from payments made to the holder thereafter. If, however,
the holder has not provided the Exchange Agent with its TIN within such 60 day
period, amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Old Notes. If the Old Notes are registered in more
than one name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the
face thereof, to avoid possible erroneous backup withholding. A foreign person
may qualify as an exempt recipient by submitting a properly completed IRS Form
W-8, signed under penalties of perjury, attesting to that holder's exempt
status. Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to
the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for exchange
will not be obligated to pay any transfer taxes in connection therewith. If,
however, Exchange Notes are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Old Notes
tendered, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes in connection with the Exchange Offer, then the amount
of any such transfer tax (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING NOTEHOLDERS
(SEE INSTRUCTION 9)
PAYEE'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR Social Security
TIN IN THE BOX AT RIGHT AND Number
CERTIFY BY SIGNING AND DATING
BELOW OR
Employer
Identification
Number
--------------------------------------------------------
SUBSTITUTE CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT
FORM W-9
DEPARTMENT OF THE (1) the number shown on this form is my correct
TREASURY, Taxpayer Identification Number (or that I am
INTERNAL REVENUE waiting for a number to be issued to me).
SERVICE PAYER'S
REQUEST FOR (2) (a) I am exempt from backup withholding, (b) I
TAXPAYER have not been notified by the Internal Revenue
IDENTIFICATION Service (the "IRS") that I am subject to backup
NUMBER ("TIN") withholding as a result of a failure to report all
AND CERTIFICATION interest or dividends, or (c) the IRS has notified
me that I am no longer subject to withholding.
(3) any other information provided on this form is
true and correct.
CERTIFICATION INSTRUCTIONS--YOU MUST CROSS OUT ITEM
(2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT
YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING
BECAUSE OF UNDER- REPORTING INTEREST OR DIVIDENDS ON
YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY
THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING,
YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS THAT
YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO
NOT CROSS OUT ITEM (2).
PART 2
SIGNATURE DATE AWAITING
TIN [_]
-------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU
PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number by the
time of payment, 31% of all payments made to me on account of the Exchange
Notes shall be retained until I provide a Taxpayer Identification Number to
the Exchange Agent and that, if I do not provide my Taxpayer Identification
Number within 60 days, such retained amounts shall be remitted to the Internal
Revenue Service as backup withholding and 31% of all reportable payments made
to me thereafter will be withheld and remitted to the Internal Revenue Service
until I provide a Taxpayer Identification Number.
Signature: __________________________ Date: _________________________ ,1998
12
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
AND FLOATING RATE CALLABLE SECURITIES DUE 2008
OF
MJD COMMUNICATIONS, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 9 1/2% Senior Subordinated
Notes due 2008 and Floating Rate Callable Securities due 2008 (collectively,
the "Old Notes") are not immediately available, (ii) Old Notes, the Letter of
Transmittal and all other required documents cannot be delivered to United
States Trust Company (the "Exchange Agent") on or prior to the Expiration Date
(as defined in the Prospectus referred to below) or (iii) the procedures for
delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand, overnight courier or
mail, or transmitted by facsimile transmission, to the Exchange Agent. See
"The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
____________________________________________________________________________
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ,
1998, UNLESS THE OFFER IS EXTENDED, (THE "EXPIRATION DATE"). TENDERS OF
OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. NEW YORK CITY
TIME ON THE EXPIRATION DATE.
_____________________________________________________________________________
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
By Registered, Certified or Overnight By Hand (before 4:30 p.m.):
Mail: UNITED STATES TRUST COMPANY OF
UNITED STATES TRUST COMPANY OF NEW YORK NEW YORK
P.O. BOX 843 COOPER STATION 111 BROADWAY
NEW YORK, NEW YORK 10276 NEW YORK, NEW YORK 10006
ATTENTION: CORPORATE TRUST SERVICES ATTENTION: LOWER LEVEL CORPORATE
TRUST WINDOW
By Hand (after 4:30 p.m.):
UNITED STATES TRUST COMPANY OF NEW YORK
770 BROADWAY, 13TH FLOOR
NEW YORK, NEW YORK 10003
By Facsimile:
(For Eligible Institutions Only)
(212) 780-0592
Telephone Number:
(800) 548-6565
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to MJD Communications, Inc., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated , 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old
Notes."
- ------------------------------------- ---------------------------------------
Aggregate Principal Amount Name(s) of Registered Holder(s): __
Tendered: _________________________ ___________________________________
Certificate No(s). (if Address(es): ______________________
available): _______________________ ___________________________________
If Old Notes will be tendered by ___________________________________
book-entry transfer, provide the
following information: ___________________________________
DTC Account Number: _______________ Area Code and
Telephone Number(s): ______________
Date: _____________________________
Signature(s): _____________________
- ------------------------------------- --------------------------------------
2
<PAGE>
_______________________________________________________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank;
(ii) a broker, dealer, municipal securities broker, municipal securities
dealer, government securities broker, government securities dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association (each, an
"Eligible Institution"), hereby guarantees to deliver to the Exchange Agent,
at one of its addresses set forth above, either the Old Notes tendered
hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depository
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer
set forth in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal (or facsimile
thereof) and any other required documents within three New York Stock
Exchange trading days after the date of execution of this Notice of
Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within
the time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm: ____________________________________________________________
Address: ____________________________________________________________
____________________________________________________________
Area Code and (Zip Code)
Telephone Number ____________________________________________________________
____________________________________________________________
(Authorized Signature)
Title: ____________________________________________________________
Name: ____________________________________________________________
(Please type or print)
Date: ____________________________________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
ACTUAL SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE
ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
________________________________________________________________________________
3
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received
by the Exchange Agent at its address set forth herein prior to the
Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and any other required documents to the Exchange Agent is at the
election and sole risk of the holder, and the delivery will be deemed made
only when actually received by the Exchange Agent. If delivery is by mail,
registered mail with return receipt requested, properly insured, is
recommended. As an alternative to delivery by mail the holders may wish to
consider using an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction-1 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes,
the signature must correspond with the name(s) written on the face of the
Old Notes without alteration, enlargement, or any change whatsoever. If
this Notice of Guaranteed Delivery is signed by a participant of the Book-
Entry Transfer Facility whose name appears on a security position listing
as the owner of the Old Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Old Notes listed or a participant of the Book-
Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Old Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should
so indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance for additional copies of the Prospectus may be directed to the
Exchange Agent at the address specified in the Prospectus. Holders may also
contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
4
